No Registrant makes any representations as to the information related solely to
The following combined discussion and analysis should be read in combination with the consolidated financial statements included in Item 8 herein. When discussingCenterPoint Energy's consolidated financial information, it includes the results ofHouston Electric and CERC, which, along withCenterPoint Energy , are collectively referred to as the Registrants. Where appropriate, information relating to a specific registrant has been segregated and labeled as such. Unless the context indicates otherwise, specific references toHouston Electric and CERC also pertain toCenterPoint Energy . In this combined Form 10-K, the terms "our," "we" and "us" are used as abbreviated references toCenterPoint Energy, Inc. together with its consolidated subsidiaries. OVERVIEW
Background
CenterPoint Energy, Inc. is a public utility holding company.CenterPoint Energy's operating subsidiaries own and operate electric transmission, distribution and generation and natural gas distribution facilities, and provide energy performance contracting and sustainable infrastructure services. For a detailed description ofCenterPoint Energy's operating subsidiaries and discontinued operations, please read Note 1 to the consolidated financial statements.Houston Electric is an indirect, wholly-owned subsidiary ofCenterPoint Energy that provides electric transmission service to transmission service customers in theERCOT region and distribution service to REPs serving theTexas gulf coast area that includes the city ofHouston .CERC Corp. is an indirect, wholly-owned subsidiary ofCenterPoint Energy that owns and operates natural gas distribution facilities in several states, with operating subsidiaries that own and operate permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies.
Reportable Segments
In this Management's Discussion and Analysis, we discuss our results from continuing operations on a consolidated basis and individually for each of our reportable segments, which are listed below. We also discuss our liquidity, capital resources and critical accounting policies. We are first and foremost an energy delivery company and it is our intention to remain focused on these segments of the energy business. The results of our business operations are significantly impacted by weather, customer growth, economic conditions, cost management, competition, rate proceedings before regulatory agencies and other actions of the various regulatory agencies to whose jurisdiction we are subject, among other factors.
As of
•The Electric reportable segment includes electric transmission and distribution services that are subject to rate regulation inHouston Electric's andIndiana Electric's service territories, as well as the impacts of generation-related stranded costs and other true-up balances recoverable by the regulated electric utility and energy delivery services to electric customers and electric generation assets to serve electric customers and optimize those assets in the wholesale power market inIndiana Electric's service territory. For further information about the Electric reportable segment, see "Business - Our Business - Electric" in Item 1 of Part I of this report. •The Natural Gas reportable segment includes natural gas distribution services that are subject to rate regulation inCenterPoint Energy's and CERC's service territories, as well as home appliance maintenance and repair services to customers inMinnesota and home repair protection plans to natural gas customers inArkansas ,Indiana ,Mississippi ,Ohio ,Oklahoma andTexas through a third party as ofDecember 31, 2021 . For further information about the Natural Gas reportable segment, see "Business - Our Business - Natural Gas" in Item 1 of Part I of this report.CenterPoint Energy's Corporate and Other includes office buildings and other real estate used for business operations, energy performance contracting and sustainable infrastructure services and other corporate support operations.
40 -------------------------------------------------------------------------------- EXECUTIVE SUMMARY We expect our businesses to continue to be affected by the key factors and trends discussed below. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.
Factors Influencing Our Businesses and Industry Trends
We are an energy delivery company. The majority of our revenues are generated from the transmission and delivery of electricity and the sale of natural gas by our subsidiaries. As announced inDecember 2020 , our business strategy incorporated theBusiness Review and Evaluation Committee's recommendations to increase our planned capital expenditures in our electric and natural gas businesses to support rate base growth and sell certain of our Natural Gas businesses located inArkansas andOklahoma as a means to efficiently finance a portion of such increased capital expenditures. The sale of our Natural Gas businesses inArkansas andOklahoma was completed inJanuary 2022 . See Note 4 to the consolidated financial statements for further details. InFebruary 2021 , we announced our support for the Enable Merger, which closed inDecember 2021 . At ourSeptember 2021 analyst day, we announced our plans to exit the midstream sector by the end of 2022 and become a pure-play utility focusing on growth in our existing service territories. InSeptember 2021 , we entered into a Forward Sale Agreement to sell 50 million Energy Transfer Common Units immediately following the closing of the Enable Merger. InDecember 2021 , we completed sales of 150 million Energy Transfer Common Units (inclusive of the Energy Transfer Common Units sold pursuant to the Forward Sale Agreement) and 192,390 Energy Transfer Series G Preferred Units for net proceeds of$1,320 million . See Note 12 to the consolidated financial statements for further details. The regulation of natural gas pipelines and related facilities by federal and state regulatory agencies affectsCenterPoint Energy's and CERC's businesses. In accordance with natural gas pipeline safety and integrity regulations,CenterPoint Energy and CERC are making, and will continue to make, significant capital investments in their service territories, which are necessary to help operate and maintain a safe, reliable and growing natural gas system.CenterPoint Energy's and CERC's compliance expenses may also increase as a result of preventative measures required under these regulations. Consequently, new rates in the areas they serve are necessary to recover these increasing costs. To assess our financial performance, our management primarily monitors recovery of costs and return on investments by the evaluation of net income and cash flows, among other things, from our regulated service territories within our reportable segments. Within these broader financial measures, we monitor margins, natural gas and fuel costs, interest expense, capital spending working capital requirements, and operation and maintenance expense. In addition to these financial measures, we also monitor a number of variables that management considers important to gauge the performance of our reportable segments, including the number of customers, throughput, use per customer, commodity prices, heating and cooling degree days, environmental impacts, safety factors, system reliability and customer satisfaction. The nature of our businesses requires significant amounts of capital investment, particularly in light of our new 10-year capital plan, and we rely on internally generated cash, borrowings under our credit facilities, proceeds from commercial paper and issuances of debt and equity in the capital markets to satisfy these capital needs. Proceeds from future dispositions of Energy Transfer Common Units or Energy Transfer Series G Preferred Units could reduce borrowings or provide additional support for our capital investment needs. With respect to CERC, we intend to use proceeds from the completed dispositions of our Natural Gas businesses inArkansas andOklahoma and any potential further asset sales to satisfy a portion of its capital needs. We strive to maintain investment grade ratings for our securities to access the capital markets on terms we consider reasonable. A reduction in our ratings generally would increase our borrowing costs for new issuances of debt, as well as borrowing costs under our existing revolving credit facilities, and may prevent us from accessing the commercial paper markets. Disruptions in the financial markets can also affect the availability of new capital on terms we consider attractive. In those circumstances, we may not be able to obtain certain types of external financing or may be required to accept terms less favorable than they would otherwise accept. For that reason, we seek to maintain adequate liquidity for our businesses through existing credit facilities and prudent refinancing of existing debt. To the extent adverse economic conditions, including supply chain disruptions, affect our suppliers and customers, results from our energy delivery businesses may suffer. Each state has a unique economy and is driven by different industrial sectors. Our largest customers reflect the diversity in industries in the states across our footprint. For example,Houston Electric is largely concentrated inHouston, Texas , a diverse economy where a higher percentage of employment is tied to the energy sector relative to other regions of the country. Although theHouston area represents a large part of our customer base, we have 41 -------------------------------------------------------------------------------- a diverse customer base throughout the various states our utility businesses serve. InMinnesota , for instance, education and health services are the state's largest sectors.Indiana andOhio are impacted by changes in the Midwest economy in general and changes in particular industries concentrated in the Midwest such as automotive, feed and grain processing. Some industries are driven by population growth like education and health care, while others may be influenced by strength in the national or international economy. Further, the global supply chain has experienced significant disruptions due to a multitude of factors, such as labor shortages, resource availability, long lead times, inflation and weather. These disruptions have adversely impacted the utility industry. Like many of our peers, we have experienced disruptions to our supply chain and may continue to experience such disruptions in the future. For example, we, along with the developer of the project, recently announced plans to downsize the solar array to be built inPosey County, Indiana from 300 MW to 200 MW due to supply chain issues experienced in the energy industry, rising cost of commodities and community feedback. For more information, see Note 16 to the consolidated financial statements. Also, adverse economic conditions, coupled with concerns for protecting the environment and increased availability of alternate energy sources, may cause consumers to use less energy or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for our services. Long-term national trends indicate customers have reduced their energy consumption, which could adversely affect our results. However, due to more affordable energy prices and continued economic improvement in the areas we serve, the trend toward lower usage has slowed. To the extent population growth is affected by lower energy prices and there is financial pressure on some of our customers who operate within the energy industry, there may be an impact on the growth rate of our customer base and overall demand. Lower interest rates have helped single family housing starts in theHouston andMinneapolis to exceed growth in previous years. Multifamily residential customer growth is affected by the cyclical nature of apartment construction. A new construction cycle inHouston helped overall residential customer growth to surpass the long-term trend of 2% for the last two years. Management expects residential meter growth forHouston Electric to remain in line with long term trends at approximately 2%. Typical customer growth in the jurisdictions served by the Natural Gas reportable segment is approximately 1%. Management expects residential meter growth for CERC to remain in line with long term trends at approximately 1%.
Significant Events
Sale of Natural Gas Businesses. OnApril 29, 2021 ,CenterPoint Energy , through its subsidiaryCERC Corp. , entered into an Asset Purchase Agreement to sell itsArkansas andOklahoma Natural Gas businesses for$2.15 billion in cash, including recovery of approximately$425 million in gas cost, including storm-related incremental natural gas costs incurred in theFebruary 2021 Winter Storm Event, subject to certain adjustments set forth in the Asset Purchase Agreement. The sale closed onJanuary 10, 2022 . OnAugust 31, 2021 ,CenterPoint Energy , through its subsidiaryCERC Corp. , completed the sale of MES to Last Mile Energy. For further information, see Note 4 to the consolidated financial statements. Net Zero Emission Goals. InSeptember 2021 ,CenterPoint Energy announced new net zero emission goals for both Scope 1 and certain Scope 2 emissions by 2035 as well as a goal to reduce certain Scope 3 emissions by 20% to 30% by 2035. For more information regardingCenterPoint Energy's new net zero emission goals and the risks associated with them, see "Risk Factors - Risk Factors Affecting Our Businesses -CenterPoint Energy is subject to operational and financial risks..." and "Management's Discussion and Analysis - Liquidity and Capital Resources" in this Form 10-K.February 2021 Winter Storm Event. InFebruary 2021 , portions ofthe United States experienced an extreme and unprecedented winter weather event that resulted in corresponding electricity generation shortages, including inTexas , natural gas shortages and increased wholesale prices of natural gas inthe United States . Many customers ofHouston Electric's REPs and, to a lesser extent, of CERC, were severely impacted by outages in electricity and natural gas delivery during theFebruary 2021 Winter Storm Event. As a result of this weather event, the governors ofTexas ,Oklahoma andLouisiana declared states of either disaster or emergencies in their respective states. Subsequently,President Biden also approved major disaster declarations for all or parts ofTexas ,Oklahoma andLouisiana . TheFebruary 2021 Winter Storm Event resulted in financial impacts toCenterPoint Energy, Houston Electric and CERC, including substantial increases in prices for natural gas, decreased revenues atHouston Electric due toERCOT -mandated outages, additional interest expense related to external financing to pay for natural gas working capital, significant impacts to the REPs, including the REPs' ability to pay invoices fromHouston Electric , increases in bad debt expense, issues with counterparties and customers, litigation and investigations or inquiries from government or regulatory agencies and entities, and other financial impacts.CenterPoint Energy does not, at this time, anticipate long-term financial impacts associated with theFebruary 2021 Winter Storm Event, including changes to its credit profile, credit ratings or liquidity, given the regulatory mechanisms that are in place in our jurisdictions to recover the extraordinary expenses.CenterPoint Energy is, however, 42 -------------------------------------------------------------------------------- continuing to work with individual regulatory agencies to reach a successful final resolution on the recovery of the extraordinary costs. For more information regarding regulatory impacts, debt transactions and litigation, see Notes 7, 14 and 16 to the consolidated financial statements and "-Liquidity and Capital Resources -Future Sources and Uses of Cash" and "-Regulatory Matters" below. Enable Merger Agreement. OnFebruary 16, 2021 , Enable entered into the Enable Merger Agreement. OnDecember 2, 2021 , the Enable Merger closed pursuant to the Enable Merger Agreement. At the closing of the Enable Merger,CenterPoint Energy transferred 100% of the Enable Common Units and Enable Series A Preferred Units it owned in exchange for Energy Transfer Common Units and Energy Transfer Series G Preferred Units, respectively. InDecember 2021 , we completed sales of approximately 75% of the acquired Energy Transfer Common Units and 50% of Energy Transfer Series G Preferred Units for net proceeds of$1,320 million . For more information, see Notes 4, 11 and 12 to the consolidated financial statements. Debt Transactions. In 2021,CenterPoint Energy, Houston Electric and CERC issued a combined$4.5 billion in new debt and repaid or redeemed a combined$2.7 billion of debt, excluding scheduled principal payments on Securitization Bonds. Additionally, onJanuary 31, 2022 ,CERC Corp. redeemed$425 million aggregate principal amount of CERC's outstanding senior notes due 2023. For further information about debt transactions in 2021 and to date in 2022, see Note 12 to the consolidated financial statements.
Preferred Stock Conversions. For information regarding preferred stock conversions in 2021, see Note 19 to the consolidated financial statements.
Regulatory Proceedings. For information related to our pending and completed regulatory proceedings in 2021 and to date in 2022, see "-Liquidity and Capital Resources -Regulatory Matters" below. Board of Directors Governance Structure. OnJuly 22, 2021 ,CenterPoint Energy announced the decision of the independent directors of the Board to implement a new independent Board leadership and governance structure and appointed a new independent chair of the Board. To implement this new governance structure, the independent directors of the Board eliminated the Executive Chairman position. For further information, see Note 8 to the consolidated financial statements. CERTAIN FACTORS AFFECTING FUTURE EARNINGS Our past earnings and results of operations are not necessarily indicative of our future earnings and results of operations. The magnitude of our future earnings and results of our operations will depend on or be affected by numerous factors that apply to all Registrants unless otherwise indicated including: •CenterPoint Energy's business strategies and strategic initiatives, restructurings, joint ventures and acquisitions or dispositions of assets or businesses, including the completed sale of our Natural Gas businesses inArkansas andOklahoma , which we cannot assure will have the anticipated benefits to us, our planned sales of our remaining Energy Transfer common and preferred equity securities, which we cannot assure will be completed or will have the anticipated benefits to us; •industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-utility products and services and effects of energy efficiency measures and demographic patterns; •our ability to fund and invest planned capital and the timely recovery of our investments, including those related toIndiana Electric's generation transition plan as part of its most recent IRP; •our ability to successfully construct and operate electric generating facilities, including complying with applicable environmental standards and the implementation of a well-balanced energy and resource mix, as appropriate; •the development of new opportunities and the performance of projects undertaken byEnergy Systems Group , which are subject to, among other factors, the level of success in bidding contracts and cancellation and/or reductions in the scope of projects by customers, and obligations related to warranties, guarantees and other contractual and legal obligations; •the recording of impairment charges; •timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment, including the timing and amount of the recovery ofHouston Electric's mobile generation leases; •future economic conditions in regional and national markets and their effect on sales, prices and costs; •weather variations and other natural phenomena, including the impact of severe weather events on operations and capital, such as impacts from theFebruary 2021 Winter Storm Event; •the ability of REPs, including REP affiliates ofNRG and Vistra Energy Corp., to satisfy their obligations toCenterPoint Energy andHouston Electric , including the negative impact on such ability related to COVID-19; 43 -------------------------------------------------------------------------------- •the COVID-19 pandemic and its effect on our operations, business and financial condition, our industries and the communities we serve,U.S. and world financial markets and supply chains, potential regulatory actions and changes in customer and stakeholder behaviors relating thereto; •volatility in the markets for oil and natural gas as a result of, among other factors, the actions of certain crude-oil exporting countries and theOrganization of Petroleum Exporting Countries , increasing exports of LNG toEurope and climate change concerns, including the increasing adoption and use of alternative energy sources; •state and federal legislative and regulatory actions or developments affecting various aspects of our businesses, including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses; •direct or indirect effects on our facilities, resources, operations and financial condition resulting from terrorism, cyber attacks or intrusions, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, ice, earthquakes, explosions, leaks, floods, droughts, hurricanes, tornadoes and other severe weather events, pandemic health events or other occurrences; •tax legislation, including the effects of the CARES Act and of the TCJA (which includes but is not limited to any potential changes to tax rates, tax credits and/or interest deductibility), as well as any changes in tax laws under the current administration, and uncertainties involving state commissions' and local municipalities' regulatory requirements and determinations regarding the treatment of EDIT and our rates; •our ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms; •actions by credit rating agencies, including any potential downgrades to credit ratings; •matters affecting regulatory approval, legislative actions, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or cancellation or in cost overruns that cannot be recouped in rates; •local, state and federal legislative and regulatory actions or developments relating to the environment, including, among others, those related to global climate change, air emissions, carbon, waste water discharges and the handling and disposal of CCR that could impact operations, cost recovery of generation plant costs and related assets, andCenterPoint Energy's net zero emission goals; •the impact of unplanned facility outages or other closures; •the sufficiency of our insurance coverage, including availability, cost, coverage and terms and ability to recover claims; •the availability and prices of raw materials and services and changes in labor for current and future construction projects and operations and maintenance costs, including our ability to control such costs; •the investment performance ofCenterPoint Energy's pension and postretirement benefit plans; •changes in interest rates and their impact on costs of borrowing and the valuation ofCenterPoint Energy's pension benefit obligation; •commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets; •changes in rates of inflation; •inability of various counterparties to meet their obligations to us; •non-payment for our services due to financial distress of our customers; •the extent and effectiveness of our risk management and hedging activities, including, but not limited to financial and weather hedges; •timely and appropriate regulatory actions, which include actions allowing securitization, for any future hurricanes or other severe weather events, or natural disasters or other recovery of costs; •acquisition and merger activities involving us or our competitors, including the ability to successfully complete merger, acquisition and divestiture plans; •our ability to recruit, effectively transition and retain management and key employees and maintain good labor relations; •changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation, and their adoption by consumers; •the impact of alternate energy sources on the demand for natural gas; •the timing and outcome of any audits, disputes and other proceedings related to taxes; •the effective tax rates; •political and economic developments, including energy and environmental policies under the Biden administration; •the transition to a replacement for the LIBOR benchmark interest rate; •CenterPoint Energy's ability to execute on its initiatives, targets and goals, including its net zero emission goals and its operations and maintenance expenditure goals; 44 -------------------------------------------------------------------------------- •the outcome of litigation, including litigation related to theFebruary 2021 Winter Storm Event; •the effect of changes in and application of accounting standards and pronouncements; and •other factors discussed in "Risk Factors" in Item 1A of this report and in other reports that the Registrants file from time to time with theSEC . CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONSCenterPoint Energy's results of operations are affected by seasonal fluctuations in the demand for electricity and natural gas.CenterPoint Energy's results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates its subsidiaries charge, debt service costs, income tax expense, its subsidiaries ability to collect receivables from REPs and customers and its ability to recover its regulatory assets. For information regarding factors that may affect the future results of our consolidated operations, please read "Risk Factors" in Item 1A of Part I of this report.
Income (loss) available to common shareholders for the years ended
Year Ended December 31, Favorable (Unfavorable) 2021 2020 2019 (1) 2021 to 2020 2020 to 2019 (in millions) Electric$ 475 $ 230 $ 419 $ 245 $ (189) Natural Gas 403 278 251 125 27 Total Utility Operations 878 508 670 370 (162) Corporate & Other (2) (305) (201) (272) (104) 71 Discontinued Operations 818 (1,256) 276 2,074 (1,532) Total CenterPoint Energy$ 1,391 $ (949) $ 674 $ 2,340 $ (1,623)
(1)Includes only
(2)Includes energy performance contracting and sustainable infrastructure
services through
2021 Compared to 2020
Net Income.CenterPoint Energy reported income available to common shareholders of$1,391 million for 2021 compared to a loss available to common shareholders of$949 million for 2020.
The increase in income available to common shareholders of
•an increase in earnings from discontinued operations primarily related to the Enable Merger discussed further in Note 4 to the consolidated financial statements and the 2020 impairment in Enable discussed further in Notes 10 and 11 to the consolidated financial statements; •goodwill impairment atIndiana Electric in 2020; •the dividend requirement and amortization of beneficial conversion feature associated with Series C Preferred Stock in 2020; and •favorable income tax impacts in 2021, partially offset by the CARES Act in 2020.
These increases were partially offset by:
•losses on the sale of Energy Transfer Common Units and Energy Transfer Series G Preferred Units in 2021; •make-whole premiums on debt redeemed in 2021; and •the impact of the Board-implemented governance changes announced inJuly 2021 .
Excluding those items, income available to common shareholders increased
•rate relief, net of increases in depreciation and amortization and taxes other than income taxes; •reduced impact of COVID-19; 45 -------------------------------------------------------------------------------- •continued customer growth; and •reduced interest expense.
2020 Compared to 2019
Net Income.CenterPoint Energy reported a loss available to common shareholders of$949 million for 2020 compared to income available to common shareholders of$674 million for 2019.
The decrease in income available to common shareholders of
•a decrease in earnings from discontinued operations as a result of the 2020 impairment in Enable discussed further in Note 10 and 11 to the consolidated financial statements; •goodwill impairment atIndiana Electric in 2020; and •the dividend requirement and amortization of beneficial conversion feature associated with Series C Preferred Stock in 2020
These decreases were partially offset by the CARES Act in 2020.
Excluding those items, income available to common shareholders increased
•rate relief, net of increases in depreciation and amortization and taxes other than income taxes; •continued customer growth; •operation and maintenance expense discipline; and •the impact of twelve months in 2020 versus eleven months in 2019 for businesses acquired in the Merger.
These increases were partially offset by the impact of COVID-19.
Discontinued Operations. InSeptember 2021 ,CenterPoint Energy's equity investment in Enable met the held for sale criteria. OnDecember 2, 2021 , Enable completed the previously announced Enable Merger pursuant to the Enable Merger Agreement entered into onFebruary 16, 2021 .CenterPoint Energy's plan to exit itsMidstream Investment reportable segment in 2022 represents a strategic shift toCenterPoint Energy . Therefore, the assets and liabilities associated with the equity investment in Enable are reflected as discontinued operations onCenterPoint Energy's Statements of Consolidated Income, and theDecember 31, 2020 Consolidated Balance Sheet was required to be recast for assets held for sale. For further information, see Note 4 to the consolidated financial statements. OnFebruary 3, 2020 ,CenterPoint Energy , through its subsidiary VUSI, entered into the Securities Purchase Agreement to sell theInfrastructure Services Disposal Group . Accordingly, the previously reported Infrastructure Services reportable segment has been eliminated. The transaction closed onApril 9, 2020 . For further information, see Note 4 to the consolidated financial statements. Additionally, onFebruary 24, 2020 ,CenterPoint Energy , through its subsidiaryCERC Corp. , entered into the Equity Purchase Agreement to sell theEnergy Services Disposal Group . Accordingly, the previously reported Energy Services reportable segment has been eliminated. The transaction closed onJune 1, 2020 . For further information, see Note 4 to the consolidated financial statements.
Income Tax Expense. For a discussion of effective tax rate per period, see Note 15 to the consolidated financial statements.
CenterPoint Energy's CODM views net income as the measure of profit or loss for the reportable segments. Segment results include inter-segment interest income and expense, which may result in inter-segment profit and loss. The following discussion of results of operations by reportable segment concentrates onCenterPoint Energy's Utility Operations, conducted through two reportable segments, Electric and Natural Gas.CenterPoint Energy's formerly reported Midstream Investments reportable segment results are now included in discontinued operations. For additional information regarding the Midstream Investments reportable segment, see Notes 4, 10, 11 and 18 to the consolidated financial statements. 46 --------------------------------------------------------------------------------
ELECTRIC
The following table provides summary data ofCenterPoint Energy's Electric reportable segment: Year Ended December 31, Favorable (Unfavorable) 2021 2020 2019 (1) 2021 to 2020 2020 to 2019 (in millions, except throughput, weather and customer data) Revenues$ 3,763 $ 3,470 $ 3,519 $ 293 $ (49) Cost of revenues (2) 186 147 149 (39) 2 Revenues less cost of revenues 3,577 3,323 3,370 254 (47)
Expenses:
Operation and maintenance 1,780 1,697 1,649 (83) (48) Depreciation and amortization 756 670 746 (86) 76 Taxes other than income taxes 268 268 261 - (7) Goodwill Impairment (3) - 185 - 185 (185) Total expenses 2,804 2,820 2,656 16 (164) Operating Income 773 503 714 270 (211) Other Income (Expense): Interest and other finance charges (226) (220) (225) (6) 5 Other income (expense), net 23 19 26 4 (7) Income before income taxes 570 302 515 268 (213) Income tax expense 95 72 96 (23) 24 Net income$ 475 $ 230 $ 419 $ 245 $ (189) Throughput (in GWh): Residential 32,067 32,630 31,605 (2) % 3 % Total 103,000 98,647 96,866 4 % 2 % Weather (percentage of normal weather for service area): Cooling degree days 108 % 109 % 109 % (1) % - % Heating degree days 82 % 76 % 96 % 6 % (20) % Number of metered customers at end of period: Residential 2,493,832 2,433,474 2,372,135 2 % 3 % Total 2,814,859 2,749,116 2,682,228 2 % 2 % (1)Includes onlyFebruary 1, 2019 throughDecember 31, 2019 results of acquired electric businesses due to the Merger. (2)Includes Utility natural gas, fuel and purchased power. (3)For information related to the 2020 goodwill impairment at theIndiana Electric reporting unit, see Note 6 to the consolidated financial statements. 47 --------------------------------------------------------------------------------
The following table provides variance explanations by major income statement caption for the Electric reportable segment:
Favorable (Unfavorable)
2021
to 2020 2020 to 2019
(in millions)
Revenues less Cost of revenues
Transmission Revenues, including TCOS and TCRF and impact of the change in rate design, inclusive of costs billed by transmission providers, partially offset in operation and maintenance below
$ 254$ 363 Bond Companies, offset in other line items below 52 (124) Customer growth 32 37 Impacts on usage from COVID-19 28 (40)
Energy efficiency, partially offset in operation and maintenance below
12 5
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods
9 (14)
Impacts from increased peak demand in the prior year, collected in rates in the current year
6 19
Miscellaneous revenues, primarily related to service connections and off-system sales
4 11
Pass-through revenues, offset in operation and maintenance below
2 2 AMS, offset in depreciation and amortization below - (3)
Twelve months in 2020 versus eleven months in 2019 for
- 34
Refund of protected and unprotected EDIT, offset in income tax expense
(8) (31)
Weather, efficiency improvements and other usage impacts, excluding impact of COVID-19
(57) (17) Customer rates and impact of the change in rate design (80) (289) Total $
254
Operation and maintenance
Transmission costs billed by transmission providers, offset in revenues less cost of revenues above
$
(90)
(8) 14
Pass through expenses, offset in revenues less cost of revenues above
(3) (2) Bond Companies, offset in other line items (1) 1 Energy efficiency program costs (1) - Contract services - 12 Twelve months in 2020 versus eleven months in 2019 forIndiana Electric due to Merger - (17) Support services 1 (13) Labor and benefits 9 (2) Merger related expenses, primarily severance and technology 10 20 Total $
(83)
Depreciation and amortization Bond Companies, offset in other line items $ (58)$ 116 Ongoing additions to plant-in-service (28) (31) AMS, offset by revenues less cost of revenues above - (1)
Twelve months in 2020 versus eleven months in 2019 for
- (8) Total $
(86) $ 76
Taxes other than income taxes Incremental capital projects placed in service $
(2) $ (4)
Twelve months in 2020 versus eleven months in 2019 for
- (1) Franchise fees and other taxes 2 (2) Total $
- $ (7)
Goodwill impairment See Note 6 for further information $
185
Total $
185
Interest expense and other finance charges Debt to fund incremental capital projects, and refinance maturing debt
$
(13) $ (5)
Twelve months in 2020 versus eleven months in 2019 for
- (2) Bond Companies, offset in other line items above 7 12 Total $
(6) $ 5
Other income (expense), net Reduction to non-service benefit cost $ 5 $ 17 Bond Companies, offset in other line items above - (4) Investments in CenterPoint Energy Money Pool interest income (1) (20) Total $ 4 $ (7) 48
--------------------------------------------------------------------------------
Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 15 to the consolidated financial statements.
NATURAL GAS
The following table provides summary data ofCenterPoint Energy's Natural Gas reportable segment: Year Ended December 31, Favorable (Unfavorable) 2021 2020 2019 (1) 2021 to 2020 2020 to 2019 (in millions, except throughput, weather and customer data) Revenues$ 4,336 $ 3,631 $ 3,750 $ 705 $ (119) Cost of revenues (2) 1,959 1,358 1,652 (601) 294 Revenues less Cost of revenues 2,377 2,273 2,098 104 175
Expenses:
Operation and maintenance 1,004 1,013 1,051 9 38 Depreciation and amortization 502 473 439 (29) (34) Taxes other than income taxes 253 237 206 (16) (31) Total expenses 1,759 1,723 1,696 (36) (27) Operating Income 618 550 402 68 148 Other Income (Expense) Gain on sale 8 - - 8 - Interest expense and other finance charges (141) (153) (144) 12 (9) Other income (expense), net (2) 6 (5) (8) 11 Income from Continuing Operations Before Income Taxes 483 403 253 80 150 Income tax expense 80 125 2 45 (123) Net Income$ 403 $ 278 $ 251 $ 125 $ 27 Throughput (in Bcf): Residential 241 237 246 2 % (4) % Commercial and industrial 428 439 458 (3) % (4) % Total Throughput 669 676 704 (1) % (4) % Weather (percentage of 10-year average for service area): Heating degree days 91 % 91 % 101 % - % (10) % Number of customers at end of period: Residential 4,372,428 4,328,607 4,252,361 1 % 2 % Commercial and industrial 354,602 349,725 349,749 1 % - % Total 4,727,030 4,678,332 4,602,110 1 % 2 % (1)Includes onlyFebruary 1, 2019 throughDecember 31, 2019 results of acquired natural gas businesses due to the Merger. (2)Includes Utility natural gas, fuel and purchased power and Non-utility cost of revenues, including natural gas. 49 --------------------------------------------------------------------------------
The following table provides variance explanations by major income statement caption for the Natural Gas reportable segment:
Favorable (Unfavorable)
2021 to 2020 2020 to 2019
(in millions)
Revenues less Cost of revenues
Customer rates and impact of the change in rate design, exclusive of the TCJA impact below
$
65 $ 108 Impacts of COVID-19, including usage and other miscellaneous charges
16 (25) Customer growth 13 20
Gross receipts tax, offset in taxes other than income taxes below
13 (6) Weather and usage, excluding impacts from COVID-19 12 4
Twelve months in 2020 versus eleven months in 2019 in
- 65
Non-volumetric and miscellaneous revenue, excluding impacts from COVID-19
- 15 Energy efficiency, offset in operation and maintenance below (7) (1) Refund of protected and unprotected EDIT, offset in income tax expense (8) (5) Total $ 104 $ 175 Operation and maintenance Support services and miscellaneous operations and maintenance expenses $ 16 $ (8) Merger related expenses, primarily severance and technology 8 40
Energy efficiency, offset in revenues less cost of revenues above
7 1
Twelve months in 2020 versus eleven months in 2019 in
- (14) Contract services (3) 20 Labor and benefits, primarily due to headcount (19) (1) Total $
9 $ 38
Depreciation and amortization Incremental capital projects placed in service $
(29) $ (23)
Twelve months in 2020 versus eleven months in 2019 in
- (11) Total $
(29) $ (34)
Taxes other than income taxes
Gross receipts tax, offset in revenues less cost of revenues above
$ (13) $ 6 Incremental capital projects placed in service (3) (31)
Twelve months in 2020 versus eleven months in 2019 in
- (6) Total $
(16) $ (31)
Gain on Sale Net gain on sale of MES $ 8 $ - Total $ 8 $ -
Interest expense and other finance charges Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures and make-whole premium
$ 12 $ (9) Total $ 12 $ (9) Other income (expense), net
Other miscellaneous non-operating expenses, primarily due to non-service benefit cost
$ (10) $ 9 Money pool investments withCenterPoint Energy interest income 2 2 Total (8) 11
Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 15 to the consolidated financial statements.
50 -------------------------------------------------------------------------------- HOUSTON ELECTRIC CONSOLIDATED RESULTS OF OPERATIONSHouston Electric's CODM views net income as the measure of profit or loss for its reportable segment.Houston Electric consists of a single reportable segment.Houston Electric's results of operations are affected by seasonal fluctuations in the demand for electricity.Houston Electric's results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over ratesHouston Electric charges, debt service costs, income tax expense,Houston Electric's ability to collect receivables fromREPs and Houston Electric's ability to recover its regulatory assets. For information regarding factors that may affect the future results ofHouston Electric's consolidated operations, please read "Risk Factors" in Item 1A of Part I of this report. Year Ended December 31, Favorable (Unfavorable) 2021 2020 2019 2021 to 2020 2020 to 2019 (in millions, except throughput, weather and customer data) Revenues: TDU$ 2,894 $ 2,723 $ 2,678 $ 171 $ 45 Bond Companies 240 188 312 52 (124) Total revenues 3,134 2,911 2,990 223 (79) Expenses: Operation and maintenance, excluding Bond Companies 1,591 1,517 1,470 (74) (47) Depreciation and amortization, excluding Bond Companies 429 405 377 (24) (28) Taxes other than income taxes 251 252 247 1 (5) Bond Companies 219 161 278 (58) 117 Total 2,490 2,335 2,372 (155) 37 Operating Income 644 576 618 68 (42) Interest expense and other finance charges (183) (171) (164) (12) (7) Interest expense on Securitization Bonds (21) (28) (39) 7 11 Other income, net 17 10 21 7 (11) Income before income taxes 457 387 436 70 (49) Income tax expense 76 53 80 (23) 27 Net income$ 381 $ 334 $ 356 $ 47 $ (22) Throughput (in GWh): Residential 30,650 31,244 30,334 (2) % 3 % Total 96,898 93,768 92,180 3 % 2 % Weather (percentage of 10-year average for service area): Cooling degree days 109 % 110 % 106 % (1) % 4 % Heating degree days 80 % 72 % 96 % 8 % (24) % Number of metered customers at end of period: Residential 2,359,168 2,303,315 2,243,188 2 % 3 % Total 2,660,938 2,599,827 2,534,286 2 % 3 % 51
--------------------------------------------------------------------------------
The following table provides variance explanations by major income statement caption for the Houston Electric T&D reportable segment:
Favorable (Unfavorable)
2021 to 2020 2020 to 2019
(in millions)
Revenues
Transmission Revenues, including TCOS and TCRF and impact of the change in rate design, inclusive of costs billed by transmission providers
$ 254 $ 364 Bond Companies, offset in other line items below 52 (124) Customer growth 31 35 Impacts on usage from COVID-19 19 (31)
Energy efficiency, partially offset in operation and maintenance below
12 5
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods
9 (14)
Impacts from increased peak demand in the prior year, collected in rates in the current year
6 19 AMS, offset in depreciation and amortization below - (3) Miscellaneous revenues (1) 7
Refund of protected and unprotected EDIT, offset in income tax expense
(8) (32) Weather impacts and other usage (51) (7) Customer rates and impact of the change in rate design (100) (298) Total $
223 $ (79)
Operation and maintenance, excluding Bond Companies Transmission costs billed by transmission providers, offset in revenues above
$ (90) $ (61) Contract services (3) 6
All other operation and maintenance expense, including materials and supplies and insurance
(2) 14 Energy efficiency program costs, offset in revenues above (1) - Support services 2 (6) Merger related expenses, primarily severance and technology 9 2 Labor and benefits 11 (2) Total $ (74) $ (47)
Depreciation and amortization, excluding Bond Companies Ongoing additions to plant-in-service
$ (24) $ (31) AMS, offset by revenues - 3 Total $ (24) $ (28) Taxes other than income taxes Franchise fees and other taxes $ 4 $ (1) Incremental capital projects placed in service (3) (4) Total $
1 $ (5)
Bond Companies expense
Operations and maintenance and depreciation expense, offset by revenues above
$
(58) $ 117
Total $
(58) $ 117
Interest expense and other finance charges Debt to fund incremental capital projects, and refinance maturing debt $ (12) $ (7) Total $ (12) $ (7) Interest expense on Securitization Bonds
Lower outstanding principal balance, offset by revenues above $
7 $ 11
Total $
7 $ 11
Other income (expense), net Reduction to non-service benefit cost $ 8 $ 13 Bond Companies, offset by revenues above - (4) Investments in CenterPoint Energy Money Pool interest income (1) (20) Total $ 7 $ (11)
Income Tax Expense. For a discussion of effective tax rate per period, see Note 15 to the consolidated financial statements.
52 -------------------------------------------------------------------------------- CERC CONSOLIDATED RESULTS OF OPERATIONS CERC's CODM views net income as the measure of profit or loss for its reportable segment. CERC consists of a single reportable segment. CERC's results of operations are affected by seasonal fluctuations in the demand for natural gas. CERC's results of operations are also affected by, among other things, the actions of various federal, state and local governmental authorities having jurisdiction over rates CERC charges, debt service costs and income tax expense, CERC's ability to collect receivables from customers and CERC's ability to recover its regulatory assets. For information regarding factors that may affect the future results of CERC's consolidated operations, please read "Risk Factors" in Item 1A of Part I of this report. Year Ended December 31, Favorable (Unfavorable) 2021 2020 2019 2021 to 2020 2020 to 2019 (in millions, except throughput, weather and customer data) Revenues$ 3,248 $ 2,763 $ 3,018 $ 485 $ (255) Cost of Revenues (1) 1,532 1,117 1,430 (415) 313 Revenues less Cost of Revenues 1,716 1,646 1,588 70 58 Expenses: Operation and maintenance 790 798 824 8 26 Depreciation and amortization 326 304 293 (22) (11) Taxes other than income taxes 193 182 161 (11) (21) Total expenses 1,309 1,284 1,278 (25) (6) Operating Income 407 362 310 45 52 Other Income (Expense) Gain on sale 11 - - 11 - Interest expense and other finance charges (103) (111) (116) 8 5 Other income (expense), net (10) (7) (8) (3) 1 Income from Continuing Operations Before Income Taxes 305 244 186 61 58 Income tax expense (benefit) 51 97 (3) 46 (100) Income From Continuing Operations 254 147 189 107 (42) Income (Loss) from Discontinued Operations (net of tax expense (benefit) of $-,$(2) , and$17 , respectively) - (66) 23 66 (89) Net Income$ 254 $ 81 $ 212 $ 173 $ (131) Throughput (in BCF): Residential 173 167 188 4 % (11) % Commercial and industrial 264 260 292 2 % (11) % Total Throughput 437 427 480 2 % (11) % Weather (percentage of 10-year average for service area): Heating degree days 92 % 91 % 101 % 1 % (10) % Number of customers at end of period: Residential 3,383,819 3,349,828 3,287,343 1 % 2 % Commercial and industrial 264,843 260,400 260,872 2 % - % Total 3,648,662 3,610,228 3,548,215 1 % 2 %
(1)Includes Utility natural gas and Non-utility cost of revenues, including natural gas.
Discontinued Operations. OnFebruary 24, 2020 ,CenterPoint Energy , through its subsidiaryCERC Corp. , entered into the Equity Purchase Agreement to sell theEnergy Services Disposal Group . Accordingly, the previously reported Energy Services reportable segment has been eliminated. The transaction closed onJune 1, 2020 . For further information, see Note 4 to the consolidated financial statements. 53 --------------------------------------------------------------------------------
The following table provides variance explanations by major income statement
caption for
Favorable (Unfavorable)
2021 to 2020 2020 to 2019
(in millions)
Revenues less Cost of revenues
Customer rates and impact of the change in rate design, exclusive of the TCJA impact below
$ 31 $ 62 Impacts on usage from COVID-19 16 (22)
Gross receipts tax, offset in taxes other than income taxes below
13 (4) Customer growth 9 14 Weather and usage, excluding impacts from COVID-19 8 2 Energy efficiency, offset in operation and maintenance below 1 (8)
Non-volumetric and miscellaneous revenue, excluding impacts from COVID-19
(1) 18 Refund of protected and unprotected EDIT, offset in income tax expense (7) (4) Total $ 70 $ 58 Operation and maintenance
Merger related expenses, primarily severance and technology $
8 $ - Support services and miscellaneous operations and maintenance expenses 8 (2) Contracted services 1 24
Energy efficiency, offset in revenues less cost of revenues above
(1) 8 Labor and benefits, primarily due to headcount (8) (4) Total $
8 $ 26
Depreciation and amortization Incremental capital projects placed in service $
(22) $ (11)
Total $
(22) $ (11)
Taxes other than income taxes
Gross receipts tax, offset in revenues less cost of revenues above
$ (13) $ 4 Incremental capital projects placed in service 2 (25) Total $
(11) $ (21)
Gain on Sale Net gain on sale of MES $ 11 $ - Total $ 11 $ -
Interest expense and other finance charges Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures and make-whole premium
$ 8 $ 5 Total $ 8 $ 5 Other income (expense), net
Other miscellaneous non-operating expenses, primarily due to non-service benefit cost
$ (4) $ 6 Money pool investments withCenterPoint Energy interest income 1 (5) Total $ (3) $ 1
Income Tax Expense. For a discussion of effective tax rate per period, see Note 15 to the consolidated financial statements.
54 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES Historical Cash Flows
The net cash provided by (used in) operating, investing and financing activities for 2021, 2020 and 2019 is as follows:
Year Ended December 31, 2021 2020 2019 Houston CenterPoint Houston CenterPoint HoustonCenterPoint Energy Electric CERC Energy Electric CERC Energy Electric CERC (in millions) Cash provided by (used in): Operating activities $ 22$ 770 $ (1,440) $ 1,995 $ 899 $ 729 $ 1,638 $ 918 $ 466 Investing activities (1,851) (1,617) (859) (1,265) (564) (452) (8,421) (1,495) (662) Financing activities 1,916 926 2,306 (834) (416) (278) 2,776 442 173
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities:
Year Ended December 31, 2021 compared to 2020 2020 compared to 2019 CenterPoint Houston Houston Energy Electric CERC CenterPoint Energy Electric CERC (in millions) Changes in net income after adjusting for non-cash items$ 2,098 $ 203 $ 88 $ (1,785)$ (128) $ 9 Changes in working capital (155) (101) (274) 811 61
355
Increase in regulatory assets (1) (2,188) (226) (1,927) (85) 37
(128)
Change in equity in earnings of unconsolidated affiliates (1,767) - - 1,658 -
-
Change in distributions from unconsolidated affiliates (2) (3) 42 - - (148) - - Higher pension contribution 25 - - 23 - - Other (28) (5) (56) (117) 11 27$ (1,973) $ (129) $ (2,169) $ 357$ (19) $ 263 (1)The increase in regulatory assets is primarily due to the incurred natural gas costs associated with theFebruary 2021 Winter Storm Event. See Note 7 to the consolidated financial statements for more information on theFebruary 2021 Winter Storm Event. (2)InSeptember 2021 ,CenterPoint Energy's equity investment in Enable met the held for sale criteria and is reflected as discontinued operations onCenterPoint Energy's Statements of Consolidated Income. For further information, see Notes 4 and 11 to the consolidated financial statements. (3)This change is partially offset by the change in distributions from Enable in excess of cumulative earnings in investing activities noted in the table below. 55 --------------------------------------------------------------------------------
Investing Activities. The following items contributed to (increased) decreased net cash used in investing activities:
Year Ended December 31, 2021 compared to 2020 2020 compared to 2019 CenterPoint Houston Houston Energy Electric CERC CenterPoint Energy Electric CERC (in millions) Proceeds from the sale of equity securities$ 1,320 $ - $ - $ - $ - $ - Acquisitions, net of cash acquired - - - 5,991 - - Net change in capital expenditures (568) (561) (80) (90) (33)
(39)
Transaction costs related to the Enable Merger (49) - - - - - Cash received related to Enable Merger 5 - - - - - Net change in notes receivable from unconsolidated affiliates - (481) 9 - 962
(123)
Change in distributions from Enable in excess of cumulative earnings (1) (80) - - 38 - - Proceeds from divestitures (1,193) - (343) 1,215 - 365 Other (21) (11) 7 2 2 7$ (586) $ (1,053) $ (407) $ 7,156 $ 931 $ 210 (1)InSeptember 2021 ,CenterPoint Energy's equity investment in Enable met the held for sale criteria and is reflected as discontinued operations onCenterPoint Energy's Statements of Consolidated Income. For further information, see Notes 4 and 11 to the consolidated financial statements.
Financing Activities. The following items contributed to (increased) decreased net cash used in financing activities:
Year Ended December 31, 2021 compared to 2020 2020 compared to 2019 CenterPoint Houston Houston Energy Electric CERC CenterPoint Energy Electric CERC (in millions) Net changes in commercial paper outstanding$ 1,893 $ -$ 582 $ (2,652) $ - $
(197)
Proceeds from issuances of preferred stock, net (723) - - 723 -
-
Proceeds from issuance of Common Stock, net (672) - - 672 -
-
Net changes in long-term debt outstanding, excluding commercial paper 2,450 415 1,481 (2,539) (170)
(93)
Net changes in debt and equity issuance costs (30) (9) (6) 12 5
(4)
Net changes in short-term borrowings (27) - (27) - -
-
Decreased payment of Common Stock dividends 7 - - 185 -
-
Decreased (increased) payment of Preferred Stock dividends 30 - - (19) -
-
Payment of obligation for finance lease (179) (179) - - -
-
Net change in notes payable from affiliated companies - 496 224 - 9 - Contribution from parent - 68 (37) - (528) 88 Dividend to parent - 551 80 - (175) 40 Capital contribution to parent associated with the sale of CES - - 286 - - (286) Other 1 - 1 8 1 1$ 2,750 $ 1,342 $ 2,584 $ (3,610)$ (858) $ (451) 56
--------------------------------------------------------------------------------
Future Sources and Uses of Cash
The Registrants expect that anticipated 2022 cash needs will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, term loans or common stock, anticipated cash flows from operations, with respect toCenterPoint Energy and CERC, proceeds from commercial paper, and with respect toCenterPoint Energy , distributions from Energy Transfer or proceeds from future dispositions of Energy Transfer Common Units or Energy Transfer Series G Preferred Units, and, with respect to CERC, proceeds from any potential asset sales. Discretionary financing or refinancing may result in the issuance of equity securities ofCenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets and additional credit facilities may not, however, be available on acceptable terms. Material Current and Long-term Cash Requirements. The liquidity and capital requirements of the Registrants are affected primarily by results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Capital expenditures are expected to be used for investment in infrastructure for electric and natural gas distribution operations. These capital expenditures are anticipated to maintain reliability and safety, increase resiliency and expand our systems through value-added projects. In addition to dividend payments onCenterPoint Energy's Series A Preferred Stock and Common Stock, and in addition to interest payments on debt, the Registrants' principal anticipated cash requirements for 2022 include the following: CenterPoint Houston Energy Electric CERC (in millions) Estimated capital expenditures $
3,490
Scheduled principal payments on Securitization Bonds 220 220 - Maturing Houston Electric general mortgage bonds 300 300 - Finance lease for mobile generation 496 496 - The following table sets forth the Registrants' estimates of the Registrants' capital expenditures currently planned for projects for 2022 through 2026. See Note 18 to the consolidated financial statements forCenterPoint Energy's actual capital expenditures by reportable segment for 2021. 2022 2023 2024 2025 2026 CenterPoint Energy (in millions) Electric$ 2,052 $ 2,879 $ 2,281 $ 1,724 $ 2,683 Natural Gas 1,427 1,804 1,439 1,490 1,887 Corporate and Other 11 31 18 14 14 Total$ 3,490 $ 4,714 $ 3,738 $ 3,228 $ 4,584 Houston Electric (1)$ 1,780 $ 2,172 $ 1,479 $ 1,429 $ 2,205 CERC (1)$ 1,233 $ 1,725 $ 1,360 $ 1,422 $ 1,807
(1)
Capital Expenditures for Climate-Related Projects. OnSeptember 23, 2021 ,CenterPoint Energy announced a new 10-year capital expenditure plan. As part of its 10-year plan to spend over$40 billion on capital expenditures,CenterPoint Energy anticipates spending over$3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable energy generation and electric vehicle expansion. 57 --------------------------------------------------------------------------------
The following table summarizes the Registrants' material current and long-term
cash requirements as of
2027 and Total 2022 2023-2024 2025-2026 thereafter (in millions)CenterPoint Energy Securitization Bonds$ 537 $ 220 $ 317 $ - $ - Other long-term debt (1) 15,549 308 6,082 911 8,248 Interest payments - Securitization Bonds (2) 27 15 12 - - Interest payments - other long-term debt (2) 6,386 445 834 761 4,346 Short-term borrowings 7 7 - - - Finance lease for mobile generation 496 496 - - - Commodity and other commitments (3) 4,939 626 1,500 631 2,182 Total cash requirements$ 27,941 $ 2,117 $ 8,745 $ 2,303 $ 14,776 Houston Electric Securitization Bonds$ 537 $ 220 $ 317 $ - $ - Other long-term debt (1) 4,958 300 200 300 4,158 Interest payments - Securitization Bonds (2) 27 15 12 - - Interest payments - other long-term debt (2) 3,615 188 351 340 2,736 Finance lease for mobile generation 496 496 - - - Total cash requirements$ 9,633 $ 1,219 $ 880 $ 640 $ 6,894 CERC Long-term debt$ 4,380 $ -
1,250 91 160 153 846 Short-term borrowings 7 7 - - - Commodity and other commitments (3) 2,486 322 500 382 1,282 Total cash requirements$ 8,123 $ 420 $ 3,259 $ 535 $ 3,909 (1)ZENS obligations are included in the 2027 and thereafter column at their contingent principal amount of$38 million as ofDecember 31, 2021 . These obligations are exchangeable for cash at any time at the option of the holders for 95% of the current value of the reference shares attributable to each ZENS ($820 million as ofDecember 31, 2021 ), as discussed in Note 12 to the consolidated financial statements. (2)The Registrants calculated estimated interest payments for long-term debt as follows: for fixed-rate debt and term debt, the Registrants calculated interest based on the applicable rates and payment dates; for variable-rate debt and/or non-term debt, the Registrants used interest rates in place as ofDecember 31, 2021 . The Registrants typically expect to settle such interest payments with cash flows from operations and short-term borrowings. (3)For a discussion of commodity and other commitments, see Note 16(a) to the consolidated financial statements.
The table above does not include the following:
•estimated future payments for expected future AROs primarily estimated to be incurred after 2026. See Note 3(c) to the consolidated financial statements for further information. •expected contributions to pension plans and other postretirement plans in 2022. See Note 8(g) to the consolidated financial statements for further information. •operating leases. See Note 21 to the consolidated financial statements for further information. 58 --------------------------------------------------------------------------------February 2021 Winter Storm Event. InFebruary 2021 , portions ofthe United States experienced an extreme and unprecedented winter weather event resulting in corresponding electricity generation shortages, including inTexas , and natural gas shortages and increased prices of natural gas inthe United States . AlthoughCenterPoint Energy's and CERC's extraordinary costs from the increase in natural gas prices are subject to available natural gas cost recovery mechanisms in their jurisdictions (although timing of recovery is uncertain), until such amounts are ultimately recovered from customers,CenterPoint Energy and CERC will continue to incur increased finance-related costs, resulting in a significant use of cash. See "- Regulatory Matters -February 2021 Winter Storm Event" below and Note 7 to the consolidated financial statements. Off-Balance Sheet Arrangements. Other thanHouston Electric's general mortgage bonds issued as collateral for tax-exempt long-term debt ofCenterPoint Energy (see Note 14 to the consolidated financial statements) and short-term leases, the Registrants have no off-balance sheet arrangements.
Regulatory Matters
COVID-19 Regulatory Matters
For information about COVID-19 regulatory matters, see Note 7 to the consolidated financial statements.
For information about theFebruary 2021 Winter Storm Event, see Note 7 to the consolidated financial statements, and for additional information on theTexas electric market, see "Risk Factors - Risk Factors Affecting Electric Generation, Transmission and Distribution Business - In connection with the February..." The table below presents the incremental natural gas costs included in regulatory assets as ofDecember 31, 2021 by state as a result of theFebruary 2021 Winter Storm Event andCenterPoint Energy's and CERC's requested recovery status as ofFebruary 2022 . Incremental Gas Cost in Regulatory Assets (in State Recovery Status Legislative Activity millions) Arkansas and Oklahoma On January 10, 2022, CERC Corp.,$ 398 completed the sale of its Arkansas and Oklahoma Natural Gas businesses For additional information, see Note 4 to the consolidated financial statements. Louisiana Filed application on April 16, 2021 for None. 67 North Louisiana to recover over a three-year period beginning May 1, 2021. LPSC approved on April 22, 2021. Minnesota Filed application on March 15, 2021 None. 379 requesting to recover over a two-year period beginning May 1, 2021. Modified request and worked with other utilities to propose common definition of extraordinary gas costs to be recovered over a 27-month period starting September 1, 2021 using volumetric, seasonally adjusted, and stepped surcharge rates. MPUC issued order approving modified cost recovery subject to a prudence review. The prudence review schedule has testimonies being filed by parties October 2021 through February 2022, a hearing scheduled in February 2022, an administrative law judge report in May 2022 and MPUC final order issued by August 2022. On December 30, 2021, as part of CERC's alternative request filed in tandem with its general rate case initial filing, the MPUC ordered the amortization period for extraordinary gas cost recovery be extended from a 27-month period to a 63-month period beginning on January 1, 2022. Mississippi Recovery began in September 2021 None. 2 through normal gas cost recovery. 59
--------------------------------------------------------------------------------
Incremental Gas Cost in Regulatory Assets (in State Recovery Status Legislative Activity millions) Texas Securitization application was filed on A securitization bill has been 1,073 July 30, 2021. Intervenor and staff
signed by the
testimony was received in September and
which authorizes the Railroad
October and CERC filed rebuttal
Commission to use
testimony onOctober 25, 2021 . A joint
securitization financing and
notice of settlement was filed by the
issuance of customer rate
Texas utilities that are requesting
relief bonds for recovery of
securitization, intervenors, and
extraordinary gas costs.
Railroad Commission staff on October 29, 2021. The settlement resolves all contested issues and includes an agreement by all signatories that the costs incurred by the utilities to purchase natural gas volumes during February 2021 are reasonable and necessary and were prudently incurred. As part of the settlement, CERC agreed to limit the interim carrying cost rate to its actual interim financing rate of 0.7%. A merits hearing was held on November 2, 2021. On November 10, 2021, the RRC approved the settlement and the regulatory asset amount to be securitized. On February 8, 2022, the RRC issued a financing order. The Texas Public Finance Authority will have approximately 180 days to issue customer rate relief bonds to recover natural gas costs from the February 2021 Winter Storm Event. Total CERC$ 1,919 Indiana North IURC issued order August 25, 2021. None. 63 Recovery began September 2021 with 50% of the February 2021 variance recovered evenly over the 12month period September 2021 to August 2022, with the remainder of the variance recovered through a volumetric pertherm allocation over the same 12-month period. Indiana South IURC issued order July 28, 2021.
None. 11 Recovery began August 2021 with 50% of the February 2021 variance recovered evenly over the 12month period August 2021 to July 2022, with the remainder of the variance recovered through a volumetric pertherm allocation over the same 12-month period. Total CenterPoint Energy$ 1,993
Indiana Electric CPCN (
OnFebruary 9, 2021 ,Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Under the agreement, Capital Dynamics, with its partnerTenaska , contracted to build a 300 MW solar array inPosey County, Indiana through a special purpose entity,Posey Solar . Upon completion of construction, which is projected to be at the end of 2023.Indiana Electric will acquirePosey Solar and its solar array assets for a fixed purchase price. OnFebruary 23, 2021 ,Indiana Electric filed a CPCN with the IURC seeking approval to purchase the project.Indiana Electric also sought approval for a 100 MW solar PPA withClenera LLC inWarrick County, Indiana . The request accounted for increased cost of debt related to this PPA, which provides equivalent equity return to offset imputed debt during the 25 year life of the PPA. A hearing was conducted onJune 21, 2021 . OnOctober 27, 2021 , the IURC issued an order approving the CPCN, authorizingIndiana Electric to purchase the Posey solar project through a BTA and approved recovery of costs via a levelized rate over the anticipated 35-year life. The IURC also approved theWarrick County solar PPA but denied the request to preemptively offset imputed debt in the PPA cost. The Posey solar project is expected to be in service by 2023. Due to rising cost for the project, caused in part by supply chain issues in the energy industry and the rising costs of commodities, we, along with Capital Dynamics, recently announced plans to downsize the project to approximately 200 MW.Indiana Electric collaboratively agreed to the scope change and is currently working through contract negotiations, contingent on further IURC review and approval. OnJune 17, 2021 Indiana Electric filed a CPCN with the IURC seeking approval to construct two natural gas combustion turbines to replace portions of its existing coal-fired generation fleet.Indiana Electric has also requested depreciation expense and post in-service carrying costs to be deferred in a regulatory asset until the date Indiana South's base rates include a return on and recovery of depreciation expense on the facility. A hearing was conducted onJanuary 26 through 28, 2022 . The estimated$334 million turbine facility would be constructed at the current site of the A.B.Brown power plant inPosey County, Indiana and would provide a combined output of 460 MW. Construction of the turbines will begin following receipt of necessary regulatory approvals by the IURC andFERC , which are anticipated in the second half of 2022 and first quarter 2023, respectively. The turbines are targeted to be operational in first quarter of 2025. Subject to IURC approval, recovery of the 60 --------------------------------------------------------------------------------
proposed natural gas combustion turbines and regulatory asset will be requested
in the next
OnAugust 25, 2021 ,Indiana Electric filed with the IURC seeking approval to purchase 185 MW of solar power, under a 15-year PPA, fromOriden LLC , which is developing a solar project inVermillion County, Indiana , and 150 MW of solar power, under a 20-year PPA, fromOrigis Energy USA Inc. , which is developing a solar project inKnox County, Indiana . Subject to necessary approvals, both solar arrays are expected to be in service by 2023.
Indiana Electric Securitization of Planned Generation Retirements (
TheState of Indiana has enacted legislation, Senate Bill 386, that would enableCenterPoint Energy to request approval from the IURC to securitize the remaining book value and removal costs associated with generating facilities to be retired in the next twenty-four months. The Governor ofIndiana signed the legislation onApril 19, 2021 .CenterPoint Energy intends to seek securitization in the future associated with planned retirements of coal generation facilities in 2022.
Subsidiary Restructuring
InJuly 2021 , Indiana North and SIGECO filed petitions with the IURC for the approval of a new financial services agreement and the confirmation ofIndiana North's financing authority, and final orders were issued by the IURC onDecember 28, 2021 . VEDO filed a similar application with the PUCO inSeptember 2021 and the PUCO issued an order onJanuary 26, 2022 adopting recommendations by PUCO staff.CenterPoint Energy is evaluating the transfer of Indiana North and VEDO from VUHI to CERC in order to better align its organizational structure with management and financial reporting. Both the IURC and PUCO have approved the transaction. As a part of the restructuring, VUHI may approach certain of its debt holders with an offer to exchange existing VUHI debt for CERC debt. The orders allow the reissuance of existing debt of Indiana North and VEDO to CERC, to continue to amortize existing issuance expenses and discounts, and to treat any potential exchange fees as discounts to be amortized over the life of the debt. IfCenterPoint Energy moves forward with the restructuring, including any VUHI debt exchanges, it is expected to be completed in 2022.
Indiana South Base Rate Case (
OnOctober 30, 2020 , and as subsequently amended, Indiana South filed its base rate case with the IURC seeking approval for a revenue increase of approximately$29 million . This rate case filing is required under Indiana TDSIC statutory requirements before the completion of Indiana South's capital expenditure program, approved in 2014 for investments starting in 2014 through 2020. The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 5.99% on total rate base of approximately$469 million . Indiana South has utilized a projected test year, reflecting its 2021 budget as the basis for the revenue increase requested and proposes to implement rates in two phases. OnApril 23, 2021 , a Stipulation and Settlement Agreement was filed resolving all issues in the case. The settlement recommended a revenue increase of$21 million based on a 9.7% ROE and an overall after-tax rate of return of 5.78% on total rate base of approximately$469 million . A settlement hearing was held onJune 24, 2021 . OnOctober 6, 2021 , the IURC issued an order approving the settlement. Phase one rates, reflecting actual plant-in-service and cost of capital throughJune 2021 , became effective inOctober 2021 and phase two rates, reflecting actual plant-in-service and cost of capital throughDecember 2021 with certain adjustments, will become effective inMarch 2022 .
Indiana North Base Rate Case (
OnDecember 18, 2020 , Indiana North filed its base rate case with the IURC seeking approval for a revenue increase of approximately$21 million . This rate case filing is required under Indiana TDSIC statutory requirements before the completion of Indiana North's capital expenditure program, approved in 2014 for investments starting in 2014 through 2020. The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 6.32% on total rate base of approximately$1,611 million . Indiana North has utilized a projected test year, reflecting its 2021 budget as the basis for the revenue increase requested and proposes to implement rates in two phases. OnJune 25, 2021 , a Stipulation and Settlement Agreement was filed resolving all issues in the case. The settlement recommended a revenue decrease of$6 million based on a 9.8% ROE and an overall after-tax rate of return of 6.16% on total rate base of approximately$1,611 million . A settlement hearing was heldAugust 6, 2021 . OnNovember 17, 2021 , the IURC issued an order approving the settlement. Phase one rates, reflecting actual plant-in-service and cost of capital throughJune 2021 , became effective inNovember 2021 and phase two rates, reflecting actual plant-in-service and cost of capital throughDecember 2021 with certain adjustments, will become effective inMarch 2022 . 61 --------------------------------------------------------------------------------
InApril 2017 ,Houston Electric submitted a proposal toERCOT requesting its endorsement of the Freeport Area Master Plan, which included theBailey toJones Creek Project . OnNovember 21, 2019 , the PUCT issued its final approval ofHouston Electric's certificate of convenience and necessity application, based on an unopposed settlement agreement under whichHouston Electric would construct the project at an estimated cost of approximately$483 million .Houston Electric commenced pre-construction activities on the project in 2019, began construction in 2021, and completed construction and energized the line ahead of schedule inNovember 2021 . Certain residual clean-up activities will continue in 2022.
OnDecember 17, 2020 ,Houston Electric filed a CCN application with the PUCT for approval to build a 345 kV transmission line inWharton County, Texas connecting the Hillje substation onHouston Electric's transmission system to the planned 610 MW Space City Solar Generation facility being developed by third-party developerEDF Renewables . Depending on the route ultimately approved by the PUCT, the estimated capital cost of the transmission line project ranges from approximately$23 million to$71 million . The actual capital costs of the project will depend on actual land acquisition costs, construction costs, and other factors in addition to route selection. InJanuary 2021 ,Houston Electric executed a Standard Generation Interconnection Agreement for the Space City Solar Generation facility withEDF Renewables , which also provided security for the transmission line project in the form of a$23 million letter of credit, the amount of which is subject to change depending on the route approved. A hearing at the PUCT was held onJune 28, 2021 . OnSeptember 1, 2021 , the administrative law judge issued a proposal for decision recommending a route that costs$25 million . The PUCT approved the proposal for decision at theNovember 18, 2021 open meeting and issued a final order onJanuary 12, 2022 .Houston Electric expects to complete construction and energization of the transmission line by the end of 2022.
Texas Legislation (
In addition to the legislative activity discussed above, theTexas legislature enacted the following in 2021: •Senate Bill 2 reforms theERCOT board to be comprised of a total of eleven directors: three ex officio representatives, and eight members who are unaffiliated with any market participants. The three ex officio directors-theERCOT CEO, the Public Counsel of theOffice of Public Utility Counsel , and the PUCT Chair-serve on the board by virtue of their official position for as long as they hold that position. Two members are non-voting directors: theERCOT CEO and the PUCT Chair. The other nine members are voting directors. TheERCOT board is currently comprised of the following members: Mr.Paul Foster (Chairman ofERCOT board), Mr.William Flores (Vice Chairman ofERCOT board), Mr.Carlos Aguilar , Mr.Zin Smati , Mr.John Swainson , Mr.Robert Flexon , Ms.Julie England , Ms.Peggy Heeg , Mr.Peter Lake (PUCT Chairman), Mr.Brad Jones (ERCOT Interim President & CEO), and Mr.Chris Ekoh (Public Counsel of theOffice of Public Utility Counsel ). •Senate Bill 3 establishes weatherization and other power grid requirements including the design and operation of a load management program for nonresidential customers during an energy emergency activation level 2 or higher event and the ability to recover the reasonable and necessary costs of the program. •Senate Bill 415 allows a TDU to seek prior PUCT approval to contract with a power generation company for a PUCT assigned proportional share of electric energy storage system at the distribution level and recover certain costs and a reasonable return on contract payments if contract terms satisfy relevant accounting standards for a capital lease or finance lease. •House Bill 2483 allows a TDU to procure, own and operate, or jointly own with another TDU, transmission and distribution facilities with a lead time of at least six months that would aid in restoring power to the utility's distribution customers following a widespread outage, excluding storage equipment or facilities. Reasonable and necessary costs can be recovered using the rate of return on investment from the most recent base rate proceeding. Recovery of incremental operation and maintenance expenses and any return not recovered in a rate proceeding can be deferred until a future ratemaking proceeding. Additionally, a TDU may lease and operate facilities that provide temporary emergency electric energy to aid in restoring power to the utility's distribution customers during a widespread power outage. Leasing and operating costs can be recovered using the utility's rate of return from the most recent base rate proceeding and incremental operation and maintenance expenses can be deferred. The lease must be treated as a capital lease or finance lease for ratemaking purposes. •Senate Bill 1281 removes the requirement for an electric utility to amend its CCN to construct a transmission line that connects existing transmission facilities to a substation or metering point if certain conditions are met and adds a customer benefit test into consideration. The bill also requiresERCOT to conduct biennial assessments of grid reliability in extreme weather scenarios. 62 --------------------------------------------------------------------------------Houston Electric continues to review the effects of the legislation and is working with the PUCT regarding proposed rulemakings and pursuing implementation of these items where applicable. For example, in 2021Houston Electric entered into two leases for mobile generation: (1) a temporary short-term lease initially for 125 MW that expanded to 220 MW byDecember 31, 2021 and (2) a 7.5 year lease for up to 505 MW of mobile generation of which 125 MW was delivered as ofDecember 31, 2021 . As ofDecember 31, 2021 ,CenterPoint Energy andHouston Electric intends to seek recovery in its DCRF of deferred costs and the applicable return under these lease agreements, approximating$200 million . These mobile generation leases will support resiliency in major weather events and were deployed during the restoration process for Hurricane Nicholas. See Note 21 to the consolidated financial statements. In addition to these measures taken byHouston Electric to support system preparedness and reliability, theCity of Houston recently launched the first-of-its-kind long-term strategic power resilience initiative called "Resilient Now." In a joint effort,Houston Electric is working with theCity of Houston to develop the Master Energy Plan for the city to help the community thrive through economic changes, digital transformation, and advancing environmental goals for the benefit of its communities. The Master Energy Plan could develop into capital opportunities forHouston Electric , including relating to infrastructure modernization, residential weatherization, and investments around electric vehicles infrastructure.
Minnesota Base Rate Cases (
OnOctober 28, 2019 , CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately$62 million with a projected test year endedDecember 31, 2020 . The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 7.41% on a total rate base of approximately$1,307 million . CERC implemented interim rates reflecting$53 million for natural gas used on and afterJanuary 1, 2020 . InSeptember 2020 , a settlement that addressed all issues except the Inclusive Financing/TOB Financing proposal by theCity of Minneapolis was signed by a majority of all parties and was filed with theOffice of Administrative Hearings . A stipulation between theCity of Minneapolis and CERC addressing the TOB proposal was filed onSeptember 2, 2020 . The settlement reflects a$39 million increase and was based on an overall after-tax rate of return of 6.86% and does not specify individual cost of capital components. OnMarch 1, 2021 , the MPUC issued a written final order approving the$39 million increase and rejected the TOB stipulation. The order also required CERC and theCity of Minneapolis to submit a future filing to allow for further development of a potential TOB pilot program and additional or expanded low-income conservation improvement programs. A compliance filing was submitted onMarch 12, 2021 proposing a final rate implementation onJune 1, 2021 and the interim refund occurring inJune 2021 , contingent on final MPUC approval. Pursuant to MPUC approval, final rates were implemented onJune 1, 2021 and the interim rate refunds were applied to customer accounts starting onJune 12, 2021 . OnNovember 1, 2021 , CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately$67 million with a projected test year endedDecember 31, 2022 . The revenue increase is based upon a requested ROE of 10.2% and an overall rate of return of 7.06% on a total rate base of approximately$1.8 billion . CERC requested that an interim rate increase of approximately$52 million be implementedJanuary 1, 2022 while the rate case is litigated. An alternative request was also filed onNovember 1, 2021 . The alternative request proposed a final rate increase of$40 million that would be implemented in the rate case onJanuary 1, 2022 , and offered: an increase in rates for plant investment only using the overall rate of return approved in the prior rate case, an asymmetrical capital true-up, extension of the recovery of gas costs incurred to serve customers inFebruary 2021 from the then current 27 month mechanism to 63 months, an income tax rider, continuation of the existing property tax rider and continued deferral of COVID-19 incremental costs along with additional adjustments. OnDecember 30, 2021 , the MPUC issued a written order denying the alternative request but extended the amortization period for extraordinary gas costs to 63-months beginning onJanuary 1, 2022 . The MPUC also issued written orders on the general rate case filing which (1) accepted CERC's rate-increase application with a time for final determination ofSeptember 1, 2022 , (2) authorized the implementation of interim rates onJanuary 1, 2022 , of$42 million based on an overall rate of return of 6.46%, and (3) referred the case to the Office of Administrative Hearings for a contested case proceeding. A procedural schedule has been set with intervenor testimony that was due onFebruary 7, 2022 , rebuttal testimony due onMarch 7, 2022 , surrebuttal testimony dueMarch 30, 2022 , a hearing scheduledApril 6, 2022 throughApril 8, 2022 , the administrative law judge to issue a report onJuly 12, 2022 and the MPUC to issue an order inOctober 2022 .
Minnesota Legislation (
The Natural Gas Innovation Act was passed by theMinnesota legislature inJune 2021 with bipartisan support. This law establishes a regulatory framework to enable the state's investor-owned natural gas utilities to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing greenhouse gas emissions and advancing the 63 --------------------------------------------------------------------------------
state's clean energy future. Specifically, the Natural Gas Innovation Act allows a natural gas utility to submit an innovation plan for approval by the MPUC which could propose the use of renewable energy resources and innovative technologies such as:
•renewable natural gas (produces energy from organic materials such as wastewater, agricultural manure, food waste, agricultural or forest waste); •renewable hydrogen gas (produces energy from water through electrolysis with renewable electricity such as solar); •energy efficiency measures (avoids energy consumption in excess of the utility's existing conservation programs); and •innovative technologies (reduces or avoids greenhouse gas emissions using technologies such as carbon capture).
CERC expects to submit its first innovation plan to the MPUC in 2022. The maximum allowable cost for an innovation plan will start at 1.75% of the utility's revenue in the state and could increase to 4% by 2033, subject to review and approval by the MPUC.
Rate Change Applications
The Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. In addition,Houston Electric is periodically involved in proceedings to adjust its capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms inTexas (GRIP), its cost of service adjustments inArkansas ,Louisiana ,Mississippi andOklahoma (FRP, RSP, RRA and PBRC, respectively), its decoupling mechanism inMinnesota , and its energy efficiency cost trackers inArkansas ,Minnesota ,Mississippi andOklahoma (EECR, CIP, EECR and EECR, respectively).CenterPoint Energy is periodically involved in proceedings to adjust its capital tracking mechanisms inIndiana (CSIA for gas and TDSIC for electric) andOhio (DRR), its decoupling mechanism inIndiana (SRC for gas), and its energy efficiency cost trackers inIndiana (EEFC for gas and DSMA for electric) andOhio (EEFR). The table below reflects significant applications pending or completed since the Registrants' combined 2020 Form 10-K was filed with theSEC . Annual Increase (Decrease) (1) Filing Mechanism (in millions) Date Effective Date Approval Date Additional Information CenterPoint Energy
and
TCOS (1) 64 February 2022 TBD TBD Based on net change of invested capital of$574 million . TCOS 19 August 2021 October 2021 October 2021 Based on net change of invested capital of$166 million . EECRF 22 June 2021 March 2022 November 2021 The requested$63 million is comprised of the following: 2022 Program and Evaluation, Measurement and Verification costs of$38 million, 2020 under-recovery of$3 million including interest, and 2020 earned bonus of$22 million . A settlement was filed in September 2021 reducing the amount requested by$315 thousand and recommending 2022 Program and Evaluation, Measurement and Verification costs of$38 million , 2020 under-recovery of$3 million including interest, and 2020 earned bonus of$22 million. TCOS 9 March 2021 April April 2021 Based on net change in invested capital of 2021$80 million . CenterPoint Energy
and CERC -
FRP (10) April October 2021 September 2021 Based on ROE of 9.50% with 50 basis point 2021 (+/-) earnings band. Revenue decrease of$10.4 million based on prior test year true-up earned return on equity of 11.53%. The initial term of Rider FRP was terminated in September 2021. A petition for rehearing was filed on October 8, 2021. On October 14, 2021, as part of the settlement filed in the asset sale docket, CERC filed a motion to hold the petition for rehearing in abeyance pending closing of the asset sale. The APSC issued an order on October 15, 2021 granting the motion. Additionally, a request to extend the Rider FRP term for an additional five years was filed on May 5, 2021. On October 19, 2021, as part of the settlement filed in the asset sale docket, CERC filed a motion to hold this proceeding in abeyance and the APSC granted the motion on October 21, 2021. CenterPoint Energy and CERC - Beaumont/East Texas,
GRIP 28 March 2021 June June Based on net change in invested capital of 2021 2021$197 million . 64
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Annual Increase (Decrease) (1) Filing Mechanism (in millions) Date Effective Date Approval Date Additional Information CenterPoint
Energy and CERC -
RSP 7 September 2021 December 2021 December 2021 Based on authorized ROE of 9.95% with 50 basis point (+/-) earnings band. The North Louisiana decrease, with certain non-recurring true-up adjustments outside the earnings band, is a decrease of$1 million based on a test year ended June 2021 and adjusted earned ROE of 15.17%. The South Louisiana increase, with certain non-recurring true-up adjustments outside the earnings band, is an increase of$8 million based on a test year ended June 2021 and adjusted earned ROE of 1.93%. Per the 2020 RSP order, a request to extend the RSP for an additional three year term was filed in July 2021 and a hearing is scheduled for May 2022. CenterPoint
Energy and CERC -
Rate Case (1) 67 November 2021 TBD TBD See discussion above under Minnesota Base Rate Case. Decoupling (1) N/A September 2021 September 2021 TBD Represents under-recovery of approximately$19 million recorded for and during the period July 1, 2020 through June 30, 2021, including an approximately$5 million adjustment related to the implementation of final rates from the general rate case filed in 2019. CIP Financial 10 May December 2021 October 2021 CIP Financial Incentive based on 2020 activity. Incentive 2021 Decoupling N/A September 2020 September 2020 March 2021 Represents under-recovery of approximately$2 million recorded for and during the period July 1, 2019 through June 30, 2020, including approximately$1 million related to the period July 1, 2018 through June 30, 2019. Rate Case 39 October 2019 June March 2021 See discussion above under Minnesota Base Rate 2021 Case. CenterPoint
Energy and CERC -
RRA 3 April September 2021 September 2021 Based on ROE of 9.81% with 100 basis point (+/-) 2021 earnings band. Revenue increase of approximately$3 million based on 2020 test year adjusted earned ROE of 7.49%. CenterPoint
Energy and CERC -
PBRC (1) March 2021 August 2021 August 2021 Based on ROE of 10% with 50 basis point (+/-) earnings band. Revenue credit of approximately$1 million based on 2020 test year adjusted earned ROE of 12.42%. A settlement was filed in June 2021 with a hearing held on July 1, 2021. OCC approved revenue credit of approximately$1 million on August 6, 2021. CenterPoint
Energy - Indiana South - Gas (IURC)
CSIA (1) April July July Requested an increase of$11
million to rate base,
2021 2021 2021 which reflects a$(1 million) annual decrease in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes refunds associated with the TCJA, resulting in no change to the previous credit provided, and a change in the total (over)/under-recovery variance of less than$1 million annually. Rate Case 21 October 2020 October 2021 October 2021 See discussion above under
Indiana South Base Rate
Case. CenterPoint
Energy - Indiana North - Gas (IURC)
CSIA 5 April July July Requested an increase of$37
million to rate base,
2021 2021 2021 which reflects a$5 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes refunds associated with the TCJA, resulting in no change to the previous credit provided, and a change in the total (over)/under-recovery variance of$6 million annually. Rate Case 21 December 2020 November 2021 November 2021 See discussion above under
Indiana North Base Rate
Case.
DRR 9 April September 2021 September 2021 Requested an increase of$71 million to rate base 2021 for investments made in 2020, which reflects a$9 million annual increase in current revenues. A change in (over)/under-recovery variance of$5 million annually is also included in rates. 65
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Annual Increase (Decrease) (1) Filing Mechanism (in millions) Date Effective Date Approval Date Additional Information CenterPoint
Energy -
TDSIC (1) 3 February 2022 TBD TBD Requested an increase of$42 million to rate base, which reflects a$3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than$1 million . CECA (1) (2) February 2022 TBD TBD Requested a decrease of less than$1 million to rate base, which reflects a$3 million annual decrease in current revenues. The mechanism also includes a change in (over)/under-recovery variance of less than$1 million . This mechanism includes a non-traditional rate making approach related to a 50 MW universal solar array placed in service in January 2021. TDSIC 3 August 2021 November 2021 November 2021 Requested an increase of$35 million to rate base, which reflects a$3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than$1 million . ECA 2 May September 2021 September 2021 Requested an increase of$39 million to rate base, 2021 which reflects a$2 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also included a change in (over)/under-recovery variance of less than$1 million annually. TDSIC 3 February 2021 May May Requested an increase of$28 million to rate base, 2021 2021 which reflects a$3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than$1 million . CECA 8 February 2021 June May Reflects an$8 million annual increase in current 2021 2021 revenues through a
non-traditional rate making approach related to a 50 MW universal solar array placed in service inJanuary 2021 . (1)Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.
Greenhouse Gas Regulation and Compliance (
OnAugust 3, 2015 , theEPA released its CPP rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in theFederal Register onOctober 23, 2015 , and that action was immediately followed by litigation ultimately resulting in theU.S. Supreme Court staying implementation of the rule. OnJuly 8, 2019 , theEPA published the ACE rule, which (i) repealed the CPP rule; (ii) replaced the CPP rule with a program that requires states to implement a program of energy efficiency improvement targets for individual coal-fired electric generating units; and (iii) amended the implementing regulations for Section 111(d) of the Clean Air Act. OnJanuary 19, 2021 , the majority of the ACE rule - including the CPP repeal, CPP replacement, and the timing-related portions of the Section 111(d) implementing rule - was struck down by theU.S. Court of Appeals for the D.C. Circuit and onOctober 29, 2021 , theU.S. Supreme Court agreed to consider four petitions filed by various coal interests and a coalition of 19 states that seek review of the lower court's decision vacating the ACE rule.CenterPoint Energy is currently unable to predict what a replacement rule for either the ACE rule or CPP would require. The Biden administration recommittedthe United States to the Paris Agreement, which can be expected to drive a renewed regulatory push to require further GHG emission reductions from the energy sector and proceeded to lead negotiations at the global climate conference inGlasgow, Scotland . OnApril 22, 2021 ,President Biden announced new goals of 50% reduction of economy-wide GHG emissions, and 100% carbon-free electricity by 2035, which formed the basis of the US commitments announced inGlasgow . InSeptember 2021 ,CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035 as well as a goal to reduce Scope 3 emissions by 20% to 30% by 2035. BecauseTexas is an unregulated market,CenterPoint Energy's Scope 2 estimates do not take into accountTexas electric transmission and distribution assets in the line loss calculation and exclude emissions related to purchased power inIndiana between 2024 and 2026 as estimated.CenterPoint Energy's Scope 3 estimates do not take into account the emissions of transport customers and emissions related to upstream extraction. These emission goals are expected to be used to positionCenterPoint Energy to comply with anticipated future regulatory requirements from the current and future administrations to further reduce GHG 66 -------------------------------------------------------------------------------- emissions.CenterPoint Energy's and CERC's revenues, operating costs and capital requirements could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of their operations or would have the effect of reducing the consumption of natural gas. For more information regardingCenterPoint Energy's new net zero emission goals and the risks associated with them, see "Risk Factors - Risk Factors Affecting Our Businesses -CenterPoint Energy is subject to operational and financial risks..." In addition, theEPA has indicated that it intends to implement new regulations targeting reductions in methane emissions, which are likely to increase costs related to production, transmission and storage of natural gas.Houston Electric , in contrast to some electric utilities includingIndiana Electric , does not generate electricity, other than leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after theFebruary 2021 Winter Storm Event, and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity.CenterPoint Energy's new net zero emissions goals are aligned withIndiana Electric's generation transition plan and are expected to positionIndiana Electric to comply with anticipated future regulatory requirements related to GHG emissions reductions. Nevertheless,Houston Electric's andIndiana Electric's revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within their respective service territories. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for the Registrants' services. For example,Minnesota has enacted the Natural Gas Innovation Act that seeks to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions. Further, certain local government bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain specified dates. For example,Minneapolis has adopted carbon emission reduction goals in an effort to decrease reliance on fossil gas. Additionally, cities inMinnesota withinCenterPoint Energy's Natural Gas operational footprint are considering initiatives to eliminate natural gas use in buildings and focus on electrification. Also,Minnesota cities may consider seeking legislative authority for the ability to enact voluntary enhanced energy standards for all development projects. These initiatives could have a significant impact onCenterPoint Energy and its operations, and this impact could increase if other cities and jurisdictions in its service area enact similar initiatives. Further, our third party suppliers, vendors and partners may also be impacted by climate change laws and regulations, which could impactCenterPoint Energy's business by, among other things, causing permitting and construction delays, project cancellations or increased project costs passed on toCenterPoint Energy . Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions characteristics would be expected to benefitCenterPoint Energy and CERC and their natural gas-related businesses. At this time, however, we cannot quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on the Registrants' businesses. Compliance costs and other effects associated with climate change, reductions in GHG emissions and obtaining renewable energy sources remain uncertain. Although the amount of compliance costs remains uncertain, any new regulation or legislation relating to climate change will likely result in an increase in compliance costs. While the requirements of a federal or state rule remain uncertain,CenterPoint Energy will continue to monitor regulatory activity regarding GHG emission standards that may affect its business. Currently,CenterPoint Energy does not purchase carbon credits. In connection with its net zero emissions goals,CenterPoint Energy is expected to purchase carbon credits in the future; however,CenterPoint Energy does not currently expect the number of credits, or cost for those credits, to be material.
Climate Change Trends and Uncertainties
As a result of increased awareness regarding climate change, coupled with adverse economic conditions, availability of alternative energy sources, including private solar, microturbines, fuel cells, energy-efficient buildings and energy storage devices, and new regulations restricting emissions, including potential regulations of methane emissions, some consumers and companies may use less energy, meet their own energy needs through alternative energy sources or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for the Registrants' services. As these technologies become a more cost-competitive option over time, whether through cost effectiveness or government incentives and subsidies, certain customers may choose to meet their own energy needs and subsequently decrease usage of the Registrants' systems and services, which may result in, among other things,Indiana Electric's generating facilities becoming less competitive and economical. Further, evolving investor sentiment related to the use of fossil fuels and initiatives to restrict continued production of fossil fuels have had significant impacts onCenterPoint Energy's electric generation and natural gas businesses. For example, becauseIndiana Electric's current generating facilities substantially rely on coal for their operations, certain financial institutions choose not to participate inCenterPoint Energy's financing arrangements. Conversely, demand for the Registrants' services may increase as a result of customer changes in response to climate change. For example, as the utilization of electric vehicles increases, demand for electricity may increase, resulting in increased usage ofCenterPoint Energy's systems and services. Any negative opinions with respect toCenterPoint Energy's environmental practices or its ability to meet the 67 --------------------------------------------------------------------------------
challenges posed by climate change formed by regulators, customers, investors, legislators or other stakeholders could harm its reputation.
To address these developments,CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035. In June of 2020,Indiana Electric identified a preferred generation resource in its most recent IRP submitted to the IURC that aligns with its new net zero emission goals and includes the replacement of 730 MW of coal-fired generation facilities with a significant portion comprised of renewables, including solar and wind, supported by dispatchable natural gas combustion turbines, including a pipeline to serve such natural gas generation, as well as storage. Additionally, as reflected in its 10-year capital plan announced inSeptember 2021 ,CenterPoint Energy anticipates spending over$3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable energy generation and electric vehicle expansion.CenterPoint Energy believes its planned investments in renewable energy generation and corresponding planned reduction in its GHG emissions as part of its newly adopted net zero emissions goals support global efforts to reduce the impacts of climate change. For more information regardingCenterPoint Energy's new net zero emission goals and the risks associated with them, see "Risk Factors - Risk Factors Affecting Our Businesses -CenterPoint Energy is subject to operational and financial risks..." To the extent climate changes result in warmer temperatures in the Registrants' service territories, financial results from the Registrants' businesses could be adversely impacted. For example,CenterPoint Energy's andCERC's Natural Gas could be adversely affected through lower natural gas sales. On the other hand, warmer temperatures inCenterPoint Energy's andHouston Electric's electric service territory may increase revenues from transmission and distribution and generation through increased demand for electricity used for cooling. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes, tornadoes and flooding, including such storms as theFebruary 2021 Winter Storm Event. Since many of the Registrants' facilities are located along or near theTexas gulf coast, increased or more severe hurricanes or tornadoes could increase costs to repair damaged facilities and restore service to customers.CenterPoint Energy's recently announced 10-year capital plan includes capital expenditures to maintain reliability and safety and increase resiliency of its systems as climate change may result in more frequent significant weather events.Houston Electric does not own or operate any electric generation facilities other than, sinceSeptember 2021 , leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after theFebruary 2021 Winter Storm Event.Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. To the extent adverse weather conditions affect the Registrants' suppliers, results from their energy delivery businesses may suffer. For example, inTexas , theFebruary 2021 Winter Storm Event caused an electricity generation shortage that was severely disruptive toHouston Electric's service territory and the wholesale generation market and also caused a reduction in available natural gas capacity. When the Registrants cannot deliver electricity or natural gas to customers, or customers cannot receive services, the Registrants' financial results can be impacted by lost revenues, and they generally must seek approval from regulators to recover restoration costs. To the extent the Registrants are unable to recover those costs, or if higher rates resulting from recovery of such costs result in reduced demand for services, the Registrants' future financial results may be adversely impacted. Further, as the intensity and frequency of significant weather events continues, it may impact our ability to secure cost-efficient insurance.
Other Matters
Credit Facilities
The Registrants may draw on their respective revolving credit facilities from time to time to provide funds used for general corporate and limited liability company purposes, including to backstopCenterPoint Energy's and CERC's commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to the Registrants' revolving credit facilities, please see Note 14 to the consolidated financial statements. Based on the consolidated debt to capitalization covenant in the Registrants' revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately$4 billion as ofDecember 31, 2021 . 68 --------------------------------------------------------------------------------
As of
Amount
Utilized as of
Size of Letters of Weighted Average Registrant Facility Loans Credit Commercial Paper Interest Rate Termination Date (in millions) CenterPoint Energy$ 2,400 $ -$ 11 $ 710 0.23% February 4, 2024 CenterPoint Energy (1) 400 - - 264 0.22% February 4, 2024 Houston Electric 300 - - - -% February 4, 2024 CERC 900 - - 100 0.19% February 4, 2024 Total$ 4,000 $ -$ 11 $ 1,074
(1)The credit facility was issued by VUHI and is guaranteed by SIGECO,
Borrowings under each of the revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower makes representations prior to borrowing as to the absence of material adverse changes or litigation that could be expected to have a material adverse effect. Borrowings under each of the revolving credit facilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilities also provide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In each of the revolving credit facilities, the spread to LIBOR and the commitment fees fluctuate based on the borrower's credit rating. Each of the Registrant's credit facilities provide for a mechanism to replace LIBOR with possible alternative benchmarks upon certain benchmark replacement events. The borrowers are currently in compliance with the various business and financial covenants in the four revolving credit facilities.
Long-term Debt
For detailed information about the Registrants' debt issuances in 2021, see Note 14 to the consolidated financial statements.
Securities Registered with the
OnMay 29, 2020 , the Registrants filed a joint shelf registration statement with theSEC registering indeterminate principal amounts ofHouston Electric's general mortgage bonds,CERC Corp.'s senior debt securities andCenterPoint Energy's senior debt securities and junior subordinated debt securities and an indeterminate number of shares of Common Stock, shares of preferred stock, depositary shares, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire onMay 29, 2023 . For information related to the Registrants' debt and equity security issuances in 2021, see Notes 13 and 14 to the consolidated financial statements.
Temporary Investments
As of
The Registrants participate in a money pool through which they and certain of their subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of theCenterPoint Energy money pool are expected to be met with borrowings underCenterPoint Energy's revolving credit facility or the sale ofCenterPoint Energy's commercial paper. The net funding requirements of the CERC money pool are expected to be met with borrowings under CERC's revolving credit facility or the sale of CERC's commercial paper. The money pool may not provide sufficient funds to meet the Registrants' cash needs. The table below summarizesCenterPoint Energy money pool activity by Registrant as ofFebruary 15, 2022 : Weighted Average Interest Rate Houston Electric CERC (in millions) Money pool investments 0.22% $ (731) $ - 69
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Impact on Liquidity of a Downgrade in Credit Ratings
The interest rate on borrowings under the Registrants' credit facilities is based on their respective credit ratings. As ofFebruary 15, 2022 , Moody's, S&P and Fitch had assigned the following credit ratings to senior debt of the Registrants: Moody's S&P Fitch Registrant Borrower/Instrument Rating Outlook (1) Rating Outlook (2) Rating Outlook (3) CenterPoint Energy CenterPoint Energy Senior Unsecured Debt Baa2 Stable BBB Stable BBB Stable CenterPoint Energy Vectren Corp. Issuer Rating n/a n/a BBB+ Stable n/a n/a CenterPoint Energy VUHI Senior Unsecured Debt A3 Stable BBB+ Stable n/a n/a CenterPoint Energy Indiana Gas Senior Unsecured Debt n/a n/a BBB+ Stable n/a n/a CenterPoint Energy SIGECO Senior Secured Debt A1 Stable A Stable n/a n/a Houston Electric Houston Electric Senior Secured Debt A2 Stable A Stable A Stable CERC CERC Corp. Senior Unsecured Debt A3 Stable BBB+ Stable A- Stable (1)A Moody's rating outlook is an opinion regarding the likely direction of an issuer's rating over the medium term. (2)An S&P outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term. (3)A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period. The Registrants cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. The Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold the Registrants' securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of the Registrants' credit ratings could have a material adverse impact on the Registrants' ability to obtain short- and long-term financing, the cost of such financings and the execution of the Registrants' commercial strategies. A decline in credit ratings could increase borrowing costs under the Registrants' revolving credit facilities. If the Registrants' credit ratings had been downgraded one notch by S&P and Moody's from the ratings that existed as ofDecember 31, 2021 , the impact on the borrowing costs under the four revolving credit facilities would have been insignificant. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact the Registrants' ability to complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash collateral requirements and reduce earnings ofCenterPoint Energy's andCERC's Natural Gas reportable segments. Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper's guarantor drop below a threshold level, which is generally investment grade ratings from both Moody's and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months' charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings ofCERC Corp. decline below the applicable threshold levels, CERC might need to provide cash or other collateral of as much as$213 million as ofDecember 31, 2021 . The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (
IfCenterPoint Energy's creditworthiness were to drop such that ZENS holders thought its liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares ofZENS-Related Securities thatCenterPoint Energy owns or from other sources.CenterPoint Energy owns shares ofZENS-Related Securities equal to approximately 100% of the reference shares used to calculate its obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and shares ofZENS-Related Securities would typically cease when ZENS are exchanged or otherwise retired and shares ofZENS-Related Securities are sold. The ultimate tax liability related to theZENS and ZENS-Related Securities continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement or exchange of the ZENS. If all ZENS had been exchanged for cash onDecember 31, 2021 , deferred taxes of approximately$539 million would have been payable in 70 -------------------------------------------------------------------------------- 2021. If all theZENS-Related Securities had been sold onDecember 31, 2021 , capital gains taxes of approximately$146 million would have been payable in 2021. For additional information about ZENS, see Note 12 to the consolidated financial statements. Cross Defaults Under each ofCenterPoint Energy's (including VUHI's),Houston Electric's and CERC's respective revolving credit facilities, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding$125 million by the borrower or any of their respective significant subsidiaries will cause a default under such borrower's respective credit facility or term loan agreement. A default byCenterPoint Energy would not trigger a default under its subsidiaries' debt instruments or revolving credit facilities.
Possible Acquisitions,
From time to time, the Registrants consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. The Registrants may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to the Registrants at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions. As announced inSeptember 2021 ,CenterPoint Energy plans to increase its planned capital expenditures in its Electric and Natural Gas businesses to support rate base growth and may explore asset sales in addition to the recently completed sale of its Natural Gas businesses located inArkansas andOklahoma as a means to efficiently finance a portion of such increased capital expenditures. OnJanuary 10, 2022 ,CERC Corp. completed the sale of itsArkansas andOklahoma regulated natural gas LDC businesses. For further information, see Notes 4 and 22 to the consolidated financial statements. OnDecember 2, 2021 , the Enable Merger closed and, as a result,CenterPoint Energy received Energy Transfer Common Units and Energy Transfer Series G Preferred Units. Subsequent to the closing of the Enable Merger, inDecember 2021 ,CenterPoint Energy sold 150 million of the Energy Transfer Common Units (inclusive of the Energy Transfer Common Units sold pursuant to the Forward Sale Agreement) and half of the Energy Transfer Series G Preferred Units it received in the Enable Merger.CenterPoint Energy has announced plans to dispose of all of its interests in Energy Transfer by the end of 2022.CenterPoint Energy may not realize any or all of the anticipated strategic, financial, operational or other benefits from any disposition or reduction of its investment in Energy Transfer. There can be no assurances that any further disposal of Energy Transfer Common Units or Energy Transfer Series G Preferred Units will be completed. Any disposal of such securities may involve significant costs and expenses, including in connection with any public offering, a significant underwriting discount. For information regarding the Enable Merger, see Notes 4, 11 and 12 to the consolidated financial statements.
Hedging of Interest Expense for Future Debt Issuances
From time to time, the Registrants may enter into interest rate agreements to hedge, in part, volatility in theU.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 9(a) to the consolidated financial statements.
Weather Hedge (
CenterPoint Energy and CERC have historically entered into partial weather hedges for certain Natural Gas jurisdictions and electric operations'Texas service territory to mitigate the impact of fluctuations from normal weather.CenterPoint Energy and CERC remain exposed to some weather risk as a result of the partial hedges.CenterPoint Energy and CERC did not enter into any weather hedges during the year endedDecember 31, 2021 . For more information about weather hedges, see Note 9(a) to the consolidated financial statements.
Collection of Receivables from REPs (
Houston Electric's receivables from the distribution of electricity are collected from REPs that supply the electricityHouston Electric distributes to their customers. Before conducting business, a REP must register with the PUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, structural problems in the market served byERCOT 71 -------------------------------------------------------------------------------- or financial difficulties of one or more REPs could impair the ability of these REPs to pay forHouston Electric's services or could cause them to delay such payments.Houston Electric depends on these REPs to remit payments on a timely basis, and any delay or default in payment by REPs could adversely affectHouston Electric's cash flows. In the event of a REP's default,Houston Electric's tariff provides a number of remedies, including the option forHouston Electric to request that the PUCT suspend or revoke the certification of the REP. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. However,Houston Electric remains at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations and claims might be made againstHouston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy,Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, PUCT regulations authorize utilities, such asHouston Electric , to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.
Other Factors that Could Affect Cash Requirements
In addition to the above factors, the Registrants' liquidity and capital resources could also be negatively affected by:
•cash collateral requirements that could exist in connection with certain contracts, including weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities ofCenterPoint Energy's andCERC's Natural Gas reportable segment; •reductions in the cash distributions we receive from Energy Transfer; •acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices, and concentration of natural gas suppliers (CenterPoint Energy and CERC); •increased costs related to the acquisition of natural gas (CenterPoint Energy and CERC); •increases in interest expense in connection with debt refinancings and borrowings under credit facilities or term loans or the use of alternative sources of financings due to the effects of COVID-19 on capital and other financial markets; •various legislative or regulatory actions; •incremental collateral, if any, that may be required due to regulation of derivatives (CenterPoint Energy ); •the ability of REPs, including REP affiliates ofNRG and Vistra Energy Corp., to satisfy their obligations toCenterPoint Energy andHouston Electric , including the negative impact on such ability related to COVID-19 and theFebruary 2021 Winter Storm Event; •slower customer payments and increased write-offs of receivables due to higher natural gas prices, changing economic conditions, COVID-19 or theFebruary 2021 Winter Storm Event (CenterPoint Energy and CERC); •the satisfaction of any obligations pursuant to guarantees; •the outcome of litigation, including litigation related to theFebruary 2021 Winter Storm Event; •contributions to pension and postretirement benefit plans; •restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and •various other risks identified in "Risk Factors" in Item 1A of Part I of this report.
Certain Contractual Limits on Our Ability to
Certain provisions in certain note purchase agreements relating to debt issued by VUHI have the effect of restricting the amount of additional first mortgage bonds issued by SIGECO. Additionally, such note purchase agreements would restrict the securitization (as enabled by Senate Bill 386 as enacted by theState of Indiana ) thatCenterPoint Energy intends to seek in 2022 of remaining book value and removal costs associated with generating facilities to be retired byIndiana Electric . For information about the total debt to capitalization financial covenants in the Registrants' and certain ofCenterPoint Energy's subsidiaries' revolving credit facilities, see Note 14 to the consolidated financial statements. CRITICAL ACCOUNTING POLICIES A critical accounting policy is one that is both important to the presentation of the Registrants' financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in the Registrants' historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require the Registrants to make assumptions about matters that are highly uncertain at the time the estimate is made. Additionally, different estimates that the Registrants could have used or changes in an accounting estimate that are reasonably likely to occur could 72 -------------------------------------------------------------------------------- have a material impact on the presentation of their financial condition, results of operations or cash flows. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. The Registrants base their estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Registrants' operating environment changes. The Registrants' significant accounting policies are discussed in Note 2 to the consolidated financial statements. The Registrants believe the following accounting policies involve the application of critical accounting estimates. Accordingly, these accounting estimates have been reviewed and discussed with the Audit Committee ofCenterPoint Energy's Board of Directors.
Accounting for Rate Regulation
Accounting guidance for regulated operations provides that rate-regulated entities account for and report assets and liabilities consistent with the recovery of those incurred costs in rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected.CenterPoint Energy , for its Electric and Natural Gas reportable segments,Houston Electric and CERC apply this accounting guidance. Certain expenses and revenues subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet as regulatory assets or liabilities and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. Regulatory assets and liabilities are recorded when it is probable that these items will be recovered or reflected in future rates. Determining probability requires significant judgment on the part of management and includes, but is not limited to, consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders and the strength or status of applications for rehearing or state court appeals. If events were to occur that would make the recovery of these assets and liabilities no longer probable, the Registrants would be required to write off or write down these regulatory assets and liabilities. For further detail on the Registrants' regulatory assets and liabilities, see Note 7 to the consolidated financial statements.
Impairment of Long-Lived Assets, Including Identifiable Intangibles,
The Registrants review the carrying value of long-lived assets, including identifiable intangibles, goodwill, equity method investments, and investments without a readily determinable fair value whenever events or changes in circumstances indicate that such carrying values may not be recoverable, and at least annually, goodwill is tested for impairment as required by accounting guidance for goodwill and other intangible assets. Unforeseen events, changes in market conditions, and probable regulatory disallowances, where applicable, could have a material effect on the value of long-lived assets, including intangibles, goodwill, equity method investments, and investments without a readily determinable fair value due to changes in observable or estimated market value, future cash flows, interest rate, and regulatory matters could result in an impairment charge. The Registrants recorded no impairments to long-lived assets, including intangibles, goodwill, or equity method investments during 2021 and 2019. During 2020,CenterPoint Energy recognized equity method investment impairment losses as discussed further in Note 11 to the consolidated financial statements and goodwill impairment losses as discussed further in Notes 6 and 10 to the consolidated financial statements. Fair value is the amount at which an asset, liability or business could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value could be different using different estimates and assumptions in these valuation techniques. Fair value measurements require significant judgment and unobservable inputs, including (i) projected timing and amount of future cash flows, which factor in planned growth initiatives, (ii) the regulatory environment, as applicable, and (iii) discount rates reflecting risk inherent in the future market prices. Determining the discount rates for the non-rate regulated businesses requires the estimation of the appropriate company specific risk premiums for those non-rate regulated businesses based on evaluation of industry and entity-specific risks, which includes expectations about future market or economic conditions existing on the date of the impairment test. Changes in these assumptions could have a significant impact on results of the impairment tests.
Annual goodwill impairment test
CenterPoint Energy and CERC completed their 2021 annual goodwill impairment test during the third quarter of 2021 and determined, based on an income approach or a weighted combination of income and market approaches, that no goodwill 73 --------------------------------------------------------------------------------
impairment charge was required for any reporting unit. The fair values of each reporting unit significantly exceeded the carrying value of the reporting unit.
Although no goodwill impairment resulted from the 2021 annual test, an interim goodwill impairment test could be triggered by the following: actual earnings results that are materially lower than expected, significant adverse changes in the operating environment, an increase in the discount rate, changes in other key assumptions which require judgment and are forward looking in nature, ifCenterPoint Energy's market capitalization falls below book value for an extended period of time, or events affecting a reporting unit such as a contemplated disposal of all or part of a reporting unit.
Assets Held for Sale and Discontinued Operations
Generally, a long-lived asset to be sold is classified as held for sale in the period in which management, with approval from the Board of Directors, as applicable, commits to a plan to sell, and a sale is expected to be completed within one year. The Registrants record assets and liabilities held for sale, or the disposal group, at the lower of their carrying value or their estimated fair value less cost to sell. If a disposal group reflects a component of a reporting unit and meets the definition of a business, the goodwill within that reporting unit is allocated to the disposal group based on the relative fair value of the components representing a business that will be retained and disposed.Goodwill is not allocated to a portion of a reporting unit that does not meet the definition of a business. A disposal group that meets the held for sale criteria and also represents a strategic shift to the Registrant is also reflected as discontinued operations on the Statements of Consolidated Income, and prior periods are recast to reflect the earnings or losses from such businesses as income from discontinued operations, net of tax. During the year endedDecember 31, 2021 , as described further in Note 4 to the consolidated financial statements, certain assets and liabilities representing a business met the held for sale criteria. As a result, goodwill attributable to the natural gas reporting unit of$398 million and$144 million atCenterPoint Energy and CERC, respectively, was deemed attributable to assets held for sale as ofDecember 31, 2021 . NeitherCenterPoint Energy nor CERC recognized any gains or losses upon classification of held for sale, including impairments of goodwill, during the year endedDecember 31, 2021 . Fair value is the amount at which an asset, liability or business could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value could be different if different estimates and assumptions in these valuation techniques were applied. Fair value measurements require significant judgment and often unobservable inputs, including (i) projected timing and amount of future cash flows, which factor in planned growth initiatives, (ii) the regulatory environment, as applicable, and (iii) discount rates reflecting risk inherent in the future market prices. Changes in these assumptions could have a significant impact on the resulting fair value.CenterPoint Energy and CERC used a market approach consisting of the contractual sales price adjusted for estimated working capital and other contractual purchase price adjustments to determine fair value of the businesses classified as held for sale. The fair value of the retained businesses within the natural gas reporting unit was estimated based on a weighted combination of income and market approaches, consistent with the methodology used in the 2021 and 2020 annual goodwill impairment tests. A third-party valuation specialist was utilized to determine the key assumptions used in the estimate of fair value of the retained natural gas reporting unit as ofDecember 31, 2021 . The fair value of the retained natural gas reporting unit atCenterPoint Energy and CERC significantly exceeded the carrying value of the retained businesses within that reporting unit immediately after classifying theArkansas andOklahoma Natural Gas businesses as held for sale.
For further information, see Note 4 to the consolidated financial statements.
Unbilled Revenues
Revenues related to electricity delivery and natural gas sales and services are generally recognized upon delivery to customers. However, the determination of deliveries to individual customers is based on the reading of their meters, which is performed on a systematic basis throughout the month either electronically through AMS meter communications or manual readings. At the end of each month, deliveries to non-AMS customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Information regarding deliveries to AMS customers after the last billing is obtained from actual AMS meter usage data. Unbilled electricity delivery revenue is estimated each month based on actual AMS meter data, daily supply volumes and applicable rates. Unbilled natural gas sales are estimated based on estimated 74 -------------------------------------------------------------------------------- purchased gas volumes, estimated lost and unaccounted for gas and tariffed rates in effect. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.
Pension and Other Retirement Plans
CenterPoint Energy sponsors pension and other retirement plans in various forms covering all employees who meet eligibility requirements.CenterPoint Energy uses several statistical and other factors that attempt to anticipate future events in calculating the expense and liability related to its plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as estimated by management, within certain guidelines. In addition,CenterPoint Energy's actuarial consultants use subjective factors such as withdrawal and mortality rates. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension and other retirement plans expense recorded. Please read "- Other Significant Matters - Pension Plans" for further discussion. NEW ACCOUNTING PRONOUNCEMENTS See Note 2(u) to the consolidated financial statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect the Registrants. OTHER SIGNIFICANT MATTERS Pension Plans (CenterPoint Energy ). As discussed in Note 8(b) to the consolidated financial statements,CenterPoint Energy maintains non-contributory qualified defined benefit pension plans covering eligible employees. Employer contributions for the qualified plans are based on actuarial computations that establish the minimum contribution required under ERISA and the maximum deductible contribution for income tax purposes. Under the terms ofCenterPoint Energy's pension plans, it reserves the right to change, modify or terminate the plan.CenterPoint Energy's funding policy is to review amounts annually and contribute an amount at least equal to the minimum contribution required under ERISA. Additionally,CenterPoint Energy maintains unfunded non-qualified benefit restoration plans that allows participants to receive the benefits to which they would have been entitled under the non-contributory qualified pension plan except for the federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated.
Year Ended
2021 2020 2019 CenterPoint Energy (in millions) Minimum funding requirements for qualified pension plans $ -$ 76 $ 86 Employer contributions to the qualified pension plans 53 76 86 Employer contributions to the non-qualified benefit restoration plans 8 10 23 AlthoughCenterPoint Energy's minimum contribution requirement to the qualified pension plans in 2022 is zero, it expects to make contributions aggregating up to$50 million .CenterPoint Energy expects to make contributions aggregating approximately$7 million to the non-qualified benefit restoration plans in 2022. Changes in pension obligations and assets may not be immediately recognized as pension expense inCenterPoint Energy's Statements of Consolidated Income, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension expense recorded in any period may not reflect the actual level of benefit payments provided to plan participants. As the sponsor of a plan,CenterPoint Energy is required to (a) recognize on its Consolidated Balance Sheet an asset for the plan's over-funded status or a liability for the plan's under-funded status, (b) measure a plan's assets and obligations as of the 75 -------------------------------------------------------------------------------- end of the fiscal year and (c) recognize changes in the funded status of the plans in the year that changes occur through adjustments to other comprehensive income and, when related to its rate-regulated utilities with recoverability of cost, to regulatory assets.
The projected benefit obligation for all defined benefit pension plans was
As ofDecember 31, 2021 , the projected benefit obligation exceeded the market value of plan assets ofCenterPoint Energy's pension plans by$226 million . Changes in interest rates or the market values of the securities held by the plan during 2022 could materially, positively or negatively, change the funded status and affect the level of pension expense and required contributions.Houston Electric and CERC participate inCenterPoint Energy's qualified and non-qualified pension plans covering substantially all employees. Pension cost by Registrant were as follows: Year Ended December 31, 2021 2020 2019 Houston Houston Houston CenterPoint Energy Electric CERC CenterPoint Energy Electric CERC
CenterPoint Energy Electric CERC (in millions) Pension cost $ 69$ 34 $ 27 $ 49$ 19 $ 20 $ 93$ 40 $ 35 The calculation of pension cost and related liabilities requires the use of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions. Two of the most critical assumptions are the expected long-term rate of return on plan assets and the assumed discount rate. As ofDecember 31, 2021 ,CenterPoint Energy's qualified pension plans had an expected long-term rate of return on plan assets of 5.00% rate, which is the same rate assumed as ofDecember 31, 2020 . The expected rate of return assumption was developed using the targeted asset allocation of our plans and the expected return for each asset class.CenterPoint Energy regularly reviews its actual asset allocation and periodically rebalances plan assets to reduce volatility and better match plan assets and liabilities. As ofDecember 31, 2021 , the projected benefit obligation was calculated assuming a discount rate of 2.80%, which is 0.35% higher than the 2.45% discount rate assumed as ofDecember 31, 2020 . The discount rate was determined by reviewing yields on high-quality bonds that receive one of the two highest ratings given by a recognized rating agency and the expected duration of pension obligations specific to the characteristics ofCenterPoint Energy's plans.CenterPoint Energy's actuarially determined pension and other postemployment cost for 2021 and 2020 that is greater or less than the amounts being recovered through rates in the majority ofTexas jurisdictions is deferred as a regulatory asset or liability, respectively. Pension cost for 2022, including the nonqualified benefit restoration plan, is estimated to be$22 million before applicable regulatory deferrals and capitalization, based on an expected return on plan assets of 5.00% and a discount rate of 2.80% as ofDecember 31, 2021 . If the expected return assumption were lowered by 0.50% from 5.00% to 4.50%, 2022 pension cost would increase by approximately$10 million . As ofDecember 31, 2021 , the pension plans projected benefit obligation, including the unfunded nonqualified pension plans, exceeded plan assets by$226 million . If the discount rate were lowered by 0.50% from 2.80% to 2.30%, the assumption change would increaseCenterPoint Energy's projected benefit obligation by approximately$118 million and decrease its 2022 pension cost by approximately$5 million . The expected reduction in pension cost due to the decrease in discount rate is a result of the expected correlation between the reduced interest rate and appreciation of fixed income assets in pension plans with significantly more fixed income instruments than equity instruments. In addition, the assumption change would impactCenterPoint Energy's Consolidated Balance Sheets by increasing the regulatory asset recorded as ofDecember 31, 2021 by$100 million and would result in a charge to comprehensive income in 2021 of$14 million , net of tax of$4 million , due to the increase in the projected benefit obligation. Future changes in plan asset returns, assumed discount rates and various other factors related to the pension plans will impactCenterPoint Energy's future pension expense and liabilities.CenterPoint Energy cannot predict with certainty what these factors will be in the future. 76
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