Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

CenterPoint Energy, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheets of CenterPoint Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related statements of consolidated income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CenterPoint Energy, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

February 26, 2016

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

Year Ended December 31,
201520142013
(in millions, except per share amounts)
Revenues$7,386$9,226$8,106
Expenses:
Natural gas3,1024,9213,908
Operation and maintenance2,0071,9691,847
Depreciation and amortization9701,013954
Taxes other than income taxes374388387
Total6,4538,2917,096
Operating Income9339351,010
Other Income (Expense):
Gain (Loss) on marketable securities(93)163236
Gain (Loss) on indexed debt securities74(86)(193)
Interest and other finance charges(352)(353)(351)
Interest on transition and system restoration bonds(105)(118)(133)
Equity in earnings (losses) of unconsolidated affiliates(1,633)308188
Other, net463624
Total(2,063)(50)(229)
Income (Loss) Before Income Taxes(1,130)885781
Income tax expense (benefit)(438)274470
Net Income (Loss)$(692)$611$311
Basic Earnings (Loss) Per Share$(1.61)$1.42$0.73
Diluted Earnings (Loss) Per Share$(1.61)$1.42$0.72
Weighted Average Shares Outstanding, Basic430430428
Weighted Average Shares Outstanding, Diluted430432431

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

Year Ended December 31,
201520142013
(in millions)
Net income (loss)$(692)$611$311
Other comprehensive income:
Adjustment to pension and other postretirement plans (net of tax of $12, $5 and $25, respectively)20344
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax)—11
Other comprehensive income20445
Comprehensive income (loss)$(672)$615$356

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2015December 31, 2014
(in millions)
ASSETS
Current Assets:
Cash and cash equivalents ($264 and $290 related to VIEs, respectively)$264$298
Investment in marketable securities805930
Accounts receivable ($64 and $58 related to VIEs, respectively), less bad debt reserve of $20 and $26, respectively593837
Accrued unbilled revenues279357
Inventory347379
Non-trading derivative assets8999
Taxes receivable172190
Prepaid expense and other current assets ($35 and $47 related to VIEs, respectively)140178
Total current assets2,6893,268
Property, Plant and Equipment, net11,53710,502
Other Assets:
Goodwill840840
Regulatory assets ($2,373 and $2,738 related to VIEs, respectively)3,1293,527
Notes receivable - affiliated companies363363
Non-trading derivative assets3632
Investment in unconsolidated affiliates2,5944,521
Other146147
Total other assets7,1089,430
Total Assets$21,334$23,200
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term borrowings$40$53
Current portion of VIE transition and system restoration bonds long-term debt391372
Indexed debt154152
Current portion of other long-term debt328271
Indexed debt securities derivative442541
Accounts payable483716
Taxes accrued158161
Interest accrued117124
Non-trading derivative liabilities1119
Other343383
Total current liabilities2,4672,792
Other Liabilities:
Deferred income taxes, net5,0475,440
Non-trading derivative liabilities51
Benefit obligations904953
Regulatory liabilities1,2761,206
Other273251
Total other liabilities7,5057,851
Long-term Debt:
VIE transition and system restoration bonds2,2832,674
Other long-term debt5,6185,335
Total long-term debt7,9018,009
Commitments and Contingencies (Note 14)
Shareholders’ Equity3,4614,548
Total Liabilities and Shareholders’ Equity$21,334$23,200

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

Year Ended December 31,
201520142013
(in millions)
Cash Flows from Operating Activities:
Net income (loss)$(692)$611$311
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization9701,013954
Amortization of deferred financing costs272830
Deferred income taxes(413)280356
Unrealized loss (gain) on marketable securities93(163)(236)
Loss (gain) on indexed debt securities(74)86193
Write-down of natural gas inventory484
Equity in (earnings) losses of unconsolidated affiliates, net of distributions1,779(2)(58)
Pension contributions(66)(97)(91)
Changes in other assets and liabilities:
Accounts receivable and unbilled revenues, net34539(256)
Inventory28(102)(22)
Taxes receivable18(190)7
Accounts payable(224)(3)152
Fuel cost recovery43(41)108
Non-trading derivatives, net(7)(34)4
Margin deposits, net(4)(79)16
Interest and taxes accrued(10)(23)41
Net regulatory assets and liabilities632261
Other current assets101(2)
Other current liabilities(50)(20)21
Other assets(5)9(24)
Other liabilities84120
Other, net221324
Net cash provided by operating activities1,8651,3971,613
Cash Flows from Investing Activities:
Capital expenditures(1,584)(1,372)(1,286)
Distributions from unconsolidated affiliates in excess of cumulative earnings148——
Decrease (increase) in restricted cash of transition and system restoration bond companies12(7)17
Investment in unconsolidated affiliates—(1)—
Cash contribution to Enable——(38)
Proceeds from sale of marketable securities32—9
Other, net5(4)(2)
Net cash used in investing activities(1,387)(1,384)(1,300)
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net(13)105
Proceeds from commercial paper, net403414118
Proceeds from long-term debt—6001,050
Payments of long-term debt(644)(537)(1,573)
Long-term revolving credit facility200——
Cash paid for debt exchange and debt retirement—(1)(7)
Debt issuance costs—(8)(3)
Redemption of indexed debt securities——(8)
Payment of common stock dividends(426)(408)(355)
Proceeds from issuance of common stock, net—14
Distribution to ZENS holders(32)——
Other, net—618
Net cash provided by (used in) financing activities(512)77(751)
Net Increase (Decrease) in Cash and Cash Equivalents(34)90(438)
Cash and Cash Equivalents at Beginning of Year298208646
Cash and Cash Equivalents at End of Year$264$298$208

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS, cont.

Year Ended December 31,
201520142013
(in millions)
Supplemental Disclosure of Cash Flow Information:
Cash Payments:
Interest, net of capitalized interest$426$434$475
Income taxes (refunds), net(45)19235
Non-cash transactions:
Accounts payable related to capital expenditures9510474
Formation of Enable——4,252
Exercise of SESH put to Enable1196—

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

201520142013
SharesAmountSharesAmountSharesAmount
(in millions of dollars and shares)
Preference Stock, none outstanding—$——$——$—
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares, none outstanding——————
Common Stock, $0.01 par value; authorized 1,000,000,000 shares
Balance, beginning of year430442944284
Issuances related to benefit and investment plans——1—1—
Balance, end of year430443044294
Additional Paid-in-Capital
Balance, beginning of year4,1694,1574,130
Issuances related to benefit and investment plans111227
Balance, end of year4,1804,1694,157
Retained Earnings (Accumulated Deficit)
Balance, beginning of year461258302
Net income (loss)(692)611311
Common stock dividends(426)(408)(355)
Balance, end of year(657)461258
Accumulated Other Comprehensive Loss
Balance, end of year:
Adjustment to pension and postretirement plans(65)(85)(88)
Net deferred loss from cash flow hedges(1)(1)(2)
Total accumulated other comprehensive loss, end of year(66)(86)(90)
Total Shareholders’ Equity$3,461$4,548$4,329

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Background

CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy’s operating subsidiaries own and operate electric transmission and distribution facilities and natural gas distribution facilities and own interests in Enable Midstream Partners, LP (Enable) as described below. As of December 31, 2015, CenterPoint Energy’s indirect wholly-owned subsidiaries included:

•CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston; and
•CenterPoint Energy Resources Corp. (CERC Corp. and, together with its subsidiaries, CERC), which owns and operates natural gas distribution systems (NGD). A wholly-owned subsidiary of CERC Corp. offers variable and fixed-price physical natural gas supplies primarily to commercial and industrial customers and electric and gas utilities. As of December 31, 2015, CERC Corp. also owned approximately 55.4% of the limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.

For a description of CenterPoint Energy’s reportable business segments, see Note 17.

(2) Summary of Significant Accounting Policies

(a)Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(b)Principles of Consolidation

The accounts of CenterPoint Energy and its wholly-owned and majority owned subsidiaries are included in the consolidated financial statements. All intercompany transactions and balances are eliminated in consolidation. CenterPoint Energy generally uses the equity method of accounting for investments in entities in which CenterPoint Energy has an ownership interest between 20% and 50% and exercises significant influence. CenterPoint Energy also uses the equity method for investments in which it has ownership percentages greater than 50%, when it exercises significant influence, does not have control and is not considered the primary beneficiary, if applicable.

In May 2013, CenterPoint Energy, OGE Energy Corp. (OGE) and affiliates of ArcLight Capital Partners, LLC (ArcLight), formed Enable as a private limited partnership. CenterPoint Energy has the ability to significantly influence the operating and financial policies of, but not solely control, Enable and, accordingly, recorded an equity method investment, at the historical costs of net assets contributed.

Under the equity method, CenterPoint Energy adjusts its investment in Enable each period for contributions made, distributions received, CenterPoint Energy’s share of Enable’s comprehensive income and amortization of basis differences, as appropriate. CenterPoint Energy evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline.

CenterPoint Energy’s investment in Enable is considered to be a variable interest entity (VIE) because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CenterPoint Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable.

As of December 31, 2015, CERC Corp. and OGE held approximately 55.4% and 26.3%, respectively, of the limited partner interests in Enable. Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable.

As of December 31, 2015, CERC Corp. and OGE also own 40% and 60%, respectively, of the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit on its outstanding units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 45 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable 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.

Other investments, excluding marketable securities, are carried at cost.

As of December 31, 2015, CenterPoint Energy had VIEs consisting of transition and system restoration bond companies, which it consolidates. The consolidated VIEs are wholly-owned bankruptcy remote special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration related property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of the transition and system restoration bond companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property and the bondholders have no recourse to the general credit of CenterPoint Energy.

(c)Revenues

CenterPoint Energy records revenue for electricity delivery and natural gas sales and services under the accrual method and these revenues are recognized upon delivery to customers. Electricity deliveries not billed by month-end are accrued based on actual advanced metering system data, daily supply volumes and applicable rates. Natural gas sales not billed by month-end are accrued based upon estimated purchased gas volumes, estimated lost and unaccounted for gas and currently effective tariff rates.

(d) Long-lived Assets and Intangibles

CenterPoint Energy records property, plant and equipment at historical cost. CenterPoint Energy expenses repair and maintenance costs as incurred.

CenterPoint Energy periodically evaluates long-lived assets, including property, plant and equipment, and specifically identifiable intangibles, when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets compared to the carrying value of the assets.

(e) Regulatory Assets and Liabilities

CenterPoint Energy applies the guidance for accounting for regulated operations to the Electric Transmission & Distribution business segment and the Natural Gas Distribution business segment. CenterPoint Energy’s rate-regulated subsidiaries may collect revenues subject to refund pending final determination in rate proceedings. In connection with such revenues, estimated rate refund liabilities are recorded which reflect management’s current judgment of the ultimate outcomes of the proceedings.

CenterPoint Energy’s rate-regulated businesses recognize removal costs as a component of depreciation expense in accordance with regulatory treatment. As of December 31, 2015 and 2014, these removal costs of $980 million and $958 million, respectively, are classified as regulatory liabilities in CenterPoint Energy’s Consolidated Balance Sheets. In addition, a portion of the amount of removal costs that relate to asset retirement obligations has been reclassified from a regulatory liability to an asset retirement liability in accordance with accounting guidance for asset retirement obligations.

(f) Depreciation and Amortization Expense

Depreciation and amortization is computed using the straight-line method based on economic lives or regulatory-mandated recovery periods. Amortization expense includes amortization of regulatory assets and other intangibles.

(g) Capitalization of Interest and Allowance for Funds Used During Construction

Interest and allowance for funds used during construction (AFUDC) are capitalized as a component of projects under construction and are amortized over the assets’ estimated useful lives once the assets are placed in service. AFUDC represents the composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction for subsidiaries that apply the guidance for accounting for regulated operations. During 2015, 2014 and 2013, CenterPoint Energy capitalized interest and AFUDC of $10 million, $11 million and $11 million, respectively. During 2015, 2014 and 2013, CenterPoint Energy recorded AFUDC equity of $12 million, $14 million and $8 million, respectively, which is included in Other Income in its Statements of Consolidated Income.

(h) Income Taxes

CenterPoint Energy uses the asset and liability method of accounting for deferred income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established against deferred tax assets for which management believes realization is not considered to be more likely than not. CenterPoint Energy recognizes interest and penalties as a component of income tax expense.

(i) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. It is the policy of management to review the outstanding accounts receivable monthly, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered. The provision for doubtful accounts in CenterPoint Energy’s Statements of Consolidated Income for 2015, 2014 and 2013 was $19 million, $22 million and $21 million, respectively.

(j) Inventory

Inventory consists principally of materials and supplies and natural gas. Materials and supplies are valued at the lower of average cost or market. Materials and supplies are recorded to inventory when purchased and subsequently charged to expense or capitalized to plant when installed. Natural gas inventories of CenterPoint Energy’s Energy Services business segment are valued at the lower of average cost or market. Natural gas inventories of CenterPoint Energy’s Natural Gas Distribution business segment are primarily valued at weighted average cost. During 2015, 2014 and 2013, CenterPoint Energy recorded $4 million, $8 million and $4 million, respectively, in write-downs of natural gas inventory to the lower of average cost or market.

December 31,
20152014
(in millions)
Materials and supplies$179$168
Natural gas168211
Total inventory$347$379

(k) Derivative Instruments

CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of business. CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices and weather on its operating results and cash flows. Such derivatives are recognized in CenterPoint Energy’s Consolidated Balance Sheets at their fair value unless CenterPoint Energy elects the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.

CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees commodity price, weather and credit risk activities, including CenterPoint Energy’s marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’s commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’s risk management policies and procedures and limits established by CenterPoint Energy’s board of directors.

CenterPoint Energy’s policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.

(l) Investments in Other Debt and Equity Securities

CenterPoint Energy reports securities classified as trading at estimated fair value in its Consolidated Balance Sheets, and any unrealized holding gains and losses are recorded as other income (expense) in its Statements of Consolidated Income.

(m) Environmental Costs

CenterPoint Energy expenses or capitalizes environmental expenditures, as appropriate, depending on their future economic benefit. CenterPoint Energy expenses amounts that relate to an existing condition caused by past operations that do not have future economic benefit. CenterPoint Energy records undiscounted liabilities related to these future costs when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated.

(n) Statements of Consolidated Cash Flows

For purposes of reporting cash flows, CenterPoint Energy considers cash equivalents to be short-term, highly-liquid investments with maturities of three months or less from the date of purchase. In connection with the issuance of transition bonds and system restoration bonds, CenterPoint Energy was required to establish restricted cash accounts to collateralize the bonds that were issued in these financing transactions. These restricted cash accounts are not available for withdrawal until the maturity of the bonds and are not included in cash and cash equivalents. These restricted cash accounts of $35 million and $47 million as of December 31, 2015 and 2014, respectively, are included in other current assets in CenterPoint Energy’s Consolidated Balance Sheets. Cash and cash equivalents included $264 million and $290 million as of December 31, 2015 and 2014, respectively, that was held by CenterPoint Energy’s transition and system restoration bond subsidiaries solely to support servicing the transition and system restoration bonds.

CenterPoint Energy considers distributions received from equity method investments which do not exceed cumulative equity in earnings subsequent to the date of investment to be a return on investment and classifies these distributions as operating activities in the Statements of Consolidated Cash Flows. CenterPoint Energy considers distributions received from equity method investments in excess of cumulative equity in earnings subsequent to the date of investment to be a return of investment and classifies these distributions as investing activities in the Statements of Consolidated Cash Flows.

(o) New Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 changes the analysis that reporting organizations must perform to evaluate whether they should consolidate certain legal entities, such as limited partnerships. The changes include, among others, modification of the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities and elimination of the presumption that a general partner should consolidate a limited partnership. ASU 2015-02 does not amend the related party guidance for situations in which power is shared between two or more entities that hold interests in a VIE. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. CenterPoint Energy does not believe that ASU 2015-02 will have a material impact on its financial position, results of operations, cash flows and disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost (ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. CenterPoint Energy will adopt ASU 2015-03 retrospectively on January 1, 2016, which will result in a reduction of both other long-term assets and long-term debt on its Consolidated Balance Sheets. CenterPoint Energy had debt issuance costs of $53 million and $61 million included in other long-term assets on its Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) (ASU 2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud

computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change a customer’s accounting for service contracts. ASU 2015-05 is effective for fiscal years, and interim periods within the fiscal years, beginning after December 15, 2015 and may be adopted either prospectively or retrospectively. CenterPoint Energy will adopt ASU 2015-05 prospectively on January 1, 2016. CenterPoint Energy does not believe that ASU 2015-05 will have a material impact on its financial position, results of operations, cash flows and disclosures.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes most current revenue recognition guidance. ASU 2014-09 provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 was initially effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. In August 2015, the FASB issued Accounting Standard Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. CenterPoint Energy is currently evaluating the impact that ASU 2014-09 will have on its financial position, results of operations, cash flows and disclosures, and will adopt ASU 2014-09 on January 1, 2018 as permitted by the new guidance.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330) Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 changes the subsequent measurement guidance for inventory accounted for using methods other than the last in, first out (LIFO) and Retail Inventory methods. Companies will subsequently measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. CenterPoint Energy does not believe that ASU 2015-11 will have a material impact on its financial position, results of operations, cash flows and disclosures.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. CenterPoint Energy adopted ASU 2015-17 retrospectively starting with fiscal year 2015. As such, certain prior period amounts have been classified to conform to the current presentation. In the Consolidated Balance Sheet as of December 31, 2014, CenterPoint Energy reclassified $683 million from current deferred income tax liabilities to increase deferred income taxes within non-current liabilities. See Note 13 for additional information.

Management believes that other recently issued standards, which are not yet effective, will not have a material impact on CenterPoint Energy’s consolidated financial position, results of operations or cash flows upon adoption.

(3) Property, Plant and Equipment

(a) Property, Plant and Equipment

Property, plant and equipment includes the following:

Weighted Average Useful LivesDecember 31,
(Years)20152014
(in millions)
Electric Transmission & Distribution31$10,142$9,393
Natural Gas Distribution325,7625,235
Energy Services278684
Other property24660646
Total16,65015,358
Accumulated depreciation and amortization:
Electric Transmission & Distribution3,2093,050
Natural Gas Distribution1,5751,493
Energy Services3431
Other property295282
Total accumulated depreciation and amortization5,1134,856
Property, plant and equipment, net$11,537$10,502

(b) Depreciation and Amortization

The following table presents depreciation and amortization expense for 2015, 2014 and 2013.

201520142013
(in millions)
Depreciation expense$557$521$531
Amortization expense413492423
Total depreciation and amortization expense$970$1,013$954

(c) Asset Retirement Obligations

A reconciliation of the changes in the asset retirement obligation (ARO) liability is as follows:

December 31,
20152014
(in millions)
Beginning balance$176$134
Accretion expense65
Revisions in estimates of cash flows1337
Ending balance$195$176

CenterPoint Energy recorded AROs associated with the removal of asbestos and asbestos-containing material in its buildings, including substation building structures. CenterPoint Energy also recorded AROs relating to gas pipelines abandoned in place, treated wood poles for electric distribution, distribution transformers containing PCB (also known as Polychlorinated Biphenyl), and underground fuel storage tanks. The estimates of future liabilities were developed using historical information, and where available, quoted prices from outside contractors.

The increase of $13 million in the ARO from the revision of estimate in 2015 is primarily attributable to an increase in estimated disposal costs. The increase of $37 million in the ARO from the revision of estimate in 2014 is primarily attributable to a reduction of the estimated service lives of steel and plastic pipe.

(4) Goodwill

Goodwill by reportable business segment as of both December 31, 2015 and 2014 are as follows:

(in millions)
Natural Gas Distribution$746
Energy Services (1)83
Other11
Total$840
(1)Amounts presented are net of accumulated goodwill impairment charge of $252 million.

CenterPoint Energy performs goodwill impairment tests at least annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference.

CenterPoint Energy performed its annual goodwill impairment test in the third quarter of each of 2015 and 2014 and determined, based on the results of the first step, that no goodwill impairment charge was required for any reportable segment. Other intangibles were not material as of December 31, 2015 and 2014.

(5) Regulatory Accounting

The following is a list of regulatory assets/liabilities reflected on CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 2015 and 2014:

December 31,
20152014
(in millions)
Securitized regulatory assets$2,373$2,738
Unrecognized equity return (1)(393)(442)
Unamortized loss on reacquired debt93104
Pension and postretirement-related regulatory asset (2)872922
Other long-term regulatory assets (3)184205
Total regulatory assets3,1293,527
Estimated removal costs980958
Other long-term regulatory liabilities296248
Total regulatory liabilities1,2761,206
Total regulatory assets and liabilities, net$1,853$2,321
(1)As of December 31, 2015, CenterPoint Energy has not recognized an allowed equity return of $393 million because such return will be recognized as it is recovered in rates through 2024. During the years ended December 31, 2015, 2014 and 2013, CenterPoint Houston recognized approximately $49 million, $68 million and $45 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s recognition of the allowed equity return will vary each period based on amounts actually collected during the period. The actual amounts recovered for the allowed equity return are reviewed and adjusted at least annually by the Texas Utility Commission to correct any over-collections or under-collections during the preceding 12 months and to provide for the full and timely recovery of the allowed equity return.
(2)NGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates is being deferred for rate making purposes. Deferred pension and other postemployment expenses of $5 million as of December 31, 2015 were not earning a return.
(3)Other regulatory assets that are not earning a return were not material as of December 31, 2015 and 2014.

(6) Stock-Based Incentive Compensation Plans and Employee Benefit Plans

(a) Stock-Based Incentive Compensation Plans

CenterPoint Energy has long-term incentive plans (LTIPs) that provide for the issuance of stock-based incentives, including stock options, performance awards, restricted stock unit awards and restricted and unrestricted stock awards to officers, employees and non-employee directors. Approximately 14 million shares of CenterPoint Energy common stock are authorized under these plans for awards.

Equity awards are granted to employees without cost to the participants. The performance awards granted in 2015, 2014 and 2013 are distributed based upon the achievement of certain objectives over a three-year performance cycle. The stock awards granted in 2015 and 2014 are service based. The stock awards granted in 2013 are subject to the performance condition that total common dividends declared during the three-year vesting period must be at least $2.49 per share. The stock awards generally vest at the end of a three-year period. Upon vesting, both the performance and stock awards are issued to the participants along with the value of dividend equivalents earned over the performance cycle or vesting period. CenterPoint Energy issues new shares in order to satisfy stock-based payments related to LTIPs.

CenterPoint Energy recorded LTIP compensation expense of $17 million, $18 million and $19 million for the years ended December 31, 2015, 2014 and 2013, respectively. This expense is included in Operation and Maintenance Expense in the Statements of Consolidated Income.

The total income tax benefit recognized related to LTIPs was $6 million, $7 million and $7 million for the years ended December 31, 2015, 2014 and 2013, respectively. No compensation cost related to LTIPs was capitalized as a part of inventory or fixed assets in 2015, 2014 or 2013. The actual tax benefit realized for tax deductions related to LTIPs totaled $6 million, $13 million and $13 million for 2015, 2014 and 2013, respectively.

Compensation costs for the performance and stock awards granted under LTIPs are measured using fair value and expected achievement levels on the grant date. For performance awards with operational goals, the achievement levels are revised as goals are evaluated. The fair value of awards granted to employees is based on the closing stock price of CenterPoint Energy’s common stock on the grant date. The compensation expense is recorded on a straight-line basis over the vesting period. Forfeitures are estimated on the date of grant based on historical averages, and estimates are updated periodically throughout the vesting period.

The following tables summarize CenterPoint Energy’s LTIP activity for 2015:

Stock Options

CenterPoint Energy has not issued stock options since 2004. There were no outstanding stock options at either December 31, 2015 or 2014.

Cash received from stock options exercised was $1 million and $3 million for 2014 and 2013, respectively.

Performance Awards

Outstanding and Non-Vested Shares
Year Ended December 31, 2015
Shares (Thousands)Weighted-Average Grant Date Fair ValueRemaining Average Contractual Life (Years)Aggregate Intrinsic Value (Millions)
Outstanding as of December 31, 20142,460$21.26
Granted1,15821.28
Forfeited or canceled(592)19.89
Vested and released to participants(398)18.79
Outstanding as of December 31, 20152,62821.951.2$28

The outstanding and non-vested shares displayed in the table above assumes that shares are issued at the maximum performance level. The aggregate intrinsic value reflects the impact of current expectations of achievement and stock price.

Stock Awards

Outstanding and Non-Vested Shares
Year Ended December 31, 2015
Shares (Thousands)Weighted-Average Grant Date Fair ValueRemaining Average Contractual Life (Years)Aggregate Intrinsic Value (Millions)
Outstanding as of December 31, 2014723$21.41
Granted37621.39
Forfeited or canceled(53)22.40
Vested and released to participants(299)20.08
Outstanding as of December 31, 201574721.861.1$14

The weighted-average grant-date fair values per unit of awards granted were as follows for 2015, 2014 and 2013:

Year Ended December 31,
201520142013
Performance awards$21.28$23.70$20.67
Stock awards21.3923.8921.53

Valuation Data

The total intrinsic value of awards received by participants was as follows for 2015, 2014 and 2013:

Year Ended December 31,
201520142013
(in millions)
Stock options exercised$—$2$4
Performance awards92420
Stock awards71010

The total grant date fair value of performance and stock awards which vested during the years ended December 31, 2015, 2014 and 2013 was $13 million, $21 million and $19 million, respectively. As of December 31, 2015, there was $18 million of total unrecognized compensation cost related to non-vested performance and stock awards which is expected to be recognized over a weighted-average period of 1.6 years.

(b) Pension and Postretirement Benefits

CenterPoint Energy maintains a non-contributory qualified defined benefit pension plan covering substantially all employees, with benefits determined using a cash balance formula. Under the cash balance formula, participants accumulate a retirement

benefit based upon 5% of eligible earnings and accrued interest. Participants are 100% vested in their benefit after completing three years of service. In addition to the non-contributory qualified defined benefit pension plan, CenterPoint Energy maintains unfunded non-qualified benefit restoration plans which allow participants to receive the benefits to which they would have been entitled under CenterPoint Energy’s non-contributory pension plan except for federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated.

CenterPoint Energy provides certain healthcare and life insurance benefits for retired employees on both a contributory and non-contributory basis. Employees become eligible for these benefits if they have met certain age and service requirements at retirement, as defined in the plans. Under plan amendments, effective in early 1999, healthcare benefits for future retirees were changed to limit employer contributions for medical coverage.

Such benefit costs are accrued over the active service period of employees. The net unrecognized transition obligation is being amortized over approximately 20 years.

CenterPoint Energy’s net periodic cost includes the following components relating to pension, including the benefit restoration plan, and postretirement benefits:

Year Ended December 31,
201520142013
Pension BenefitsPost-retirement BenefitsPension BenefitsPost-retirement BenefitsPension BenefitsPost-retirement Benefits
(in millions)
Service cost$41$2$42$2$44$2
Interest cost9320100229020
Expected return on plan assets(120)(7)(125)(7)(135)(7)
Amortization of prior service cost (credit)9(1)10(1)101
Amortization of net loss575441636
Amortization of transition obligation———5—7
Curtailment (1)——6———
Settlement (2)10—————
Net periodic cost$90$19$77$22$72$29
(1)During the fourth quarter of 2014, CenterPoint Energy recognized a curtailment pension loss of $6 million related to employees seconded to Enable. Substantially all of the seconded employees became employees of Enable effective January 1, 2015.
(2)A one-time, non-cash settlement charge is required when lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of net periodic cost for that year. Due to the amount of lump sum payment distributions from the non-qualified pension plan during the year ended December 31, 2015, CenterPoint Energy recognized a non-cash settlement charge of $10 million. This charge is an acceleration of costs that would otherwise be recognized in future periods.

CenterPoint Energy used the following assumptions to determine net periodic cost relating to pension and postretirement benefits:

Year Ended December 31,
201520142013
Pension BenefitsPost-retirement BenefitsPension BenefitsPost-retirement BenefitsPension BenefitsPost-retirement Benefits
Discount rate4.05%3.90%4.80%4.75%4.00%3.90%
Expected return on plan assets6.505.207.005.508.005.50
Rate of increase in compensation levels4.00—3.90—4.00—

In determining net periodic benefits cost, CenterPoint Energy uses fair value, as of the beginning of the year, as its basis for determining expected return on plan assets.

The following table summarizes changes in the benefit obligation, plan assets, the amounts recognized in consolidated balance sheets and the key assumptions of CenterPoint Energy’s pension, including benefit restoration, and postretirement plans. The measurement dates for plan assets and obligations were December 31, 2015 and 2014.

December 31,
20152014
Pension BenefitsPost-retirement BenefitsPension BenefitsPost-retirement Benefits
(in millions, except for actuarial assumptions)
Change in Benefit Obligation
Benefit obligation, beginning of year$2,403$529$2,153$476
Service cost412422
Interest cost932010022
Participant contributions—8—7
Benefits paid(234)(32)(156)(32)
Actuarial (gain) loss(115)(87)26452
Medicare reimbursement—2—3
Plan amendment—(10)—1
Settlement5———
Curtailment———(2)
Benefit obligation, end of year2,1934322,403529
Change in Plan Assets
Fair value of plan assets, beginning of year1,9251411,803140
Employer contributions66189718
Participant contributions—8—7
Benefits paid(234)(32)(156)(32)
Actual investment return (loss)(78)11818
Fair value of plan assets, end of year1,6791361,925141
Funded status, end of year$(514)$(296)$(478)$(388)
Amounts Recognized in Balance Sheets
Current liabilities-other$(8)$(8)$(31)$(9)
Other liabilities-benefit obligations(506)(288)(447)(379)
Net liability, end of year$(514)$(296)$(478)$(388)
Actuarial Assumptions
Discount rate4.40%4.35%4.05%3.90%
Expected return on plan assets6.254.806.505.20
Rate of increase in compensation levels4.15—4.00—
Healthcare cost trend rate assumed for the next year - Pre-65—6.00—7.25
Healthcare cost trend rate assumed for the next year - Post-65—5.50—8.50
Prescription drug cost trend rate assumed for the next year—11.00—6.50
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)—5.00—5.00
Year that the healthcare rate reaches the ultimate trend rate—2024—2024
Year that the prescription drug rate reaches the ultimate trend rate—2024—2024

The accumulated benefit obligation for all defined benefit pension plans was $2,157 million and $2,371 million as of December 31, 2015 and 2014, respectively.

The expected rate of return assumption was developed using the targeted asset allocation of CenterPoint Energy’s plans and the expected return for each asset class.

The discount rate assumption was determined by matching the projected cash flows of CenterPoint Energy’s plans against a hypothetical yield curve of high-quality corporate bonds represented by a series of annualized individual discount rates from one-half to 99 years.

For measurement purposes, medical costs are assumed to increase 6.00% and 5.50% for the pre-65 and post-65 retirees during 2016, respectively, and the prescription cost is assumed to increase 11.00% during 2016, after which these rates decrease until reaching the ultimate trend rate of 5.00% in 2024.

CenterPoint Energy’s changes in accumulated comprehensive loss related to defined benefit, postretirement and other postemployment plans are as follows:

Year Ended December 31,
20152014
(in millions)
Beginning Balance$(85)$(88)
Other comprehensive income (loss) before reclassifications (1)21(3)
Amounts reclassified from accumulated other comprehensive income:
Prior service cost (2)12
Actuarial losses (2)109
Total reclassifications from accumulated other comprehensive income1111
Tax expense(12)(5)
Net current period other comprehensive income203
Ending Balance$(65)$(85)
(1)Total other comprehensive income (loss) related to the re-measurement of pension, postretirement and other postemployment plans.
(2)These accumulated other comprehensive components are included in the computation of net periodic cost.

Amounts recognized in accumulated other comprehensive loss consist of the following:

December 31,
20152014
Pension BenefitsPostretirement BenefitsPension BenefitsPostretirement Benefits
(in millions)
Unrecognized actuarial loss (gain)$106$(2)$113$14
Unrecognized prior service cost (credit)3(1)42
Net amount recognized in accumulated other comprehensive loss$109$(3)$117$16

The changes in plan assets and benefit obligations recognized in other comprehensive income during 2015 are as follows:

Pension BenefitsPostretirement Benefits
(in millions)
Net gain$—$18
Amortization of net loss71
Amortization of prior service credit1—
Total recognized in comprehensive income$8$19

The total expense recognized in net periodic costs and other comprehensive income was $82 million and $-0- for pension and postretirement benefits, respectively, for the year ended December 31, 2015.

The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2016 are as follows:

Pension BenefitsPostretirement Benefits
(in millions)
Unrecognized actuarial loss$7$—
Unrecognized prior service cost1—
Amounts in accumulated comprehensive loss to be recognized in net periodic cost in 2016$8$—

The following table displays pension benefits related to CenterPoint Energy’s pension plans that have accumulated benefit obligations in excess of plan assets:

December 31,
20152014
Pension QualifiedPension Non-qualifiedPension QualifiedPension Non-qualified
(in millions)
Accumulated benefit obligation$2,082$75$2,273$98
Projected benefit obligation2,118752,30498
Fair value of plan assets1,679—1,925—

Assumed healthcare cost trend rates have a significant effect on the reported amounts for CenterPoint Energy’s postretirement benefit plans. A 1% change in the assumed healthcare cost trend rate would have the following effects:

1% Increase1% Decrease
(in millions)
Effect on the postretirement benefit obligation$12$10
Effect on total of service and interest cost11

In managing the investments associated with the benefit plans, CenterPoint Energy’s objective is to achieve and maintain a fully funded plan. This objective is expected to be achieved through an investment strategy that manages liquidity requirements while maintaining a long-term horizon in making investment decisions and efficient and effective management of plan assets.

As part of the investment strategy discussed above, CenterPoint Energy maintained the following weighted average allocation targets for its benefit plans as of December 31, 2015:

Pension BenefitsPostretirement Benefits
U.S. equity12 – 28%14 – 24%
International developed market equity7 – 17%3 – 13%
Emerging market equity3 – 13%—
Fixed income54 – 66%68 – 78%
Cash0 – 2%0 – 2%

The following tables set forth by level, within the fair value hierarchy (see Note 8), CenterPoint Energy’s pension plan assets at fair value as of December 31, 2015 and 2014:

Fair Value Measurements as of December 31, 2015
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in millions)
Cash$11$11$—$—
Common collective trust funds (1)896—896—
Corporate bonds:
Investment grade or above385—385—
Equity securities:
International companies3838——
U.S. companies7474——
Cash received as collateral from securities lending7171——
U.S. treasuries5757——
Mortgage backed securities4—4—
Asset backed securities3—3—
Municipal bonds66—66—
Mutual funds (2)144144——
International government bonds1—1—
Obligation to return cash received as collateral from securities lending(71)(71)——
Total$1,679$324$1,355$—
(1)60% of the amount invested in common collective trust funds was in fixed income securities, 11% was in U.S. equities, 23% was in international equities and 2% was in emerging market equities.
(2)58% of the amount invested in mutual funds was in international equities, 28% was in emerging market equities and 14% was in U.S. equities.
Fair Value Measurements as of December 31, 2014
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in millions)
Cash$6$6$—$—
Common collective trust funds (1)1,108—1,108—
Corporate bonds:
Investment grade or above368—368—
Equity securities:
International companies4949——
U.S. companies8383——
Cash received as collateral from securities lending8686——
U.S. treasuries4747——
Mortgage backed securities4—4—
Asset backed securities4—4—
Municipal bonds79—79—
Mutual funds (2)161161——
International government bonds15—15—
Real estate1——1
Obligation to return cash received as collateral from securities lending(86)(86)——
Total$1,925$346$1,578$1
(1)61% of the amount invested in common collective trust funds was in fixed income securities, 14% was in U.S. equities, 22% was in international equities and 3% was in emerging market equities.
(2)57% of the amount invested in mutual funds was in international equities, 30% was in emerging market equities and 13% was in U.S. equities.

The pension plan utilized both exchange traded and over-the-counter financial instruments such as futures, interest rate options and swaps that were marked to market daily with the gains/losses settled in the cash accounts. The pension plan did not include any holdings of CenterPoint Energy common stock as of December 31, 2015 or 2014.

The changes in the fair value of the pension plan’s level 3 investments for the years ended December 31, 2015 and 2014 were not material.

The following tables present by level, within the fair value hierarchy, CenterPoint Energy’s postretirement plan assets at fair value as of December 31, 2015 and 2014, by asset category:

Fair Value Measurements as of December 31, 2015
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in millions)
Mutual funds (1)$136$136$—$—
Total$136$136$—$—
(1)72% of the amount invested in mutual funds was in fixed income securities, 20% was in U.S. equities and 8% was in international equities.
Fair Value Measurements as of December 31, 2014
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in millions)
Mutual funds (1)$141$141$—$—
Total$141$141$—$—
(1)73% of the amount invested in mutual funds was in fixed income securities, 19% was in U.S. equities and 8% was in international equities.

CenterPoint Energy contributed $35 million, $31 million and $18 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 2015. CenterPoint Energy expects to contribute approximately $-0-, $8 million and $16 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 2016.

The following benefit payments are expected to be paid by the pension and postretirement benefit plans:

Postretirement Benefit Plan
Pension BenefitsBenefit PaymentsMedicare Subsidy Receipts
(in millions)
2016$139$32$(4)
201714434(4)
201815535(5)
201915737(6)
202016338(6)
2021-2025822203(41)

(c) Savings Plan

CenterPoint Energy has a tax-qualified employee savings plan that includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code), and an employee stock ownership plan (ESOP) under Section 4975(e)(7) of the Code. Under the plan, participating employees may contribute a portion of their compensation, on a pre-tax or after-tax basis, generally up to a maximum of 50% of eligible compensation. The Company matches 100% of the first 6% of each employee’s compensation contributed. The matching contributions are fully vested at all times.

Participating employees may elect to invest all (prior to January 1, 2016) or a portion of their contributions to the plan in CenterPoint Energy common stock, to have dividends reinvested in additional shares or to receive dividend payments in cash on any investment in CenterPoint Energy common stock, and to transfer all or part of their investment in CenterPoint Energy common stock to other investment options offered by the plan.

Effective January 1, 2016 the savings plan was amended to limit the percentage of future contributions that could be invested in CenterPoint Energy common stock to 25% and to prohibit transfers of account balances where the transfer would result in more than 25% of a participant’s total account balance invested in CenterPoint Energy common stock.

The savings plan has significant holdings of CenterPoint Energy common stock. As of December 31, 2015, 16,942,974 shares of CenterPoint Energy’s common stock were held by the savings plan, which represented approximately 17% of its investments. Given the concentration of the investments in CenterPoint Energy’s common stock, the savings plan and its participants have market risk related to this investment.

CenterPoint Energy’s savings plan benefit expenses were $35 million, $39 million and $38 million in 2015, 2014 and 2013, respectively.

(d) Postemployment Benefits

CenterPoint Energy provides postemployment benefits for certain former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement (primarily healthcare and life insurance benefits for participants in the long-term disability plan). CenterPoint Energy recorded postemployment expenses of $2 million, $3 million and $4 million in 2015, 2014 and 2013, respectively.

Included in Benefit Obligations in the accompanying Consolidated Balance Sheets as of December 31, 2015 and 2014 was $23 million and $28 million, respectively, relating to postemployment obligations.

(e) Other Non-Qualified Plans

CenterPoint Energy has non-qualified deferred compensation plans that provide benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates, upon termination, retirement or death. Benefit payments are made from the general assets of CenterPoint Energy. CenterPoint Energy recorded benefit expense relating to these plans of $3 million, $5 million and $5 million for the years in 2015, 2014 and 2013, respectively. Included in Benefit Obligations in the accompanying Consolidated Balance Sheets as of December 31, 2015 and 2014 was $51 million and $60 million, respectively, relating to deferred compensation plans.

Included in Benefit Obligations in CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 2015 and 2014 was $32 million and $33 million, respectively, relating to split-dollar life insurance arrangements.

(f) Change in Control Agreements and Other Employee Matters

CenterPoint Energy had change in control agreements with certain of its officers, which expired December 31, 2014. In lieu of these agreements, our Board of Directors approved a new change in control plan, which was effective January 1, 2015. The plan, like the expired agreements, generally provides, to the extent applicable, in the case of a change in control of CenterPoint Energy and termination of employment, for severance benefits of up to three times annual base salary plus bonus, and other benefits. Our officers, including our Executive Chairman, are participants under the plan.

As of December 31, 2015, approximately 35% of CenterPoint Energy’s employees were subject to collective bargaining agreements. The collective bargaining agreement with the International Brotherhood of Electrical Workers Local 66 and the two collective bargaining agreements with Professional Employees International Union Local 12, which collectively cover approximately 21% of our employees, are scheduled to expire in March and May of 2016. We believe we have good relationships with these bargaining units and expect to negotiate new agreements in 2016.

(7) Derivative Instruments

CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of business. CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices and weather on its operating results and cash flows.

(a) Non-Trading Activities

Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to manage physical commodity price risk and does not engage in proprietary or speculative commodity trading. These financial instruments do not qualify or are not designated as cash flow or fair value hedges.

Weather Hedges. CenterPoint Energy has weather normalization or other rate mechanisms that mitigate the impact of weather on NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD and electric operations in Texas do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’s other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’s results in Texas and on CenterPoint Houston’s results in its service territory.

CenterPoint Energy has historically entered into heating-degree day swaps for certain NGD jurisdictions to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows for the winter heating season, which contained a bilateral dollar cap of $16 million in both 2013–2014 and 2014–2015. However, NGD did not enter into heating-degree day swaps for the 2015–2016 winter season as a result of NGD’s Minnesota division implementing a full decoupling pilot in July 2015. CenterPoint Energy also entered into weather hedges for the CenterPoint Houston service territory, which contained a bilateral

dollar cap of $8 million for both the 2013–2014 and 2014–2015 winter seasons and a bilateral dollar cap of $7 million for the 2015–2016 winter season. The swaps are based on 10-year normal weather. During the years ended December 31, 2015, 2014 and 2013, CenterPoint Energy recognized losses of $6 million, $11 million and $22 million, respectively, related to these swaps. Weather hedge gains and losses are included in revenues in the Statements of Consolidated Income.

(b) Derivative Fair Values and Income Statement Impacts

The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first four tables provide a balance sheet overview of CenterPoint Energy’s Derivative Assets and Liabilities as of December 31, 2015 and 2014, while the last table provides a breakdown of the related income statement impacts for the years ending December 31, 2015 and 2014.

Fair Value of Derivative Instruments
December 31, 2015
Total derivatives not designated as hedging instrumentsBalance Sheet LocationDerivative Assets Fair ValueDerivative Liabilities Fair Value
(in millions)
Natural gas derivatives (1) (2) (3)Current Assets: Non-trading derivative assets$90$2
Natural gas derivatives (1) (2) (3)Other Assets: Non-trading derivative assets36—
Natural gas derivatives (1) (2) (3)Current Liabilities: Non-trading derivative liabilities1060
Natural gas derivatives (1) (2) (3)Other Liabilities: Non-trading derivative liabilities425
Indexed debt securities derivativeCurrent Liabilities—442
Total$140$529
(1)The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 767 billion cubic feet (Bcf) or a net 112 Bcf long position. Of the net long position, basis swaps constitute 133 Bcf.
(2)Natural gas contracts are presented on a net basis in the Consolidated Balance Sheets. Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Consolidated Balance Sheets. The net of total non-trading derivative assets and liabilities was a $109 million asset as shown on CenterPoint Energy’s Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above offset by collateral netting of $56 million.
(3)Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.
Offsetting of Natural Gas Derivative Assets and Liabilities
December 31, 2015
Gross Amounts Recognized (1)Gross Amounts Offset in the Consolidated Balance SheetsNet Amount Presented in the Consolidated Balance Sheets (2)
(in millions)
Current Assets: Non-trading derivative assets$100$(11)$89
Other Assets: Non-trading derivative assets40(4)36
Current Liabilities: Non-trading derivative liabilities(62)51(11)
Other Liabilities: Non-trading derivative liabilities(25)20(5)
Total$53$56$109
(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 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.
Fair Value of Derivative Instruments
December 31, 2014
Total derivatives not designated as hedging instrumentsBalance Sheet LocationDerivative Assets Fair ValueDerivative Liabilities Fair Value
(in millions)
Natural gas derivatives (1) (2) (3)Current Assets: Non-trading derivative assets$101$1
Natural gas derivatives (1) (2) (3)Other Assets: Non-trading derivative assets32—
Natural gas derivatives (1) (2) (3)Current Liabilities: Non-trading derivative liabilities1483
Natural gas derivatives (1) (2) (3)Other Liabilities: Non-trading derivative liabilities218
Indexed debt securities derivativeCurrent Liabilities—541
Total$149$643
(1)The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 804 Bcf or a net 60 Bcf long position. Of the net long position, basis swaps constitute 127 Bcf.
(2)Natural gas contracts are presented on a net basis in the Consolidated Balance Sheets. Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Consolidated Balance Sheets. The net of total non-trading derivative assets and liabilities was a $111 million asset as shown on CenterPoint Energy’s Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, offset by collateral netting of $64 million.
(3)Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.
Offsetting of Natural Gas Derivative Assets and Liabilities
December 31, 2014
Gross Amounts Recognized (1)Gross Amounts Offset in the Consolidated Balance SheetsNet Amount Presented in the Consolidated Balance Sheets (2)
(in millions)
Current Assets: Non-trading derivative assets$115$(16)$99
Other Assets: Non-trading derivative assets34(2)32
Current Liabilities: Non-trading derivative liabilities(84)65(19)
Other Liabilities: Non-trading derivative liabilities(18)17(1)
Total$47$64$111
(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 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.

For CenterPoint Energy’s price stabilization activities of the Natural Gas Distribution business segment, the settled costs of derivatives are ultimately recovered through purchased gas adjustments. Accordingly, the net unrealized gains and losses associated with these contracts are recorded as net regulatory assets. Realized and unrealized gains and losses on other derivatives are recognized in the Statements of Consolidated Income as revenue for retail sales derivative contracts and as natural gas expense for financial natural gas derivatives and non-retail related physical natural gas derivatives. Unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Statements of Consolidated Income.

Income Statement Impact of Derivative Activity
Year Ended December 31,
Total derivatives not designated as hedging instrumentsIncome Statement Location201520142013
(in millions)
Natural gas derivativesGains in Revenue$134$35$11
Natural gas derivatives (1)Gains (Losses) in Expense: Natural Gas(105)1110
Indexed debt securities derivativeGains (Losses) in Other Income (Expense)74(86)(193)
Total$103$(40)$(172)
(1)The Gains (Losses) in Expense: Natural Gas includes $-0- and $2 million during the years ended December 31, 2015 and 2014, respectively, related to physical forwards purchased from Enable.

(c) Credit Risk Contingent Features

CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions. These provisions could require CenterPoint Energy to post additional collateral if the Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. credit ratings of CenterPoint Energy, Inc. or its subsidiaries are downgraded. The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position at December 31, 2015 and 2014 was $3 million and $2 million, respectively. CenterPoint Energy posted no assets as collateral towards derivative instruments that contain credit risk contingent features at either December 31, 2015 or 2014. If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered at both December 31, 2015 and 2014, $2 million of additional assets would be required to be posted as collateral.

(d) Credit Quality of Counterparties

In addition to the risk associated with price movements, credit risk is also inherent in CenterPoint Energy’s non-trading derivative activities. Credit risk relates to the risk of loss resulting from non-performance of contractual obligations by a counterparty. The following table shows the composition of counterparties to the non-trading derivative assets of CenterPoint Energy as of December 31, 2015 and 2014:

December 31, 2015December 31, 2014
Investment Grade(1)TotalInvestment Grade(1)Total
(in millions)
Energy marketers$4$10$2$4
End users (2)21152127
Total$6$125$4$131
(1)“Investment grade” is primarily determined using publicly available credit ratings and considers credit support (including parent company guarantees) and collateral (including cash and standby letters of credit). For unrated counterparties, CenterPoint Energy determines a synthetic credit rating by performing financial statement analysis and considers contractual rights and restrictions and collateral.
(2)End users are comprised primarily of customers who have contracted to fix the price of a portion of their physical gas requirements for future periods.

(8) Fair Value Measurements

Assets and liabilities that are recorded at fair value in the Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value CenterPoint Energy’s Level 2 assets or liabilities.

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect CenterPoint Energy’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CenterPoint Energy develops these inputs based on the best information available, including CenterPoint Energy’s own data. A market approach is utilized to value CenterPoint Energy’s Level 3 assets or liabilities. At December 31, 2015, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical forward contracts and options. Level 3 physical forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.36 to $3.29 per one million British thermal units (Btu)) as an unobservable input. Level 3 options are valued through Black-Scholes (including forward start) option models which include option volatilities (ranging from 0 to 82%) as an unobservable input. CenterPoint Energy’s Level 3 derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices and volatilities. If forward prices decrease, CenterPoint Energy’s long forwards lose value whereas its short forwards gain in value. If volatility decreases, CenterPoint Energy’s long options lose value whereas its short options gain in value.

CenterPoint Energy determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period. For the year ended December 31, 2015, there were no transfers between Level 1 and 2. CenterPoint Energy also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.

The following tables present information about CenterPoint Energy’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of December 31, 2015 and 2014, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value.

Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Netting Adjustments (1)Balance as of December 31, 2015
(in millions)
Assets
Corporate equities$807$—$—$—$807
Investments, including money market funds53———53
Natural gas derivatives (2)411521(15)125
Total assets$864$115$21$(15)$985
Liabilities
Indexed debt securities derivative$—$442$—$—$442
Natural gas derivatives (2)13659(71)16
Total liabilities$13$507$9$(71)$458
(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $56 million posted with the same counterparties.
(2)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.
Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Netting Adjustments (1)Balance as of December 31, 2014
(in millions)
Assets
Corporate equities$932$—$—$—$932
Investments, including money market funds54———54
Natural gas derivatives (2)712220(18)131
Total assets$993$122$20$(18)$1,117
Liabilities
Indexed debt securities derivative$—$541$—$—$541
Natural gas derivatives22773(82)20
Total liabilities$22$618$3$(82)$561
(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $64 million posted with the same counterparties.
(2)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.

The following tables present additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Derivative assets and liabilities, net
Year Ended December 31,
201520142013
(in millions)
Beginning balance$17$3$2
Total gains7143
Total settlements(12)1(3)
Transfers out of Level 3(1)——
Transfers into Level 31(1)1
Ending balance (1)$12$17$3
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date$6$16$2
(1)During 2015, 2014 and 2013, CenterPoint Energy did not have significant Level 3 purchases or sales.

Items Measured at Fair Value on a Nonrecurring Basis

Based on the sustained low Enable common unit price and further declines in such price during the three months ended September 30, 2015 and December 31, 2015, respectively, as well as the market outlook for continued depressed crude oil and natural gas prices impacting the midstream oil and gas industry, CenterPoint Energy determined in connection with its preparation of financial statements for the three months ended September 30, 2015 and December 31, 2015, respectively, that an other than temporary decrease in the value of its investment in Enable had occurred. The impairment analyses compared the estimated fair value of CenterPoint Energy’s investment in Enable to its carrying value. The fair value of the investment was determined using multiple valuation methodologies under both the market and income approaches.

Both of these approaches incorporate significant estimates and assumptions, including:

Market Approach

•volume weighted average quoted price of Enable’s common units;
•recent market transactions of comparable companies; and
•EBITDA to total enterprise multiples for comparable companies.

Income Approach

•Enable’s forecasted cash distributions;
•projected cash flows of incentive distribution rights;
•forecasted growth rate of Enable’s cash distributions; and
•determination of the cost of equity, including market risk premiums.

Weighting of the different approaches

Significant unobservable inputs used include the growth rate applied to the projected cash distributions beyond 2020 and the discount rate used to determine the present value of the estimated future cash flows. CenterPoint Energy based its assumptions on projected financial information that CenterPoint Energy believes is reasonable; however, actual results may differ materially from those projections. Based on the significant unobservable estimates and assumptions required, CenterPoint Energy concluded that the fair value estimate should be classified as a Level 3 measurement within the fair value hierarchy.

As a result of the analysis, CenterPoint Energy recorded other than temporary impairments on its investment in Enable of $250 million and $975 million during the three months ended September 30, 2015 and December 31, 2015, respectively. See Note 9 for further discussion of the impairments. As of December 31, 2014, there were no significant assets or liabilities measured at fair value on a nonrecurring basis.

Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS) indexed debt securities derivative are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by the market price. These assets and liabilities, which are not measured at fair value in the Consolidated Balance Sheets but for which the fair value is disclosed, would be classified as Level 1 or Level 2 in the fair value hierarchy.

December 31, 2015December 31, 2014
Carrying AmountFair ValueCarrying AmountFair Value
(in millions)
Financial assets:
Notes receivable - affiliated companies$363$356$363$362
Financial liabilities:
Long-term debt$8,620$9,101$8,652$9,427

(9) Unconsolidated Affiliates

On May 1, 2013 (the Closing Date) CERC Corp., OGE Energy Corp. (OGE) and ArcLight Capital Partners, LLC (ArcLight) closed on the formation of Enable, and CenterPoint Energy recorded an equity method investment in Enable at the historical cost of the contributed net assets. See Note 2 for further information on the formation of Enable.

CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to its equity investment as presented in the Consolidated Balance Sheet as of December 31, 2015, CERC Corp.’s guarantee of collection of Enable’s $1.1 billion senior notes due 2019 and 2024 (Guaranteed Senior Notes) and other guarantees discussed in Note 14, and outstanding current accounts receivable from Enable. As of December 31, 2015, certain of the entities contributed to Enable by CERC Corp. were obligated on approximately $363 million of notes owed to a wholly-owned subsidiary of CERC Corp., which bore interest at an annual rate of 2.10% to 2.45%. Enable redeemed such notes scheduled to mature in 2017 in connection with the private placement discussed further in Note 18. CenterPoint Energy recorded interest income of $8 million during both the year ended December 31, 2015 and 2014, and had interest receivable from Enable of $4 million as of both December 31, 2015 and 2014, on its notes receivable from Enable.

Effective on the Closing Date, CenterPoint Energy and Enable entered into a Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements (Transition Agreements). Under the Services Agreement, CenterPoint Energy agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions for an initial term ending on April 30, 2016, after which such services continue on a year-to-year basis unless terminated by Enable with at least 90 days’ notice. CenterPoint Energy expects to provide certain services to Enable following the completion of the initial term.

CenterPoint Energy provided seconded employees to Enable to support its operations for a term ending on December 31, 2014. Enable, at its discretion, had the right to select and offer employment to seconded employees from CenterPoint Energy. During the fourth quarter of 2014, Enable notified CenterPoint Energy that it selected seconded employees and provided employment offers to substantially all of the seconded employees from CenterPoint Energy. Substantially all of the seconded employees became employees of Enable effective January 1, 2015. See Note 6 for additional information.

On April 16, 2014, Enable completed its initial public offering (IPO) of 28,750,000 common units, at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received $464 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. In connection with Enable’s IPO, a portion of CenterPoint Energy’s common units were converted into subordinated units, as discussed further below. Subsequent to the IPO, Enable continues to be controlled jointly by CenterPoint Energy and OGE.

As a result of Enable’s IPO, CenterPoint Energy’s limited partner interest in Enable was reduced from approximately 58.3% to approximately 54.7%. CenterPoint Energy accounted for the dilution of its investment in Enable as a result of Enable’s IPO as a failed partial sale of in-substance real estate. CenterPoint Energy did not receive any cash from Enable’s IPO and, as such, CenterPoint Energy did not recognize a gain or loss. CenterPoint Energy’s basis difference in Enable was reduced for the impact of the Enable IPO.

In accordance with the Enable formation agreements, CenterPoint Energy had certain put rights, and Enable had certain call rights, exercisable with respect to the 25.05% interest in Southeast Supply Header, LLC (SESH) retained by CenterPoint Energy on the Closing Date, under which CenterPoint Energy would contribute its retained interest in SESH, in exchange for a specified number of limited partner common units in Enable and a cash payment, payable either from CenterPoint Energy to Enable or from Enable to CenterPoint Energy, to the extent of changes in the value of SESH subject to certain restrictions. Specifically, the rights were exercisable with respect to (1) a 24.95% interest in SESH, which closed on May 30, 2014 and (2) a 0.1% interest in SESH, which closed on June 30, 2015.

CenterPoint Energy billed Enable for reimbursement of transition services, including the costs of seconded employees, $16 million and $163 million during the years ended December 31, 2015 and 2014, respectively, under the Transition Agreements. Actual transition services costs are recorded net of reimbursements received from Enable. CenterPoint Energy had accounts receivable from Enable of $3 million and $28 million as of December 31, 2015 and 2014, respectively, for amounts billed for transition services, including the cost of seconded employees.

CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $117 million and $130 million during the year ended December 31, 2015 and 2014, respectively, for transactions with Enable. CenterPoint Energy had accounts payable to Enable of $11 million and $23 million at December 31, 2015 and 2014, respectively, from such transactions.

As of December 31, 2015, CenterPoint Energy held an approximate 55.4% limited partner interest in Enable consisting of 94,151,707 common units and 139,704,916 subordinated units. As of December 31, 2015, CenterPoint Energy and OGE each own a 50% management interest in the general partner of Enable and a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner.

CenterPoint Energy recognized a loss of $1,633 million from its investment in Enable as of December 31, 2015. This loss included impairment charges totaling $1,846 million composed of CenterPoint Energy’s impairment of its investment in Enable of $1,225 million and CenterPoint Energy’s share, $621 million, of impairment charges Enable recorded for goodwill and long-lived assets.

CenterPoint Energy evaluates its equity method investments for impairment when factors indicate that a decrease in the value of its investment has occurred and the carrying amount of its investment may not be recoverable. An impairment loss, based on the excess of the carrying value over estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. Considerable judgment is used in determining if an impairment loss is other than temporary and the amount of any impairment. Based on the sustained low Enable common unit price and further declines in such price during the three months ended September 30, 2015 and December 31, 2015, respectively, as well as the market outlook for continued depressed crude oil and natural gas prices impacting the midstream oil and gas industry, CenterPoint Energy determined in connection with its preparation of financial statements for the three months ended September 30, 2015 and December 31, 2015, that an other than temporary decrease in the value of its investment in Enable had occurred. CenterPoint Energy wrote down the value of its investment in Enable to its estimated fair value which resulted in impairment charges of $250 million as of September 30, 2015 and $975 million as of December 31, 2015. Both the income approach and market approach were utilized to estimate the fair value of CenterPoint Energy’s total investment in Enable, which includes the limited partner common and subordinated units, general partner interest and incentive distribution rights held by CenterPoint Energy. The determination of fair value considered a number of relevant factors including Enable’s common unit price and forecasted results, recent comparable transactions and the limited float of Enable’s publicly traded common units. See Note 8 for further discussion of the determination of fair value of CenterPoint Energy’s investment in Enable.

Investment in Unconsolidated Affiliates:

Year Ended December 31,
20152014
(in millions)
Enable$2,594$4,520
SESH (1)—1
Total$2,594$4,521
(1)CenterPoint Energy disposed of its remaining interest in SESH on June 30, 2015.

Equity in Earnings (Losses) of Unconsolidated Affiliates, net:

Year Ended December 31,
201520142013
(in millions)
Enable$(1,633)$303$173
SESH (1)—515
Total$(1,633)$308$188
(1)CenterPoint Energy contributed a 24.95% interest in SESH to Enable on May 30, 2014 and its remaining interest in SESH to Enable on June 30, 2015.

Summarized consolidated income (loss) information for Enable is as follows:

Year Ended December 31,
201520142013
(in millions)
Operating revenues$2,418$3,367$2,123
Cost of sales, excluding depreciation and amortization1,0971,9141,241
Impairment of goodwill and other long-lived assets1,134812
Operating income (loss)(712)586322
Net income (loss) attributable to Enable(752)530289
Reconciliation of Equity in Earnings (Losses), net:
CenterPoint Energy’s interest$(416)$298$168
Basis difference amortization (1)855
Impairment of CenterPoint Energy’s equity method investment in Enable(1,225)——
CenterPoint Energy’s equity in earnings (losses), net (2)$(1,633)$303$173
(1)Equity in earnings of unconsolidated affiliates 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 over approximately 33 years, the average life of the assets to which the basis difference is attributed.
(2)These amounts include CenterPoint Energy’s share of Enable’s impairment of goodwill and long-lived assets and the impairment of CenterPoint Energy’s equity method investment in Enable totaling $1,846 million during the year ended December 31, 2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

Summarized consolidated balance sheet information for Enable is as follows:

December 31,
20152014
(in millions)
Current assets$381$438
Non-current assets10,85711,399
Current liabilities615671
Non-current liabilities3,0922,343
Non-controlling interest1231
Enable partners’ capital7,5198,792
Reconciliation of Investment in Enable:
CenterPoint Energy’s ownership interest in Enable partners’ capital$4,163$4,869
CenterPoint Energy’s basis difference(1,569)(349)
CenterPoint Energy’s investment in Enable$2,594$4,520

Distributions Received from Unconsolidated Affiliates:

Year Ended December 31,
201520142013
(in millions)
Enable$294$298$106
SESH (1)—723
Total$294$305$129
(1)CenterPoint Energy contributed a 24.95% interest in SESH to Enable on each of May 1, 2013 and May 30, 2014 and its remaining interest in SESH to Enable on June 30, 2015.

(10) Indexed Debt Securities (ZENS) and Securities Related to ZENS

(a) Investment in Securities Related to ZENS

In 1995, CenterPoint Energy sold a cable television subsidiary to Time Warner, Inc. (TW) and received TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW common stock (TW Common), 1.8 million shares of Time Warner Cable Inc. (TWC) common stock (TWC Common) and 0.9 million shares of Time Inc. common stock (Time Common) (together with the TW Common and TWC Common, the TW Securities) which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TW Securities are recorded in CenterPoint Energy’s Statements of Consolidated Income.

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding at December 31, 2015. Each ZENS note was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS note are adjusted for certain corporate events. Prior to the closing of the merger discussed below, the reference shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of TWC Common, 0.045455 share of AOL Inc. common stock (AOL Common) and 0.0625 share of Time Common.

On May 26, 2015, Verizon Communications, Inc. (Verizon) initiated a tender offer to purchase all outstanding shares of AOL Common for $50 per share, in which CenterPoint Energy tendered all of its shares of AOL Common for $32 million. Verizon acquired the remaining eligible shares through a merger, which closed on June 23, 2015. In accordance with the terms of the ZENS, CenterPoint Energy remitted $32 million to ZENS holders in July 2015, which reduced contingent principal. As a result, CenterPoint Energy recorded a reduction in the indexed debt securities derivative liability of $18 million, a reduction in the indexed debt balance of $7 million and a loss of $7 million, which is included in Gain (loss) on indexed debt securities on the Statements of Consolidated Income. As of December 31, 2015, the reference shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of TWC Common and 0.0625 share of Time Common.

On May 26, 2015, Charter Communications, Inc. (Charter) announced that it had entered into a definitive merger agreement with TWC. On September 21, 2015, Charter shareholders approved the announced transaction with TWC. Pursuant to the merger agreement, upon closing of the merger, TWC Common shares would be exchanged for cash and Charter stock and as a result, reference shares would consist of Charter stock, TW Common and Time Common. The merger is expected to close by June of 2016.

CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of ZENS is subject to being increased or decreased to the extent that the annual yield from interest and cash dividends on the reference shares is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” At December 31, 2015, ZENS having an original principal amount of $828 million and a contingent principal amount of $705 million were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of reference shares deemed to be attributable to the ZENS. As of December 31, 2015, the market value of such shares was approximately $805 million, which would provide an exchange amount of $923 for each $1,000 original principal amount of ZENS. At maturity of the ZENS in 2029, CenterPoint Energy will be obligated to pay in cash the higher of the contingent principal amount of the ZENS or an amount based on the then-

current market value of the reference shares, which will include any additional publicly-traded securities distributed with respect to the current reference shares prior to maturity.

The ZENS obligation is bifurcated into a debt component and a derivative component (the holder’s option to receive the appreciated value of the reference shares at maturity). The bifurcated debt component accretes through interest charges at 17.4% annually up to the contingent principal amount of the ZENS in 2029. Such accretion will be reduced by annual cash interest payments, as described above. The derivative component is recorded at fair value and changes in the fair value of the derivative component are recorded in CenterPoint Energy’s Statements of Consolidated Income. Changes in the fair value of the TW Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS.

The following table sets forth summarized financial information regarding CenterPoint Energy’s investment in TW Securities and each component of CenterPoint Energy’s ZENS obligation.

TW SecuritiesDebt Component of ZENSDerivative Component of ZENS
(in millions)
Balance as of December 31, 2012$540$138$268
Accretion of debt component of ZENS—24—
2% interest paid—(17)—
Sale of TW Securities(9)——
Redemption of indexed debt securities—(2)(6)
Loss on indexed debt securities——193
Gain on TW Securities236——
Balance as of December 31, 2013767143455
Accretion of debt component of ZENS—26—
2% interest paid—(17)—
Loss on indexed debt securities——86
Gain on TW Securities163——
Balance as of December 31, 2014930152541
Accretion of debt component of ZENS—26—
2% interest paid—(17)—
Sale of TW securities(32)——
Distribution to ZENS holders—(7)(18)
Gain on indexed debt securities——(81)
Loss on TW Securities(93)——
Balance as of December 31, 2015$805$154$442

(11) Equity

Capital Stock

CenterPoint Energy has 1,020,000,000 authorized shares of capital stock, comprised of 1,000,000,000 shares of $0.01 par value common stock and 20,000,000 shares of $0.01 par value cumulative preferred stock.

Dividends Declared

CenterPoint Energy declared dividends per share of $0.99, $0.95 and $0.83, respectively, during the years ended December 31, 2015, 2014 and 2013.

Undistributed Retained Earnings

As of December 31, 2015 and 2014, CenterPoint Energy’s consolidated retained earnings balance includes undistributed earnings from Enable of $-0- and $71 million, respectively.

(12) Short-term Borrowings and Long-term Debt

December 31, 2015December 31, 2014
Long-TermCurrent (1)Long-TermCurrent (1)
(in millions)
Short-term borrowings:
Inventory financing$—$40$—$53
Total short-term borrowings—40—53
Long-term debt:
CenterPoint Energy:
ZENS (2)—154—152
Senior notes 5.95% to 6.85% due 2017 to 2018550—550200
Pollution control bonds 5.05% to 5.125% due 2018 to 2028 (3)118—11869
Commercial paper (4)716—191—
Other—322
CenterPoint Houston:
Bank Loans200———
First mortgage bonds 9.15% due 2021102—102—
General mortgage bonds 2.25% to 6.95% due 2022 to 20441,912—1,912—
System restoration bonds 3.46% to 4.243% due 2018 to 20223655041548
Transition bonds 0.901% to 5.302% due 2017 to 20241,9183412,259324
Other——1—
CERC Corp.:
Senior notes 4.50% to 6.625% due 2016 to 20411,8433252,168—
Commercial paper (4)219—341—
Unamortized discount and premium, net(42)—(50)—
Total long-term debt7,9018738,009795
Total debt$7,901$913$8,009$848
(1)Includes amounts due or exchangeable within one year of the date noted.
(2)CenterPoint Energy’s ZENS obligation is bifurcated into a debt component and an embedded derivative component. For additional information regarding ZENS, see Note 10(b). As ZENS are exchangeable for cash at any time at the option of the holders, these notes are classified as a current portion of long-term debt.
(3)$118 million of these series of debt were secured by general mortgage bonds of CenterPoint Houston as of both December 31, 2015 and 2014.
(4)Classified as long-term debt because the termination date of the facility that backstops the commercial paper is more than one year from the date noted.

(a) Short-term Borrowings

Inventory Financing. NGD has asset management agreements associated with its utility distribution service in Arkansas, north Louisiana and Oklahoma that extend through 2019. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees

to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as a financing and they had an associated principal obligation of $40 million and $53 million as of December 31, 2015 and 2014, respectively.

(b) Long-term Debt

Debt Repayments. In June 2015, CenterPoint Energy repaid its $200 million 6.85% Senior Notes using proceeds from its commercial paper program. In October 2015, CenterPoint Energy repaid its $69 million 4.9% pollution control bonds using proceeds from its commercial paper program. CenterPoint Energy’s $1.2 billion revolving credit facility backstops its $1.0 billion commercial paper program.

Retirement of Bonds. In November 2015, CenterPoint Energy retired $740 million of tax-exempt municipal bonds that had been held for remarketing.

Transition and System Restoration Bonds. As of December 31, 2015, CenterPoint Houston had special purpose subsidiaries consisting of transition and system restoration bond companies, which it consolidates. The consolidated special purpose subsidiaries are wholly-owned bankruptcy remote entities that were formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of transition bonds or system restoration bonds and activities incidental thereto. These transition bonds and system restoration bonds are payable only through the imposition and collection of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges payable by most of CenterPoint Houston’s retail electric customers in order to provide recovery of authorized qualified costs. CenterPoint Houston has no payment obligations in respect of the transition and system restoration bonds other than to remit the applicable transition or system restoration charges it collects. Each special purpose entity is the sole owner of the right to impose, collect and receive the applicable transition or system restoration charges securing the bonds issued by that entity. Creditors of CenterPoint Energy or CenterPoint Houston have no recourse to any assets or revenues of the transition and system restoration bond companies (including the transition and system restoration charges), and the holders of transition bonds or system restoration bonds have no recourse to the assets or revenues of CenterPoint Energy or CenterPoint Houston.

Credit Facilities. As of December 31, 2015 and 2014, CenterPoint Energy, CenterPoint Houston and CERC Corp. had the following revolving credit facilities and utilization of such facilities:

December 31, 2015December 31, 2014
Size of FacilityLoansLetters of CreditCommercial PaperLoansLetters of CreditCommercial Paper
(in millions)
CenterPoint Energy$1,200$—$6$716(1)$—$6$191(1)
CenterPoint Houston300200(2)4——4—
CERC Corp.600—2219(3)——341(3)
Total$2,100$200$12$935$—$10$532
(1)Weighted average interest rate was 0.79% and 0.63% as of December 31, 2015 and 2014, respectively.
(2)Weighted average interest rate was 1.637% as of December 31, 2015.
(3)Weighted average interest rate was 0.81% and 0.68% as of December 31, 2015 and 2014, respectively.

CenterPoint Energy’s $1.2 billion revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at the London Interbank Offered Rate (LIBOR) plus 1.25% based on CenterPoint Energy’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Energy’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Energy’s consolidated capitalization. As of December 31, 2015, CenterPoint Energy’s debt (excluding transition and system restoration bonds) to capital ratio, as defined in its credit facility agreement, was 55.1%. The financial covenant limit will temporarily increase from 65% to 70% if CenterPoint Houston experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that CenterPoint Houston has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve-month period, all or part of which CenterPoint Houston 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.

CenterPoint Houston’s $300 million revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at LIBOR plus 1.125% based on CenterPoint Houston’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Houston’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Houston’s consolidated capitalization. As of December 31, 2015, CenterPoint Houston’s debt (excluding transition and system restoration bonds) to capital ratio, as defined in its credit facility agreement, was 51.7%.

CERC Corp.’s $600 million revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at LIBOR plus 1.50% based on CERC Corp.’s current credit ratings. The revolving credit facility contains a financial covenant which limits CERC’s consolidated debt to an amount not to exceed 65% of CERC’s consolidated capitalization. As of December 31, 2015, CERC’s debt to capital ratio, as defined in its credit facility agreement, was 33.9%.

CenterPoint Energy, CenterPoint Houston and CERC Corp. were in compliance with all financial debt covenants as of December 31, 2015.

Maturities. CenterPoint Energy’s maturities of long-term debt, capital leases and sinking fund requirements, excluding the ZENS obligation, are $716 million in 2016, $911 million in 2017, $1.1 billion in 2018, $1.6 billion in 2019 and $231 million in 2020. These maturities include transition and system restoration bond principal repayments on scheduled payment dates aggregating $391 million in 2016, $411 million in 2017, $434 million in 2018, $458 million in 2019 and $231 million in 2020.

Liens. As of December 31, 2015, CenterPoint Houston’s assets were subject to liens securing approximately $102 million of first mortgage bonds. Sinking or improvement fund and replacement fund requirements on the first mortgage bonds may be satisfied by certification of property additions. Sinking fund and replacement fund requirements for 2015, 2014 and 2013 have been satisfied by certification of property additions. The replacement fund requirement to be satisfied in 2016 is approximately $223 million, and the sinking fund requirement to be satisfied in 2016 is approximately $1.6 million. CenterPoint Energy expects CenterPoint Houston to meet these 2016 obligations by certification of property additions. As of December 31, 2015, CenterPoint Houston’s assets were also subject to liens securing approximately $2.1 billion of general mortgage bonds which are junior to the liens of the first mortgage bonds.

(13) Income Taxes

The components of CenterPoint Energy’s income tax expense (benefit) were as follows:

Year Ended December 31,
201520142013
(in millions)
Current income tax expense (benefit):
Federal$(37)$(20)$91
State121423
Total current expense (benefit)(25)(6)114
Deferred income tax expense (benefit):
Federal(359)273370
State(54)7(14)
Total deferred expense (benefit)(413)280356
Total income tax expense (benefit)$(438)$274$470

A reconciliation of income tax expense (benefit) using the federal statutory income tax rate to the actual income tax expense and resulting effective income tax rate is as follows:

Year Ended December 31,
201520142013
(in millions)
Income (loss) before income taxes$(1,130)$885$781
Federal statutory income tax rate35.0%35.0%35.0%
Expected federal income tax expense (benefit)(396)310273
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax(27)1621
Tax effect related to the formation of Enable——196
Decrease in settled and uncertain income tax positions——(9)
Tax basis balance sheet adjustments—(29)—
Other, net(15)(23)(11)
Total(42)(36)197
Total income tax expense (benefit)$(438)$274$470
Effective tax rate38.8%31.0%60.2%

In 2015, CenterPoint Energy’s effective tax rate was higher than the statutory rate primarily due to lower earnings from the impairment of CenterPoint Energy’s investment in Enable. The impairment loss reduced the deferred tax liability on CenterPoint Energy’s investment in Enable.

In 2014, CenterPoint Energy recognized a $29 million deferred income tax benefit upon completion of its tax basis balance sheet review. The adjustment resulted in a decrease to deferred tax liabilities of $32 million, a decrease to income taxes payable of $5 million and a decrease to income tax regulatory assets of $8 million. CenterPoint Energy determined the impact of the $29 million adjustment was not material to any prior period or the year ended December 31, 2014.

In 2013, CenterPoint Energy recorded a deferred tax expense of $225 million at the formation of Enable related to the book-to-tax basis difference for contributed non-tax deductible goodwill and recognized a tax benefit of $29 million associated with the remeasurement of state deferred taxes at formation. In addition, CenterPoint Energy recognized a tax benefit of $8 million based on the settlement with the Internal Revenue Service (IRS) of outstanding tax claims for the 2002 and 2003 tax years.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:

December 31,
20152014
(in millions)
Deferred tax assets:
Benefits and compensation$334$347
Loss and credit carryforwards11569
Asset retirement obligations7365
Other4535
Valuation allowance(2)(2)
Total deferred tax assets565514
Deferred tax liabilities:
Property, plant, and equipment2,4232,126
Investment in unconsolidated affiliates1,2771,788
Regulatory assets/liabilities, net1,0601,225
Investment in marketable securities and indexed debt654636
Indexed debt securities derivative9165
Other107114
Total deferred tax liabilities5,6125,954
Net deferred tax liabilities$5,047$5,440

Effective December 31, 2015, all deferred taxes for 2014 and 2015 are classified as noncurrent. See Note 2.

Tax Attribute Carryforwards and Valuation Allowance. In 2015, CenterPoint Energy has a $44 million federal net operating loss carryforward which expires in 2035, alternative minimum tax credits of $9 million that carryover indefinitely, $17 million of capital loss carryforwards which expire between 2018 and 2019, $13 million of charitable contribution carryforwards which expire between 2018 and 2020, and $5 million of general business credits which expire between 2030 and 2035.

CenterPoint Energy has $910 million of state net operating loss carryforwards which expire between 2016 and 2035, $7 million of state tax credits which do not expire, and $244 million of state capital loss carryforwards which expire in 2017. Management has established a valuation allowance of $2 million net of federal tax on certain state net operating losses and the full amount of the state capital loss carryforwards. The valuation allowance was established based upon management’s evaluation that certain state carryforwards may not be fully realized.

Uncertain Income Tax Positions. The following table reconciles the beginning and ending balance of CenterPoint Energy’s unrecognized tax benefits (expenses):

December 31,
201520142013
(in millions)
Balance, beginning of year$—$—$(23)
Tax Positions related to prior years:
Reductions——(1)
Tax Positions related to current year:
Settlements——24
Balance, end of year$—$—$—

CenterPoint Energy reported no uncertain tax liability as of December 31, 2015 and expects no significant change to the uncertain tax liability over the next twelve months ending December 31, 2016 to have a material impact on financial position, results of operations and cash flows.

CenterPoint Energy recognizes interest and penalties as a component of income tax expense. CenterPoint Energy recognized $3 million of income tax expense and $3 million of income tax benefit related to interest on income tax positions during 2014 and 2013, respectively.

Tax Audits and Settlements. Tax years through 2013 have been audited and settled with the IRS. For the 2014 and 2015 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. CenterPoint Energy has considered the effects of these examinations in its accrual for settled issues and liability for uncertain income tax positions (if any) as of December 31, 2015.

(14) Commitments and Contingencies

(a) Natural Gas Supply Commitments

Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s Natural Gas Distribution and Energy Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 2015 and 2014 as these contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative. As of December 31, 2015, minimum payment obligations for natural gas supply commitments are approximately $478 million in 2016, $457 million in 2017, $405 million in 2018, $217 million in 2019, $90 million in 2020 and $38 million after 2020.

(b) Asset Management Agreements

NGD has asset management agreements (AMAs) associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Generally, these AMAs are contracts between NGD and an asset manager that are intended to transfer the working capital obligation and maximize the utilization of the assets. In these AMAs, NGD agreed to release transportation and storage capacity to other parties to manage gas storage, supply and delivery arrangements for NGD and to use the released capacity for other purposes when it is not needed for NGD. NGD is compensated by the asset manager through payments made over the life of the AMAs based in part on the results of the asset optimization. NGD has an obligation to purchase its winter storage requirements that have been released to the asset manager under these AMAs. The AMAs have varying terms, the longest of which expires in 2019.

(c) Lease Commitments

The following table sets forth information concerning CenterPoint Energy’s obligations under non-cancelable long-term operating leases as of December 31, 2015, which primarily consist of rental agreements for building space, data processing equipment, compression equipment and rights-of-way:

(in millions)
2016$5
20174
20183
20193
20202
2021 and beyond7
Total$24

Total lease expense for all operating leases was $9 million, $11 million and $21 million during 2015, 2014 and 2013, respectively.

(d) Legal, Environmental and Other Regulatory Matters

Legal Matters

Gas Market Manipulation Cases. CenterPoint Energy, CenterPoint Houston or their predecessor, Reliant Energy, Incorporated (Reliant Energy), and certain of their former subsidiaries have been named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, Reliant Resources, Inc. (RRI),

CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits. In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly-owned subsidiary of RRI, and RRI changed its name to GenOn Energy, Inc. (GenOn). In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly-owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including CenterPoint Houston, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation, nor does it affect the terms of existing guarantee arrangements for certain GenOn gas transportation contracts discussed below.

A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all but one such case. CenterPoint Energy Services, Inc. (CES), a subsidiary of CERC Corp., is a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. In July 2011, the court issued an order dismissing the plaintiffs’ claims against other defendants in the case, each of whom had demonstrated Federal Energy Regulatory Commission jurisdictional sales for resale during the relevant period, based on federal preemption, and stayed the remainder of the case pending outcome of the appeals. The plaintiffs appealed this ruling to the U.S. Court of Appeals for the Ninth Circuit, which reversed the trial court’s dismissal of the plaintiffs’ claims. On April 21, 2015, the U.S. Supreme Court affirmed the Ninth Circuit’s ruling and remanded the case to the district court for further proceedings, which are now underway. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows.

Environmental Matters

Manufactured Gas Plant Sites. CERC and its predecessors operated manufactured gas plants (MGPs) in the past. With respect to certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of December 31, 2015, CERC had a recorded liability of $7 million for continued monitoring and any future remediation required by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $5 million to $29 million based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will depend on the number of sites to be remediated, the participation of other potentially responsible parties (PRPs), if any, and the remediation methods used.

In addition to the Minnesota sites, the Environmental Protection Agency and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. CenterPoint Energy does not expect the ultimate outcome of these matters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos. Some facilities owned by CenterPoint Energy contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy or its subsidiaries have been named, along with numerous others, as a defendant in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos. Some of the claimants have worked at locations owned by subsidiaries of CenterPoint Energy, but most existing claims relate to facilities previously owned by CenterPoint Energy’s subsidiaries. In 2004 and early 2005, CenterPoint Energy sold its generating business, to which most of these claims relate, to a company which is now an affiliate of NRG. Under the terms of the arrangements regarding separation of the generating business from CenterPoint Energy and its sale of that business, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, but CenterPoint Energy has agreed to continue to defend such claims to the extent they are covered by insurance maintained by CenterPoint Energy, subject to reimbursement of the costs of such defense by the NRG affiliate. CenterPoint Energy anticipates that additional claims like those received may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy intends to continue vigorously contesting claims that it does not consider to have merit and, based on its experience to date, does not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Environmental. From time to time CenterPoint Energy identifies the presence of environmental contaminants on property where its subsidiaries conduct or have conducted operations. Other such sites involving contaminants may be identified in the future. CenterPoint Energy has and expects to continue to remediate identified sites consistent with its legal obligations. From time to time CenterPoint Energy has received notices from regulatory authorities or others regarding its status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, CenterPoint Energy has

been named from time to time as a defendant in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, CenterPoint Energy does not expect, based on its experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Proceedings

CenterPoint Energy is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. From time to time, CenterPoint Energy is also a defendant in legal proceedings with respect to claims brought by various plaintiffs against broad groups of participants in the energy industry. Some of these proceedings involve substantial amounts. CenterPoint Energy regularly analyzes current information and, as necessary, provides accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. CenterPoint Energy does not expect the disposition of these matters to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

(e) Guarantees

Prior to the distribution of CenterPoint Energy’s ownership in RRI to its shareholders, CERC had guaranteed certain contractual obligations of what became RRI’s trading subsidiary. When the companies separated, RRI agreed to secure CERC against obligations under the guarantees RRI had been unable to extinguish by the time of separation. Pursuant to such agreement, as amended in December 2007, RRI (now GenOn) agreed to provide to CERC cash or letters of credit as security against CERC’s obligations under its remaining guarantees for demand charges under certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guarantees based on an annual calculation, with any required collateral to be posted each December. The undiscounted maximum potential payout of the demand charges under these transportation contracts, which will be in effect until 2018, was approximately $27 million as of December 31, 2015. Based on market conditions in the fourth quarter of 2015 at the time the most recent annual calculation was made under the agreement, GenOn was not obligated to post any security. If GenOn should fail to perform the contractual obligations, CERC could have to honor its guarantee and, in such event, any collateral then provided as security may be insufficient to satisfy CERC’s obligations.

CenterPoint Energy has provided guarantees (CenterPoint Midstream Guarantees) with respect to the performance of certain obligations of Enable under long-term gas gathering and treating agreements with an indirect, wholly-owned subsidiary of Encana Corporation (Encana) and an indirect, wholly-owned subsidiary of Royal Dutch Shell plc (Shell). Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and to release CenterPoint Energy from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees as applicable. The guarantee in favor of the indirect, wholly-owned subsidiary of Encana was released on August 24, 2015. As of December 31, 2015, CenterPoint Energy had guaranteed Enable’s obligations up to an aggregate amount of $50 million under the guarantee in favor of the indirect, wholly-owned subsidiary of Shell.

CERC Corp. has also provided a guarantee of collection of $1.1 billion of Enable’s Guaranteed Senior Notes. This guarantee is subordinated to all senior debt of CERC Corp. and is subject to automatic release on May 1, 2016.

The fair value of these guarantees is not material.

(15) Earnings Per Share

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings (loss) per share calculations:

For the Year Ended December 31,
201520142013
(in millions, except per share and share amounts)
Net income (loss)$(692)$611$311
Basic weighted average shares outstanding430,180,000429,634,000428,466,000
Plus: Incremental shares from assumed conversions:
Stock options——41,000
Restricted stock (1)—2,034,0002,423,000
Diluted weighted average shares430,180,000431,668,000430,930,000
Basic earnings (loss) per share$(1.61)$1.42$0.73
Diluted earnings (loss) per share$(1.61)$1.42$0.72
(1)2,349,000 incremental shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the year ended December 31, 2015, as their inclusion would be anti-dilutive.

(16) Unaudited Quarterly Information

Summarized quarterly financial data is as follows:

Year Ended December 31, 2015
First QuarterSecond QuarterThird Quarter (2)Fourth Quarter (3)
(in millions, except per share amounts)
Revenues$2,433$1,532$1,630$1,791
Operating income256186265226
Net income (loss)13177(391)(509)
Basic earnings (loss) per share (1)$0.30$0.18$(0.91)$(1.18)
Diluted earnings (loss) per share (1)$0.30$0.18$(0.91)$(1.18)
Year Ended December 31, 2014
First QuarterSecond QuarterThird QuarterFourth Quarter (4)
(in millions, except per share amounts)
Revenues$3,163$1,884$1,807$2,372
Operating income295186233221
Net income185107143176
Basic earnings per share (1)$0.43$0.25$0.33$0.41
Diluted earnings per share (1)$0.43$0.25$0.33$0.41
(1)Quarterly earnings (loss) per common share are based on the weighted average number of shares outstanding during the quarter, and the sum of the quarters may not equal annual earnings (loss) per common share.
(2)CenterPoint Energy recognized $862 million ($537 million after tax) in impairment charges related to Enable during the three months ended September 30, 2015.
(3)CenterPoint Energy recognized $984 million ($620 million after tax) in impairment charges related to Enable during the three months ended December 31, 2015.
(4)CenterPoint Energy recognized a $29 million deferred income tax benefit upon completion of its tax basis balance sheet review.

(17) Reportable Business Segments

CenterPoint Energy’s determination of reportable business segments considers the strategic operating units under which CenterPoint Energy manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. CenterPoint Energy uses operating income as the measure of profit or loss for its business segments.

CenterPoint Energy’s reportable business segments include the following: Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. The electric transmission and distribution function (CenterPoint Houston) is reported in the Electric Transmission & Distribution business segment. Natural Gas Distribution consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers. Energy Services represents CenterPoint Energy’s non-rate regulated gas sales and services operations. Midstream Investments consists of CenterPoint Energy’s investment in Enable. Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’s business operations.

Prior to May 1, 2013, CenterPoint Energy also reported an Interstate Pipelines business segment, which included CenterPoint Energy’s interstate natural gas pipeline operations, and a Field Services business segment, which included CenterPoint Energy’s non-rate regulated natural gas gathering, processing and treating operations. The formation of Enable closed on May 1, 2013. Enable now owns substantially all of CenterPoint Energy’s former Interstate Pipelines and Field Services business segments. As a result, effective May 1, 2013, CenterPoint Energy reports equity earnings associated with its interest in Enable under its Midstream Investments segment, and no longer has Interstate Pipelines and Field Services reporting segments prospectively.

Long-lived assets include net property, plant and equipment, goodwill and other intangibles and equity investments in unconsolidated subsidiaries. Intersegment sales are eliminated in consolidation.

Financial data for business segments and products and services are as follows:

Revenues from External CustomersIntersegment RevenuesDepreciation and AmortizationOperating Income (Loss)Total AssetsExpenditures for Long-Lived Assets
(in millions)
As of and for the year ended December 31, 2015:
Electric Transmission & Distribution$2,845(1)$—$705$607$10,049$934
Natural Gas Distribution2,603292222735,657601
Energy Services1,924335428575
Midstream Investments (2)————2,594—
Other14—38112,902(3)35
Reconciling Eliminations—(62)——(725)—
Consolidated$7,386$—$970$933$21,334$1,575
As of and for the year ended December 31, 2014:
Electric Transmission & Distribution$2,845(1)$—$768$595$10,066$818
Natural Gas Distribution3,271302012875,464525
Energy Services3,095845529783
Midstream Investments (2)————4,521—
Other15—3913,368(3)56
Reconciling Eliminations—(114)——(1,197)—
Consolidated$9,226$—$1,013$935$23,200$1,402
As of and for the year ended December 31, 2013:
Electric Transmission & Distribution$2,570(1)$—$685$607$9,605$759
Natural Gas Distribution2,837261852634,976430
Energy Services2,374275138953
Interstate Pipelines (4) (5)133532072—29
Field Services (5)178182073—16
Midstream Investments (2)————4,518—
Other14—39(18)3,026(3)35
Reconciling Eliminations—(124)——(1,150)—
Consolidated$8,106$—$954$1,010$21,870$1,272
(1)CenterPoint Houston’s transmission and distribution revenues from major customers are as follows:
Year Ended December 31, 2015
201520142013
(in millions)
Affiliates of NRG$741$735$658
Affiliates of Energy Future Holdings Corp.220189167
(2)Midstream Investments’ equity earnings (losses) are as follows:
Year Ended December 31, 2015
201520142013
(in millions)
Enable (1)$(1,633)$303$173
SESH—58
Total$(1,633)$308$181
(1)These amounts include CenterPoint Energy’s share of Enable’s impairment of goodwill and long-lived assets and the impairment of CenterPoint Energy’s equity method investment in Enable totaling $1,846 million during the year ended December 31, 2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

Midstream Investments’ total assets are as follows:

December 31,
20152014
(in millions)
Enable$2,594$4,520
SESH—1
Total$2,594$4,521
(3)Included in total assets of Other Operations as of December 31, 2015, 2014 and 2013, are pension and other postemployment related regulatory assets of $814 million, $795 million and $627 million, respectively.
(4)Interstate Pipelines recorded equity income of $7 million in the year ended December 31, 2013 from its interest in SESH, a jointly-owned pipeline. These amounts are included in Equity in earnings of unconsolidated affiliates under the Other Income (Expense) caption. As discussed above, effective May 1, 2013, CenterPoint Energy reports equity earnings associated with its interest in Enable and equity earnings associated with its interest in SESH under its Midstream Investments segment, and no longer has an Interstate Pipelines reporting segment prospectively.
(5)Results reflected in the year ended December 31, 2013 represent only January 2013 through April 2013.
Year Ended December 31,
Revenues by Products and Services:201520142013
(in millions)
Electric delivery$2,845$2,845$2,570
Retail gas sales3,7255,0494,150
Wholesale gas sales6571,159913
Gas transportation and processing2638345
Energy products and services133135128
Total$7,386$9,226$8,106

(18) Subsequent Events

On January 20, 2016, CenterPoint Energy’s board of directors declared a regular quarterly cash dividend of $0.2575 per share of common stock payable on March 10, 2016, to shareholders of record as of the close of business on February 16, 2016.

On January 22, 2016, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common and subordinated units for the quarter ended December 31, 2015. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enable in the first quarter of 2016 to be made with respect to CERC Corp.’s limited partner interest in Enable for the fourth quarter of 2015.

On January 28, 2016, CenterPoint Energy entered into a purchase agreement with Enable pursuant to which it agreed to purchase in a private placement (Private Placement) an aggregate of 14,520,000 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in Enable (Series A Preferred Units) for a cash purchase price of $25.00 per Series A Preferred Unit. The Private Placement closed on February 18, 2016. In connection with the Private Placement, Enable redeemed approximately $363 million of notes scheduled to mature in 2017 payable to a wholly-owned subsidiary of CERC Corp. CenterPoint Energy used the proceeds from this redemption for its investment in the Series A Preferred Units.

On January 29, 2016, CenterPoint Energy Services, an indirect subsidiary of CenterPoint Energy, announced an agreement to acquire the retail commercial and industrial businesses of Continuum Energy Services, a Tulsa and Houston-based company, for $77.5 million plus working capital. The transaction is conditioned upon the receipt of certain third party consents and approvals. CenterPoint Energy expects the transaction to close by the end of the first quarter of 2016.

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