The following combined discussion and analysis should be read in combination
with the Interim Condensed Financial Statements contained in this Form 10-Q and
the Registrants' combined 2019 Form 10-K. When discussing CenterPoint Energy's
consolidated financial information, it includes the results of Houston Electric
and CERC, which, along with CenterPoint Energy, are collectively referred to as
the Registrants. Where appropriate, information relating to a specific
Registrant has been segregated and labeled as such. In this Form 10-Q, the terms
"our," "we" and "us" are used as abbreviated references to CenterPoint Energy,
Inc. together with its consolidated subsidiaries. No Registrant makes any
representations as to the information related solely to CenterPoint Energy or
the subsidiaries of CenterPoint Energy other than itself.
RECENT EVENTS
COVID-19 Impacts. On March 11, 2020, the World Health Organization declared the
current COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the
United States declared a national emergency. In response to these declarations
and the rapid spread of COVID-19, federal, state and local governments have
imposed varying degrees of restrictions on business and social activities to
contain COVID-19, including business shutdowns and closures, travel
restrictions, quarantines, curfews, shelter in place and "stay-at-home" orders
in our service territories. State and local authorities have also implemented
multi-step policies with the goal of re-opening various sectors of the economy
such as retail establishments, health and personal care businesses, and
restaurants, among others. Governing authorities continue to reassess re-opening
approaches and decisions for their respective jurisdictions given the number of
COVID-19 cases and hospitalizations. The COVID-19 outbreak may significantly
worsen in the United States during the upcoming winter months, which may cause
federal, state and local governments to reconsider restrictions on business and
social activities. In the event governments increase restrictions, the
re-opening of the economy may be further curtailed.
We have experienced some resulting disruptions to our business operations, as
these restrictions significantly impacted, and may continue to impact, many
sectors of the economy with various businesses curtailing or ceasing normal
operations. For example, since mid-March, we have had to restrict access to
certain office locations around the United States. However, as of the date of
this Form 10-Q, we have increased the permitted occupancy of certain of our
offices and facilities. The rest of our office-based personnel continue to be
productive through alternate work arrangements, leveraging a strong technology
platform to support our employees working remotely to perform their duties or
directly from their vehicles to serve our customers. Where we must maintain a
presence in the field, we have adjusted our operational protocols to minimize
exposure and risk to our field personnel, customers and the communities we
serve, including, among other things, modifying our work schedules and reporting
locations, delaying certain work types, such as maintenance and capital
projects, and adjusting project scope and scale to adhere to safety protocols,
while continuing to maintain the work activities necessary for safe and reliable
service to our customers with increased safety precautions. While certain of our
personnel have been, and may continue to be, quarantined, our operations and
corporate functions have not been adversely affected to date.
Certain of our NGD service territories were impacted by Hurricane Laura in
August 2020 and Hurricanes Delta and Zeta in October 2020. While our NGD field
personnel assessed and stabilized our impacted NGD facilities, our electric
operations mutual assistance crews from Texas and Indiana worked safely to
support the storm restoration efforts of other impacted utilities. Despite
COVID-19 conditions, neither our personnel nor our facilities experienced
significant performance or operational impacts from Hurricanes Laura, Delta and
Zeta.
Our first priority in our response to this crisis has been the health and safety
of our employees, our customers and other business counterparties. Because we
provide a critical service to our customers, it is paramount that we keep our
employees who operate our business safe and informed, and we have taken and are
updating precautions for that purpose. We have implemented preventative measures
and developed corporate and regional response plans to minimize unnecessary risk
of exposure and prevent infection, while supporting our customers' operations
under the circumstances. When an employee tests positive for COVID-19, we
investigate appropriately and take action to identify and notify potentially
exposed individuals, coordinate testing and clean work locations, among other
precautionary measures. If our employees feel sick or are awaiting COVID-19 test
results, they do not report to their respective work locations to protect the
health and safety of other employees. In addition, we have assessed and updated
our existing business continuity plans for each of our business units in the
context of this pandemic. We have a corporate response planning team who
assesses risks to the business, including for health, safety and environmental
matters and personnel issues, and addresses various impacts of the situation, as
they have been developing. We also have modified certain business practices
(including those related to employee travel, employee work locations and
participation in meetings, events and conferences) to conform to government
restrictions and best practices encouraged by the Centers for Disease Control
and Prevention, the World Health Organization and other governmental and
regulatory authorities. We are continuing to address concerns to protect the
health and safety of our employees and those of our customers and other business
counterparties, and this includes changes to comply with health-related
guidelines as they are modified and
62
--------------------------------------------------------------------------------
Table of Contents
supplemented. We are continuing to work with our suppliers to understand the
potential impacts to our supply chain, including identifying any negative
impacts to material supplies, working to mitigate them and pre-planning for
longer-term emergency response protocols. Since March 2020, we have not
experienced significant disruptions or challenges with respect to our supply
chain from the COVID-19 pandemic as a result of the aforementioned efforts with
our core vendors and suppliers. This is a continuously evolving situation and
could lead to further disruption of economic activity in our markets; we will
continue to monitor developments affecting our workforce, our customers and our
suppliers and take additional precautions as we believe are warranted.
An extended slowdown of economic growth, decreased demand for commodities and/or
material changes in governmental or regulatory policy in the United States has
resulted in, and could continue to result in, lower growth, including customer
growth, and reduced demand for and usage of electricity and natural gas in our
service territories as customer facilities continue to close or remain closed.
While residential electric usage has increased as individuals continue to stay
at home or work remotely, our business has experienced reduced demand and usage
among our electric and natural gas commercial and industrial customers as well
as a decrease in revenues from disconnections and reconnections due to the
disconnect moratoriums across our service territories due to COVID-19, which
have now expired or will expire in the fourth quarter of 2020 in certain of the
Registrants' service territories. Certain aspects of Houston Electric's rate
design could mitigate the negative impact of reduced demand among commercial and
industrial users. The ability of our customers, contractors and suppliers to
meet their obligations to us, including payment obligations, has also been
negatively impacted under the current economic conditions. For Houston Electric,
we are following PUCT orders regarding disconnection practices related to those
customers impacted by COVID-19. Benefits under the COVID-19 ERP ended on
September 30, 2020. Houston Electric has not experienced significant impacts
with respect to its customers meeting their payment obligations since March
2020. In our NGD service territories and for Indiana Electric, we informed
customers that disconnections for non-payment had been temporarily suspended and
in certain service territories continue to be temporarily suspended. However,
the disconnect moratoriums have now either expired or will expire during the
fourth quarter of 2020 in certain of the Registrants' service territories. As a
result of the disconnect moratoriums across our NGD service territories and
other payment deferrals or arrangements, days outstanding on receivables and
uncollectible accounts have increased, resulting in an increase to allowance for
doubtful accounts. To the extent these conditions in our service territories
persist, our bad debt expense from uncollectible accounts could continue to
increase, negatively impacting our financial condition, results of operations
and cash flows. Our NGD service territories and Indiana Electric have either (1)
received authority from their public utility commissions to defer bad debt
expense associated with COVID-19 as a regulatory asset or (2) exercised existing
authority to recover bad debt expense through an existing tracking mechanism.
Additionally, while we have not experienced delays to date due to COVID-19 with
respect to our regulatory proceedings, we could experience significant delays in
scheduling proceedings or hearings and in obtaining orders from regulatory
agencies. Any such delays could adversely affect our future results of
operations.
Due to macroeconomic conditions and the decline in our Common Stock price, we
identified a triggering event to perform an interim goodwill impairment test as
of March 31, 2020 and recognized a non-cash goodwill impairment charge of
$185 million in our Indiana Electric Integrated reporting unit for the three
months ended March 31, 2020. For further discussion of this impairment, see Note
10 to the Interim Condensed Financial Statements. CenterPoint Energy and CERC
did not identify triggering events in the three months ended June 30, 2020, and
goodwill impairment tests were not required or performed as of June 30, 2020.
CenterPoint Energy and CERC performed their annual goodwill impairment tests in
the third quarter of 2020 and determined that no goodwill impairment charge was
required for any reporting unit as a result of those tests.
As of the date of this Form 10-Q, our efforts to respond to the challenges
presented by the conditions described above and minimize the impacts to our
business have been successful. Our electric facilities and natural gas
distribution systems have remained operational and our customers have continued
to receive service. Although we continue to assess the COVID-19 situation, we
cannot estimate with any degree of certainty the full financial impact of the
COVID-19 pandemic on our business. Nor can we predict the effect that the
significant disruption and volatility currently being experienced in the markets
will have on our business, cash flows, liquidity, financial condition and
results of operations at this time. However, we expect the COVID-19 pandemic to
adversely impact us in future quarters due to the considerable uncertainty
regarding the extent to which COVID-19 will continue to spread and the extent
and duration of governmental and other measures implemented to try to slow the
spread of COVID-19, such as large-scale travel bans and restrictions, border
closures, quarantines, shelter-in-place orders and business and government
shutdowns. Restrictions of this nature have caused, and may continue to cause,
us, our suppliers and other business counterparties to experience operational
delays, closures or disruptions, among other things. The ultimate impacts to our
business, financial condition, results of operations, liquidity and cash flows
will depend on future developments and evolving factors, including, among
others, the ultimate duration, scope and spread of COVID-19, the consequences of
governmental and other measures designed to prevent the spread of COVID-19, the
development of effective treatments, actions taken by governmental authorities,
customers, suppliers and other third parties, workforce availability and the
timing and extent to which normal economic and operating conditions resume. For
additional discussion regarding risks associated with the COVID-19 pandemic, see
"Risk Factors" in Item 1A of Part II of this Form 10-Q.
63
--------------------------------------------------------------------------------
Table of Contents
Enable Quarterly Distributions. The price of, and global demand for, natural
gas, NGLs and crude oil have declined significantly in part as a result of the
ongoing spread and economic effects of the COVID-19 pandemic and the significant
governmental measures being implemented to control the spread of COVID-19 and
have remained depressed relative to pre-pandemic levels. Further, financial
market declines and volatility, together with deteriorating credit, liquidity
concerns, decreasing production, and increasing inventories, are conditions that
are associated with a general economic downturn. Producers have announced and
begun to implement plans to reduce production and decrease the drilling and
completion of wells in response to these conditions, which include reductions in
the exploration, development and production activity across Enable's areas of
operation. As a result, the effects of the COVID-19 pandemic and the decline in
demand and price for natural gas, NGLs and crude oil have and may continue to
negatively impact the demand for midstream services. In response to the impacts
of these developments on its business, on April 1, 2020, Enable announced a
reduction in its quarterly distributions per common unit from $0.3305
distributed for the fourth quarter 2019 to $0.16525, representing a 50%
reduction. To the extent such economic conditions persist or further
deteriorate, quarterly distributions on Enable's common units may be subject to
further reductions. For further information, see "-Liquidity and Capital
Resources-Future Sources and Uses of Cash" below.
CenterPoint Energy Financial Measures. On April 1, 2020, in response to the
current business environment and to strengthen its financial position and adjust
for the reduction in cash flow related to the reduction in Enable quarterly
common unit distributions, CenterPoint Energy announced targeted reductions in
(i) its quarterly common stock dividend to $0.1500 per share; (ii) 2020
operation and maintenance expenses, excluding certain merger costs, utility
costs to achieve savings, severance and amounts with revenue offsets; and (iii)
2020 capital spending. For further information, see "-Liquidity and Capital
Resources-Future Sources and Uses of Cash" below.
Enable Investment Impairment. CenterPoint Energy recognized a loss of $1,499
million on its investment in Enable for the nine months ended September 30,
2020. This loss included an impairment charge on its investment in Enable of
$1,541 million and CenterPoint Energy's interest in Enable's $225 million
impairment on an equity method investment. For further discussion, see Note 9 to
the Interim Condensed Financial Statements.
CenterPoint Energy Leadership Transition. On June 30, 2020, the Board of
Directors appointed David J. Lesar to the position of President and Chief
Executive Officer, effective July 1, 2020. On September 15, 2020, Jason P. Wells
was appointed to the position of Executive Vice President and Chief Financial
Officer, effective September 28, 2020.
Business Review and Evaluation Committee. On May 6, 2020, the Board of Directors
established a Business Review and Evaluation Committee, which was designed to
assist the Board of Directors in evaluating and optimizing the various
businesses, assets and ownership interests currently held by CenterPoint Energy.
In October 2020, the Business Review and Evaluation Committee completed its
review and has made final recommendations to the full Board of Directors for its
consideration.
Business Divestitures. On February 3, 2020, CenterPoint Energy, through its
subsidiary VUSI, entered into the Securities Purchase Agreement to sell the
Infrastructure Services Disposal Group. The transaction closed on April 9, 2020.
On February 24, 2020, CenterPoint Energy, through its subsidiary CERC Corp.,
entered into the Equity Purchase Agreement to sell the Energy Services Disposal
Group. The transaction closed on June 1, 2020. For further information, see Note
3 to the Interim Condensed Financial Statements.
Regulatory Proceedings. On April 5, 2019, and subsequently adjusted in errata
filings in May and June 2019, Houston Electric filed its base rate application
with the PUCT and the cities in its service area to change its rates. A
settlement was reached and a final order from the PUCT was received on March 9,
2020. New rates were implemented on April 23, 2020. For details related to our
pending and completed regulatory proceedings and orders related to the TCJA to
date in 2020, see "-Liquidity and Capital Resources -Regulatory Matters" below.
Equity Transactions. On May 6, 2020, CenterPoint Energy entered into agreements
for the private placements of its Series C Preferred Stock and its Common Stock.
For more information about the private placements, see Note 19 to the Interim
Condensed Financial Statements.
Debt Transactions. In June 2020, Houston Electric issued $300 million aggregate
principal amount of general mortgage bonds. In September 2020, SIGECO completed
the remarketing of two series of tax-exempt debt of approximately $38 million
aggregate principal amount. In September 2020, VCC terminated its $200 million
credit agreement. In September 2020, CERC Corp. provided notice of redemption
relating to $593 million aggregate principal amount of its senior notes, which
were redeemed in full in October 2020. In October 2020, CERC Corp. issued $500
million aggregate principal amount of senior notes. For more information, see
Note 12 to the Interim Condensed Financial Statements.
64
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source Glimpses
CENTERPOINT ENERGY, INC. 
