CENTERPOINT ENERGY INC - Quarter Report: 2020 March (Form 10-Q)

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•	the performance of Enable, the amount of cash distributions CenterPoint Energy receives from Enable, Enable’s ability to redeem the Enable Series A Preferred Units in certain circumstances and the value of CenterPoint Energy’s interest in Enable, and factors that may have a material impact on such performance, cash distributions and value, including factors such as:

◦	competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including drilling, production and capital spending decisions of third parties and the extent and timing of the entry of additional competition in the markets served by Enable;

◦

the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and NGLs, the competitive effects of the available pipeline capacity in the regions served by Enable, and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable’s interstate pipelines;

◦	economic effects of the recent actions of Saudi Arabia, Russia and other oil-producing countries, which have resulted in a substantial decrease in oil and natural gas prices, and the combined impact of these events and COVID-19 on commodity prices;

◦	the demand for crude oil, natural gas, NGLs and transportation and storage services;

◦	environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing;

◦	recording of goodwill, long-lived asset or other than temporary impairment charges by or related to Enable;

◦	the timing of payments from Enable’s customers under existing contracts, including minimum volume commitment payments;

◦	changes in tax status; and

◦	access to debt and equity capital;

•	the COVID-19 pandemic and its effect on our and Enable’s 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 and a substantial recent decline in the markets for oil and natural gas as a result of the actions of crude-oil exporting nations and the Organization of Petroleum Exporting Countries and reduced worldwide consumption due to the COVID-19 pandemic;

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•	the expected benefits of the Merger and integration, including the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits of the Merger, as well as the ability to successfully integrate the Vectren businesses and to realize anticipated benefits and commercial opportunities;

•	the recording of impairment charges, including any impairment or loss associated with the sale of the Infrastructure Services and Energy Services Disposal Groups;

•	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;

•	timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;

•	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;

•	state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable), 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;

•	tax legislation, including the effects of the CARES Act and of the TCJA (which includes any potential changes to interest deductibility) and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;

•	CenterPoint Energy’s and CERC’s ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;

•	the timing and extent of changes in commodity prices, particularly natural gas and coal, and the effects of geographic and seasonal commodity price differentials on CERC and Enable;

•	the ability of CenterPoint Energy’s and CERC’s non-utility business operating in the Energy Services Disposal Group to effectively optimize opportunities related to natural gas price volatility and storage activities, including weather-related impacts;

•	actions by credit rating agencies, including any potential downgrades to credit ratings;

•	problems with 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;

•	the availability and prices of raw materials and services and changes in labor for current and future construction projects;

•	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 the continued operation, and/or cost recovery of generation plant costs and related assets;

•	the impact of unplanned facility outages or other closures;

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any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, 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, pandemic health events or other occurrences;

•	our ability to invest planned capital and the timely recovery of our investments, including those related to Indiana Electric’s anticipated 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;

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•	our ability to control operation and maintenance costs;

•	the sufficiency of our insurance coverage, including availability, cost, coverage and terms and ability to recover claims;

•	the investment performance of CenterPoint Energy’s pension and postretirement benefit plans;

•	changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint 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 and Enable’s risk management and hedging activities, including, but not limited to financial and weather hedges and commodity risk management activities;

•	timely and appropriate regulatory actions, which include actions allowing securitization, for any future hurricanes or natural disasters or other recovery of costs;

•	the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric;

•	CenterPoint Energy’s or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses, including the proposed sale of CES, which CenterPoint Energy and Enable cannot assure will be completed or will have the anticipated benefits to CenterPoint Energy or Enable;

•	acquisition and merger activities involving us or our competitors, including the ability to successfully complete merger, acquisition and divestiture plans;

•	our or Enable’s ability to recruit, effectively transition and retain management and key employees and maintain good labor relations;

•	the outcome of litigation;

•	the development of new opportunities and the performance of projects undertaken by ESG, including, 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 and guarantees;

•	changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation;

•	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;

•	the transition to a replacement for the LIBOR benchmark interest rate;

•	the effect of changes in and application of accounting standards and pronouncements; and

•	other factors discussed in “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2019 Form 10-K, which are incorporated herein by reference, in Item 1A of Part II of this Form 10-Q and other reports the Registrants file from time to time with the SEC.

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•	Houston Electric owns and operates electric transmission and distribution facilities in the Texas Gulf Coast area that includes the city of Houston.

•	CERC (i) owns and operates natural gas distribution systems in six states; (ii) owns and operates permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP; and (iii) provides temporary delivery of LNG and CNG throughout the contiguous 48 states through MES.

•	Vectren holds three public utilities through its wholly-owned subsidiary, VUHI, a public utility holding company:

•	Indiana Gas provides energy delivery services to natural gas customers located in central and southern Indiana;

•	SIGECO provides energy delivery services to electric and natural gas customers located near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market; and

•	VEDO provides energy delivery services to natural gas customers located near Dayton in west-central Ohio.

•	Vectren performs non-utility activities through ESG, which provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.

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(1)	Reflects February 1, 2019 to March 31, 2019 results only due to the Merger.

(2)	Loss from classification to held for sale is inclusive of goodwill impairment and, for CenterPoint Energy, its costs to sell.

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(1)	Represents charges for the period February 1, 2019 through March 31, 2019 only due to the Merger.

(1)	Primarily consists of income from ARPs, weather hedge gains (losses) and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation

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(2)	Reflects revenues from Vectren subsidiaries for the period from February 1, 2019 to March 31, 2019.

(1)

Primarily consists of income from ARPs, weather hedge gains (losses) and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period. Lease income was not significant for the three months ended March 31, 2020 and 2019.

(1)

Primarily consists of income from ARPs, weather hedge gains (losses) and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period. Lease income was not significant for the three months ended March 31, 2020 and 2019.

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(1)	Amounts presented in the table above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.

(2)	Amounts presented in the table above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals.

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(3)	A curtailment gain or loss is required when the expected future services of a significant number of employees are reduced or eliminated for the accrual of benefits. In February 2019, CenterPoint Energy recognized a pension curtailment gain of $1 million related to Vectren employees whose employment was terminated after the Merger closed.

(1)	Amounts presented in the tables above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.

(2)	Amounts presented in the tables above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals.

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•	an overall revenue requirement increase of approximately $13 million;

•	an ROE of 9.4%;

•	a capital structure of 57.5% debt/42.5% equity;

•	a refund of unprotected EDIT of $105 million plus carrying costs over approximately 30-36 months; and

•	recovery of all retail transmission related costs through the TCRF.

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(a)	Non-Trading Activities

(1)	Relates to interest rate derivative instruments at SIGECO.

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(b)	Derivative Fair Values and Income Statement Impacts

(1)	The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 2,126 Bcf or a net 232 Bcf long position and 2,226 Bcf or a net 374 Bcf long position as of March 31, 2020 and December 31, 2019, respectively. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)	Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below.

(3)	Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.

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(1)	The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 2,126 Bcf or a net 232 Bcf long position and 2,226 Bcf or a net 374 Bcf long position as of March 31, 2020 and December 31, 2019, respectively. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)	Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below.

(3)	Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.

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(1)	Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)	The derivative assets and liabilities on the Registrant’s respective Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.

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(1)	Income statement impact associated with cash flow hedge activity is related to gains and losses reclassified from Accumulated other comprehensive income into income. Amounts are immaterial for each Registrant in the three months ended March 31, 2020 and 2019, respectively.

(c)	Credit Risk Contingent Features (CenterPoint Energy and CERC)

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(1)	Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy and CERC to settle positive and negative positions and also include cash collateral posted with the same counterparties as follows:

(2)	Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

(3)	Natural gas derivatives include no material amounts related to physical forward transactions with Enable.

(4)

Level 1 natural gas derivatives include exchange-traded derivatives cleared by the CME, which deems that financial instruments cleared by the CME are settled daily in connection with posted cash payments. As a result of this exchange rule, CME-related derivatives are considered to have no fair value at the balance sheet date for financial reporting purposes and are presented in Level 1 net of posted cash; however, the derivatives remain outstanding and subject to future commodity price fluctuations until they are settled in accordance with their contractual terms. Derivative transactions cleared on exchanges other than the CME (e.g., the Intercontinental Exchange or ICE) continue to be reported on a gross basis.

(5)	Amounts are classified as held for sale in the Registrants’ respective Condensed Consolidated Balance Sheets.

(1)	CenterPoint Energy and CERC did not have significant Level 3 purchases or sales during the three months ended March 31, 2020 or 2019. The Level 3 assets and liabilities as of March 31, 2020 and 2019 are classified in the CenterPoint Energy’s and CERC’s respective Condensed Consolidated Balance Sheets as held for sale.

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(1)	Includes Securitization Bonds debt.

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(1)	Excludes the Enable Series A Preferred Units owned by CenterPoint Energy.

(2)	Held indirectly through CNP Midstream by CenterPoint Energy.

(3)	The carrying amount of the Enable Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of March 31, 2020 and $363 million as of December 31, 2019. No impairment charges or adjustment due to observable price changes were required or recorded during the current or prior reporting periods.

(1)	Enable is controlled jointly by CenterPoint Energy and OGE. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable GP to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable GP.

(2)

Enable previously expected to pay a minimum quarterly distribution of $0.2875 per common unit on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to Enable GP and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, Enable GP will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances Enable GP will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made.

(3)	Held indirectly through CNP Midstream.

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(1)	On April 1, 2020, Enable announced a 50% reduction in its quarterly distribution per common unit from $0.3305 to $0.16525.

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(1)	Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in Enable and its underlying equity in net assets of Enable. The basis difference is being amortized through the year 2048.

(1)	Includes the impairment of CenterPoint Energy’s equity method investment in Enable of $1,541 million recorded during the three months ended March 31, 2020. The basis difference is being amortized through the year 2048.

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(1)	Amortization expense related to the operation and maintenance agreements and construction backlog is included in Non-utility cost of revenues, including natural gas on CenterPoint Energy’s Condensed Statements of Consolidated Income.

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(a)	Short-term Borrowings (CenterPoint Energy and CERC)

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(b)	Long-term Debt

(1)	Based on current credit ratings.

(2)	As defined in the revolving credit facility agreements, excluding Securitization Bonds.

(3)

For CenterPoint Energy and Houston Electric, the financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

(4)	This credit facility was issued by VUHI, is guaranteed by SIGECO, Indiana Gas and VEDO and includes a $10 million swing line sublimit and a $20 million letter of credit sublimit. This credit facility backstops VUHI’s commercial paper program.

(5)	This credit facility was issued by VCC, is guaranteed by Vectren and includes a $40 million swing line sublimit and an $80 million letter of credit sublimit.

(1)	CenterPoint Energy’s outstanding commercial paper generally has maturities of 60 days or less.

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(2)	This credit facility was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO.

(3)	This credit facility was issued by VCC and is guaranteed by Vectren.

(1)

CenterPoint Energy’s higher effective tax rate on the loss from continuing operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily due to lower earnings from the impairment of CenterPoint Energy’s investment in Enable. Other effective tax rate drivers include the non-deductible goodwill impairment at the Indiana Electric Integrated reporting unit, the impact of NOL carryback claims allowed under the CARES Act, and an increase in the amount of remeasurement of state deferred tax liabilities for changes in apportionment, the effects of which were compounded by the book loss in the three months ended March 31, 2020.

(2)	CenterPoint Energy’s lower effective tax rate on the loss from discontinued operations for the three months ended March 31, 2020 was primarily due to the non-deductible portions of goodwill impairments on the Energy Services and Infrastructure Services Disposal Groups.

(3)	Houston Electric's lower effective tax rate for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily due to an increase in the amount of amortization of the net regulatory EDIT liability.

(4)	CERC’s higher effective tax rate on income from continuing operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily due to a decrease in the amount of amortization of the net regulatory EDIT liability.

(5)	CERC’s lower effective tax rate on the loss from discontinued operations for the three months ended March 31, 2020 was due to the non-deductible portion of the goodwill impairment on the Energy Services Disposal Group.

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(a)	Purchase Obligations (CenterPoint Energy and CERC)

(1)	Excludes Energy Services Disposal Group obligations.

(b)	Guarantees and Product Warranties (CenterPoint Energy)

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(c)	Guarantees and Product Warranties (CenterPoint Energy and CERC)

(d)	Legal, Environmental and Other Matters

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(i)	Minnesota MGPs (CenterPoint Energy and CERC). With respect to certain Minnesota MGP sites, CenterPoint Energy and CERC have completed state-ordered remediation and continue state-ordered monitoring and water treatment. CenterPoint Energy and CERC recorded a liability as reflected in the table below for continued monitoring and any future remediation required by regulators in Minnesota.

(ii)

Indiana MGPs (CenterPoint Energy). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in five manufactured gas plant sites in SIGECO’s service territory, all of which are currently enrolled in the IDEM’s VRP. CenterPoint Energy is currently conducting some level of remedial activities, including groundwater monitoring at certain sites.

(iii)	Other MGPs (CenterPoint Energy and CERC). In addition to the Minnesota and Indiana sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CenterPoint Energy or CERC or may have been owned by one of their former affiliates.

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(1)	2,567,000 incremental shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the three months ended March 31, 2020, as their inclusion would be anti-dilutive.

(2)

The potentially dilutive impact from Series B Preferred Stock applies the if-converted method in calculating diluted earnings per common share. Under this method, diluted earnings per common share is adjusted for the more dilutive effect of the Series B Preferred Stock as a result of either its accumulated dividend for the period in the numerator or the assumed-converted common share equivalent in the denominator. The computation of diluted earnings per common share outstanding for the three months ended March 31, 2020 and 2019 excludes Series B Preferred Stock dividends of $17 million and $17 million, respectively, and 35,923,000 and 34,354,000 potentially dilutive shares, respectively, because to include them would be anti-dilutive. However, these could be potentially dilutive in the future.

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•	CenterPoint Energy’s and Houston Electric’s Houston Electric T&D reportable segment consists of electric transmission and distribution services in the Texas Gulf Coast area.

•	CenterPoint Energy’s Indiana Electric Integrated reportable segment consists of electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations.

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CenterPoint Energy’s Natural Gas Distribution reportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Ohio, Oklahoma and Texas; (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP, formerly included in the Energy Services reportable segment; and (iii) temporary delivery of LNG and CNG throughout the contiguous 48 states through MES, formerly included in the Energy Services reportable segment.

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CERC’s Natural Gas Distribution reportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas; (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP, formerly included in the Energy Services reportable segment; and (iii) temporary delivery of LNG and CNG throughout the contiguous 48 states through MES, formerly included in the Energy Services reportable segment.

•	CenterPoint Energy’s Midstream Investments reportable segment consists of the equity investment in Enable (excluding the Enable Series A Preferred Units).

•	CenterPoint Energy’s Corporate and Other consists of energy performance contracting and sustainable infrastructure services through ESG and other corporate operations which support all of the business operations of CenterPoint Energy.

•	CERC’s Corporate and Other consists primarily of corporate operations which support all of the business operations of CERC.

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(1)	Excludes interest income from Securitization Bonds of $1 million and $2 million for the three months ended March 31, 2020 and 2019, respectively.

(2)	Excludes interest expense on Securitization Bonds of $8 million and $12 million for the three months ended March 31, 2020 and 2019, respectively.

(3)	CenterPoint Energy’s Houston Electric T&D’s revenues from major external customers are as follows:

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(1)	2019 includes the transition impact of adoption of ASU 2016-02 Leases.

(1)	Included in Accounts and notes receivable (payable)–affiliated companies on Houston Electric’s and CERC’s respective Condensed Consolidated Balance Sheets.

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(1)	Interest income is included in Other income (expense), net and interest expense is included in Interest and other finance charges on Houston Electric’s and CERC’s respective Condensed Statements of Consolidated Income.

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(1)

Gains and losses are reclassified from Accumulated other comprehensive income into income when the hedged transactions affect earnings. The reclassification amounts are included in Interest and other finance charges in each of the Registrants’ respective Statements of Consolidated Income. Over the next twelve months estimated amortization from Accumulated Comprehensive Income into income is expected to be immaterial.

(2)	Amounts are included in the computation of net periodic cost and are reflected in Other income (expense), net in each of the Registrants’ respective Statements of Consolidated Income.

(1)	On April 1, 2020, in response to the reduction in cash flow related to the reduction in Enable quarterly common unit distributions announced by Enable on April 1, 2020, CenterPoint Energy announced a reduction of its quarterly common stock dividend per share from $0.2900 to $0.1500.

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(1)	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.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

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•	a $1,151 million decrease in net income from the Midstream Investments reportable segment further discussed under Results of Operations by Reportable Segment below;

•	a $172 million increase in loss from discontinued operations, net related to the Infrastructure Services and Energy Services Disposal Groups further discussed in Note 3 to the Interim Condensed Financial Statements; and

•	a $162 million decrease in net income from the Indiana Electric Integrated reportable segment further discussed under Results of Operations by Reportable Segment below.

•	an $84 million increase in net income from the Natural Gas Distribution reportable segment further discussed under Results of Operations by Reportable Segment below;

•	a $26 million increase in net income from Corporate and Other further discussed under Results of Operations by Reportable Segment below; and

•	a $7 million increase in net income from the Houston Electric T&D reportable segment further discussed under Results of Operations by Reportable Segment below.

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(1)	Excludes weather hedge gains of $4 million and $3 million for the three months ended March 31, 2020 and 2019, respectively, recorded in Utility revenues on CenterPoint Energy’s Condensed Statements of Consolidated Income. See Note 7(a) to the Interim Condensed Financial Statements for more information on the weather hedge.

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•	a $15 million increase in net income from the Natural Gas Distribution reportable segment discussed further under Results of Operations by Reportable Segment below; and

•	a $6 million increase in net income from Corporate and Other.

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(1)

Net income for CenterPoint Energy’s Houston Electric T&D reportable segment differs from net income for Houston Electric due to weather hedge gains (losses) recorded at CenterPoint Energy that are not recorded at Houston Electric. Utility revenues in CenterPoint Energy’s Condensed Statements of Consolidated Income included weather hedge gains (losses) of $4 million and $3 million for the three months ended March 31, 2020 and 2019, respectively, for CenterPoint Energy’s Houston Electric T&D reportable segment. See Note 7(a) to the Interim Condensed Financial Statements for more information on weather hedges.

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•	decreased operation and maintenance expenses of $17 million, inclusive of a $6 million decrease in severance costs, primarily due to lower labor and benefits costs, lower support services costs, and lower contract services costs;

•	a $5 million increase in Other income (expense), net due to income associated with corporate-owned life insurance.

•	higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $9 million;

•	lower equity return of $5 million, primarily related to the annual true-up of transition charges to correct over-collections that occurred during the preceding 12 months;

•	lower miscellaneous revenues of $3 million, primarily related to right-of-way revenues;

•	decreased interest income of $3 million, primarily due to lower investments in the CenterPoint Energy money pool; and

•	higher transmission costs billed by transmission providers of $9 million, partially offset by higher transmission-related revenues of $7 million.

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(1)	Represents February 1, 2019 through March 31, 2019 results only due to the Merger.

•	a $185 million goodwill impairment charge further discussed in Note 10 to the Interim Condensed Financial Statements;

•	a $9 million increase in depreciation and amortization expense from the inclusion of expense for three months in 2020 versus two months included in 2019 due to the Merger on February 1, 2019;

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•	a $5 million increase in state and federal income taxes driven by growth in earnings and the non-deductible goodwill impairment;

•	a $3 million decrease in customer margin due to unfavorable weather not protected by weather normalization mechanisms; and

•	a $3 million increase in interest expense from the inclusion of expense for three months in 2020 versus two months included in 2019 due to the Merger on February 1, 2019.

•	a $34 million increase in electric margin from the inclusion of results for three months in 2020 versus two months included in 2019 due to the Merger on February 1, 2019;

•	a $3 million increase in margin associated with the Indiana Electric infrastructure replacement TDSIC program; and

•

a $4 million decrease in operation and maintenance expense inclusive of a $19 million reduction in Merger-related severance and incentive compensation costs in 2019 and a timing related reduction of plant maintenance expenditures of $2 million, partially offset by a $17 million increase from the inclusion of expense for three months in 2020 versus two months included in 2019 due to the Merger on February 1, 2019.

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(1)	Includes only February 1, 2019 through March 31, 2019 results of acquired natural gas businesses due to the Merger.

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•	a $65 million increase in margin related to an additional month of earnings in 2020 related to the Indiana and Ohio jurisdictions acquired in the Merger on February 1, 2019;

•	rate increases of $46 million in Minnesota, Arkansas and Texas, exclusive of the TCJA impact discussed below;

•	a $44 million reduction in operation and maintenance expense, primarily due to a $53 million decrease in Merger-related severance costs in 2019, offset by an additional month of operation and maintenance expense in the Indiana and Ohio jurisdictions acquired in the Merger on February 1, 2019;

•	a $5 million increase in revenues associated with customer growth from the addition of over 46,000 new customers; and

•	an increase in revenue of $4 million related to the impact of the TCJA in Arkansas, which was offset by lower TCJA revenue impacts in Texas, Indiana, Ohio and Mississippi.

•	a $30 million increase in state and federal income taxes driven by growth in earnings and an additional month of expense in 2020 related to the Indiana and Ohio jurisdictions acquired in the Merger on February 1, 2019;

•	a $16 million increase in depreciation and amortization and a $12 million increase in other non-income related taxes, primarily due to capital projects placed in service in 2020 and an additional month of expense in 2020 related to the Indiana and Ohio jurisdictions acquired in the Merger on February 1, 2019;

•	$10 million of lower revenue attributed to milder weather and lower customer usage; and

•	a $9 million increase in interest expense due to incremental financing to fund capital projects and an additional month of expense in 2020 related to the Indiana and Ohio jurisdictions acquired in the Merger on February 1, 2019.

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•	rate increases of $28 million in Minnesota, Arkansas and Texas, exclusive of the TCJA impact discussed below;

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•	a $17 million reduction in operation and maintenance expense, inclusive of a $10 million decrease in Merger-related severance costs in 2019, primarily due to lower labor benefits and support services costs;

•	higher revenue of $5 million related to the impact of the TCJA in Arkansas, which was offset by lower TCJA revenue impacts in Texas and Mississippi; and

•	a $2 million increase in revenues associated with customer growth from the addition of almost 37,000 new customers.

•	an $18 million increase in state and federal income taxes and interest expense, primarily due to increased taxable income;

•	$8 million of lower revenue attributed to milder weather and lower customer usage as compared to the three months ended March 31, 2019;

•	a $5 million increase in property and other non-income related taxes, primarily due to increases in local tax rates and property valuations;

•	a $2 million increase in interest expense, primarily due to increased debt financing to fund an increase in capital projects in 2020; and

•	a $1 million increase in depreciation and amortization from an increase of incremental capital projects placed in service in 2020.

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•	a $1,541 million impairment charge recorded on CenterPoint Energy’s equity investment in Enable (see Note 9 to the Interim Condensed Financial Statements for further information); and

•	a $6 million decrease in Equity in Earnings from Enable.

•	a $389 million increase in income tax benefit primarily resulting from the impairment charge discussed above and a lower effective tax rate in 2020; and

•	a $10 million decrease in the loss on dilution.

(1)	Includes only February 1, 2019 through March 31, 2019 results of the ESG business acquired in the Merger.

•	a $221 million increase in gains on the underlying value of indexed debt securities related to the ZENS;

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•	a $19 million decrease in operation and maintenance expenses primarily due to the following:

◦	lower corporate allocations retained in continuing operations related to the Infrastructure Services Disposal Group of $11 million primarily from Merger-related severance and incentive compensation costs incurred in 2019 that did not recur in 2020;

◦	decreased benefits and services costs of $4 million;

◦	decreased software maintenance costs of $2 million; and

◦	reduced Merger-related integration costs of $2 million incurred in 2019 that did not recur in 2020;

•	a $19 million increase in margin primarily related to higher margin of $9 million at ESG from two large federal projects in 2020 and the reduction of Merger-related amortization of intangibles for construction backlog of $6 million in non-utility cost of revenues, including natural gas; and

•	a $6 million increase in income tax benefit.

•	a $227 million increase in losses on marketable securities;

•	a $12 million increase in interest expense from the inclusion of expense for three months in 2020 versus two months included in 2019 due to additional debt acquired in the Merger on February 1, 2019; and

•	a $3 million increase in depreciation and amortization from the inclusion of expense for three months in 2020 versus two months included in 2019 for businesses acquired in the Merger on February 1, 2019.

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(1)	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.

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Transmission and distribution utilities must file a tariff rider to collect funds to reimburse costs related to unpaid bills from eligible residential customers unemployed due to the impacts of COVID-19. The rider is based on $0.33 per MW hour ($0.00033 per KW hour) to be applied to all customer classes. Houston Electric filed its updated tariff implementing the rider on March 31, 2020, which was approved by the PUCT on April 2, 2020.

•	Transmission and distribution utilities entered into no-interest loan agreements with ERCOT to provide for an initial fund balance for reimbursement. On April 13, 2020, in connection with the PUCT’s COVID-19 ERP, Houston Electric entered into a no-interest loan agreement with ERCOT for approximately $5 million.

•	The fund administered by each transmission and distribution utility for the COVID-19 ERP can also receive donations and grants from governmental entities, corporations, and other entities. Any funds received from other sources shall be administered and treated in the same manner by the transmission and distribution utilities as the funds in the program from the rider.

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•	Transmission and distribution utilities may petition the PUCT for changes to the COVID-19 ERP, including the level of the rider in the event that the funds collected are not sufficient to cover reimbursements.

•	REPs will identify eligible customers to the relevant transmission and distribution utilities, and the transmission and distribution utilities will cease charging REPs for associated delivery charges, except securitization related charges. REPs will cease submitting disconnection for non-payment orders to transmission and distribution utilities for eligible customers.

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The funds collected through the rider will be used to reimburse the following entities and costs: REPs’ energy charges related to eligible residential customers with an unpaid, past due electric bill subject to a disconnection for non-payment notice (reimbursement amounts are based on an average energy cost of $0.04 per KW hour); transmission and distribution utilities’ delivery charges related to eligible residential customers with an unpaid, past due electric bill subject to a disconnection for non-payment notice; the third-party administrator to cover its reasonable costs of administering the COVID-19 ERP eligibility process; and ERCOT for the loan to the transmission and distribution utilities.

•	REPs will submit one spreadsheet with reimbursement claims to transmission and distribution utilities beginning on April 30, 2020 and all subsequent requests that may be made on the 15th of each month, and transmission and distribution utilities will process reimbursement payments within 14 days.

•	Transmission and distribution utilities will prepare reports and file them at the PUCT every 30 days showing aggregate amounts of reimbursements to the transmission and distribution utilities and REPs.

•	all necessary and reasonable incremental costs or expenses to plan, prepare, stage, or react to protect and keep safe its employees and customers, and to reliably operate its utility system beginning with the date of the Governor of Mississippi’s declared state of emergency; and

•	any costs, including any incremental bad debt expenses and all associated credit and collection costs, related to connections, reconnections, or disconnections for all customers classes. This deferral authorization includes, but is not limited to, customer-paid fees.

•	an overall revenue requirement increase of approximately $13 million;

•	an ROE of 9.4%;

•	a capital structure of 57.5% debt/42.5% equity;

•	a refund of unprotected EDIT of $105 million plus carrying costs over approximately 30-36 months; and

•	recovery of all retail transmission related costs through the TCRF.

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(1)	Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.

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(1)	The credit facility was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO.

(2)	The credit facility was issued by VCC and is guaranteed by Vectren.

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(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.

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•	reductions in the cash distributions we receive from Enable;

•	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 of CenterPoint Energy’s and CERC’s Natural Gas Distribution reportable segment;

•	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);

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•	increases in interest expense in connection with debt refinancings and borrowings under credit facilities or term loans;

•	various legislative or regulatory actions;

•	incremental collateral, if any, that may be required due to regulation of derivatives (CenterPoint Energy and CERC);

•	the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric, including the negative impact on such ability related to COVID-19;

•	slower customer payments and increased write-offs of receivables due to higher natural gas prices, changing economic conditions or COVID-19 (CenterPoint Energy and CERC);

•	the satisfaction of any obligations pursuant to guarantees;

•	the outcome of litigation;

•	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 the Registrants’ combined 2019 Form 10-K and in Item 1A of Part II of this Form 10-Q.

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Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 4.	CONTROLS AND PROCEDURES

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Item 1.	LEGAL PROCEEDINGS

Item 1A.	RISK FACTORS

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Item 6.	EXHIBITS

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