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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CenterPoint Energy, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, 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, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

February 22, 2018

We have served as the Company's auditor since 1932.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

	Year Ended December 31,
	2017				2016				2015
	(in millions, except per share amounts)
Revenues:
Utility revenues	$	5,603			$	5,440			$	5,448
Non-utility revenues	4,011				2,088				1,938
Total	9,614				7,528				7,386
Expenses:
Utility natural gas	1,109				983				1,264
Non-utility natural gas	3,785				1,983				1,838
Operation and maintenance	2,221				2,093				2,007
Depreciation and amortization	1,036				1,126				970
Taxes other than income taxes	391				384				374
Total	8,542				6,569				6,453
Operating Income	1,072				959				933
Other Income (Expense):
Gain (loss) on marketable securities	7				326				(93		)
Gain (loss) on indexed debt securities	49				(413		)		74
Interest and other finance charges	(313		)		(338		)		(352		)
Interest on Securitization Bonds	(77		)		(91		)		(105		)
Equity in earnings (losses) of unconsolidated affiliates	265				208				(1,633		)
Other, net	60				35				46
Total	(9		)		(273		)		(2,063		)
Income (Loss) Before Income Taxes	1,063				686				(1,130		)
Income tax expense (benefit)	(729		)		254				(438		)
Net Income (Loss)	$	1,792			$	432			$	(692	)
Basic Earnings (Loss) Per Share	$	4.16			$	1.00			$	(1.61	)
Diluted Earnings (Loss) Per Share	$	4.13			$	1.00			$	(1.61	)
Weighted Average Shares Outstanding, Basic	431				431				430
Weighted Average Shares Outstanding, Diluted	434				434				430

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

	Year Ended December 31,
	2017				2016				2015
	(in millions)
Net income (loss)	$	1,792			$	432			$	(692	)
Other comprehensive income (loss):
Adjustment to pension and other postretirement plans (net of tax of $6, $4 and $12, respectively)	6				(7		)		20
Net deferred gain (loss) from cash flow hedges (net of tax of $2, $-0-, and $-0-, respectively)	(3		)		1				—
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0-, $1, and $-0-, respectively)	—				1				—
Other comprehensive income (loss)	3				(5		)		20
Comprehensive income (loss)	$	1,795			$	427			$	(672	)

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2017				December 31, 2016
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents ($230 and $340 related to VIEs, respectively)	$	260			$	341
Investment in marketable securities	960				953
Accounts receivable ($73 and $52 related to VIEs, respectively), less bad debt reserve of $19 and $15, respectively	1,000				740
Accrued unbilled revenues	427				335
Natural gas inventory	222				131
Materials and supplies	175				181
Non-trading derivative assets	110				51
Taxes receivable	—				30
Prepaid expense and other current assets ($35 and $40 related to VIEs, respectively)	241				161
Total current assets	3,395				2,923
Property, Plant and Equipment, net	13,057				12,307
Other Assets:
Goodwill	867				862
Regulatory assets ($1,590 and $1,919 related to VIEs, respectively)	2,347				2,677
Non-trading derivative assets	44				19
Investment in unconsolidated affiliates	2,472				2,505
Preferred units - unconsolidated affiliate	363				363
Other	191				173
Total other assets	6,284				6,599
Total Assets	$	22,736			$	21,829

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, cont.

	December 31, 2017				December 31, 2016
	(in millions, except par value and shares)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term borrowings	$	39			$	35
Current portion of VIE Securitization Bonds long-term debt	434				411
Indexed debt	122				114
Current portion of other long-term debt	50				500
Indexed debt securities derivative	668				717
Accounts payable	963				657
Taxes accrued	181				172
Interest accrued	104				108
Dividends accrued	120				—
Non-trading derivative liabilities	20				41
Other	368				325
Total current liabilities	3,069				3,080
Other Liabilities:
Deferred income taxes, net	3,174				5,263
Non-trading derivative liabilities	4				5
Benefit obligations	785				913
Regulatory liabilities	2,464				1,298
Other	357				278
Total other liabilities	6,784				7,757
Long-term Debt:
VIE Securitization Bonds, net	1,434				1,867
Other long-term debt, net	6,761				5,665
Total long-term debt, net	8,195				7,532
Commitments and Contingencies (Note 15)
Shareholders’ Equity:
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued or outstanding	—				—
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,044,845 shares and 430,682,504 shares outstanding, respectively	4				4
Additional paid-in capital	4,209				4,195
Retained earnings (accumulated deficit)	543				(668		)
Accumulated other comprehensive loss	(68		)		(71		)
Total shareholders’ equity	4,688				3,460
Total Liabilities and Shareholders’ Equity	$	22,736			$	21,829

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

	Year Ended December 31,
	2017				2016				2015
	(in millions)
Cash Flows from Operating Activities:
Net income (loss)	$	1,792			$	432			$	(692	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,036				1,126				970
Amortization of deferred financing costs	24				26				27
Deferred income taxes	(770		)		213				(413		)
Unrealized loss (gain) on marketable securities	(7		)		(326		)		93
Loss (gain) on indexed debt securities	(49		)		413				(74		)
Write-down of natural gas inventory	—				1				4
Equity in (earnings) losses of unconsolidated affiliates, net of distributions	(265		)		(208		)		1,779
Pension contributions	(48		)		(9		)		(66		)
Changes in other assets and liabilities, excluding acquisitions:
Accounts receivable and unbilled revenues, net	(216		)		(117		)		345
Inventory	(7		)		34				28
Taxes receivable	30				142				18
Accounts payable	136				133				(224		)
Fuel cost recovery	(85		)		(72		)		43
Non-trading derivatives, net	(84		)		30				(7		)
Margin deposits, net	(55		)		101				(4		)
Interest and taxes accrued	5				5				(10		)
Net regulatory assets and liabilities	(107		)		(60		)		63
Other current assets	1				(17		)		10
Other current liabilities	34				22				(50		)
Other assets	(4		)		(16		)		(5		)
Other liabilities	36				30				8
Other, net	24				48				27
Net cash provided by operating activities	1,421				1,931				1,870
Cash Flows from Investing Activities:
Capital expenditures	(1,426		)		(1,414		)		(1,584		)
Acquisitions, net of cash acquired	(132		)		(102		)		—
Decrease in notes receivable - unconsolidated affiliate	—				363				—
Investment in preferred units - unconsolidated affiliate	—				(363		)		—
Distributions from unconsolidated affiliates in excess of cumulative earnings	297				297				148
Decrease (increase) in restricted cash of Bond companies	5				(5		)		12
Proceeds from sale of marketable securities	—				178				32
Other, net	(1		)		—				5
Net cash used in investing activities	(1,257		)		(1,046		)		(1,387		)
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net	4				(5		)		(13		)
Proceeds from commercial paper, net	349				469				403
Proceeds from long-term debt, net	1,096				600				200
Payments of long-term debt	(1,211		)		(1,218		)		(644		)
Loss on reacquired debt	(5		)		(22		)		—
Debt issuance costs	(13		)		(9		)		—
Payment of dividends on common stock	(461		)		(443		)		(426		)
Distribution to ZENS holders	—				(178		)		(32		)
Other, net	(4		)		(2		)		(5		)
Net cash used in financing activities	(245		)		(808		)		(517		)
Net Increase (Decrease) in Cash and Cash Equivalents	(81		)		77				(34		)
Cash and Cash Equivalents at Beginning of Year	341				264				298
Cash and Cash Equivalents at End of Year	$	260			$	341			$	264

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS, cont.

	Year Ended December 31,
	2017				2016				2015
	(in millions)
Supplemental Disclosure of Cash Flow Information:
Cash Payments:
Interest, net of capitalized interest	$	378			$	406			$	426
Income taxes (refunds), net	15				(104		)		(45		)
Non-cash transactions:
Accounts payable related to capital expenditures	144				87				95

See Notes to Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

	2017							2016							2015
	Shares			Amount				Shares			Amount				Shares			Amount
	(in millions of dollars and shares, except per share amounts)
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 year	431			4				430			4				430			4
Issuances related to benefit and investment plans	—			—				1			—				—			—
Balance, end of year	431			4				431			4				430			4
Additional Paid-in-Capital
Balance, beginning of year				4,195							4,180							4,169
Issuances related to benefit and investment plans				14							15							11
Balance, end of year				4,209							4,195							4,180
Retained Earnings (Accumulated Deficit)
Balance, beginning of year				(668		)					(657		)					461
Net income (loss)				1,792							432							(692		)
Common stock dividends declared ($1.3475, $1.03 and $0.99 per share, respectively)				(581		)					(443		)					(426		)
Balance, end of year				543							(668		)					(657		)
Accumulated Other Comprehensive Loss
Balance, end of year:
Adjustment to pension and postretirement plans				(66		)					(72		)					(65		)
Net deferred gain (loss) from cash flow hedges				(2		)					1							(1		)
Total accumulated other comprehensive loss, end of year				(68		)					(71		)					(66		)
Total Shareholders’ Equity				$	4,688						$	3,460						$	3,461

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 and natural gas distribution facilities, supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable as described below. CenterPoint Energy’s indirect, wholly-owned subsidiaries include:

•	Houston Electric, which engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston;

•	CERC Corp., which owns and operates natural gas distribution systems in six states; and

•	CES, which obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states.

As of December 31, 2017, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets, and CERC Corp. owned approximately 54.1% of the common units representing limited partner interests in Enable.

For a description of CenterPoint Energy’s reportable business segments, see Note 18.

(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.

As of December 31, 2017, CenterPoint Energy had VIEs consisting of the Bond Companies, which it consolidates. The consolidated VIEs are wholly-owned, bankruptcy remote special purpose entities that were formed solely 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 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)	Equity and Cost Method Investments

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 2013, CenterPoint Energy, OGE and affiliates of 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. The net assets contributed were deemed to be in-substance real estate and were therefore recorded at historical cost.

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 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.

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.

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

(d)	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 AMS 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.

(e) 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.

(f) 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. In addition, a portion of the amount of removal costs that relate to AROs has been reclassified from a regulatory liability to an asset retirement liability in accordance with accounting guidance for AROs.

For further detail on CenterPoint Energy’s regulatory assets and liabilities, please see Note 6.

(g) 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 certain regulatory assets and other intangibles.

(h) Capitalization of Interest and AFUDC

Interest and 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. Although AFUDC increases both utility plant and earnings, it is realized in cash when the assets are included in rates.

CenterPoint Energy recorded the following:

		Year Ended December 31,
		2017				2016				2015
		(in millions)
Capitalized interest and AFUDC included in Interest and other finance charges		$	9			$	8			$	10
AFUDC equity included in Other Income		11				7				12

(i) 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. CenterPoint Energy reports the income tax provision associated with its interest in Enable in Income tax expense (benefit) in its Statements of Consolidated Income.

To the extent certain EDIT of CenterPoint Energy’s rate-regulated subsidiaries may be recoverable or payable through future rates, regulatory assets and liabilities have been recorded, respectively.

On December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called the Tax Cuts and Jobs Acts, or TCJA, which resulted in significant changes to federal tax laws effective January 1, 2018. See Note 14 for further discussion of the impacts of tax reform implementation.

(j) 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 2017, 2016 and 2015 was $14 million, $7 million and $19 million, respectively.

(k) 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 2017, 2016 and 2015, CenterPoint Energy recorded write-downs of natural gas inventory to the lower of average cost or market which are disclosed on the Statements of Consolidated Cash Flows.

(l) 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, weather and interest rates 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.

(m) 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.

(n) 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.

(o) Cash and Cash Equivalents and Restricted Cash

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. Cash and cash equivalents held by the Bond Companies (VIEs) solely to support servicing the Securitization Bonds as of December 31, 2017 and 2016 are reflected on the Consolidated Balance Sheets.

In connection with the issuance of Securitization 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. Restricted cash accounts as of December 31, 2017 and 2016 are reported below.

		December 31,
		2017				2016
		(in millions)
Restricted cash included in Prepaid expenses and other current assets		$	35			$	40
Restricted cash included in Other assets		1				—
Total restricted cash		$	36			$	40

(p) New Accounting Pronouncements

Recently Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. CenterPoint Energy adopted this standard as of January 1, 2017. The adoption did not have a material impact on CenterPoint Energy’s financial position or results of operations. However, CenterPoint Energy’s statement of cash flows reflects a decrease in financing activity and a corresponding increase in operating activity of $4 million, $3 million and $5 million as of December 31, 2017, 2016 and 2015, respectively, due to the retrospective application of the requirement that cash paid to a tax authority when shares are withheld to satisfy statutory income tax withholding obligations should be presented as a financing rather than as an operating activity.

Issued, Not Yet Effective

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. ASU 2016-01 also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. As of the first reporting period in which

the guidance is adopted, a cumulative-effect adjustment to beginning retained earnings will be made, with two features that will be adopted prospectively. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. CenterPoint Energy expects to adopt this standard on January 1, 2019 and is evaluating available transitional practical expedients. A modified retrospective adoption approach is required. CenterPoint Energy is in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expects to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of its leases that are currently classified as operating leases. CenterPoint Energy is continuing to assess the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

In 2016 and 2017, the FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, as amended, 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. Early adoption is permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. While these ASUs will expand disclosures, CenterPoint Energy has not identified any significant changes as the result of these new standards. A substantial amount of CenterPoint Energy’s revenues are tariff and derivative based, which will not be significantly impacted by these ASUs. ASU 2014-09 eliminates industry specific guidance, including ASC 360-20, and as a result our investment in Enable will no longer be considered in-substance real estate. Gains or losses on subsequent sales or dilution events in our investment in Enable will be recognized in earnings. CenterPoint Energy adopted these ASUs on January 1, 2018 using the modified retrospective adoption approach.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. CenterPoint Energy adopted this standard on January 1, 2018. A retrospective adoption approach is required. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, and disclosures. Due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity, there will be an increase in investing activity and a corresponding decrease in operating activity on the statement of cash flows when COLI proceeds are received.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. This standard will not have an impact on CenterPoint Energy’s financial position, results of operations, and disclosures, but it will have an impact on the presentation of the statement of cash flows upon adoption on January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted in certain circumstances. A prospective adoption approach is required. ASU 2017-01 could have a potential impact on CenterPoint Energy’s accounting for future acquisitions upon adoption on January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods

within those fiscal years, beginning after December 15, 2019, with early adoption permitted. CenterPoint Energy will adopt ASU 2017-04 on January 1, 2018. A prospective adoption approach is required. ASU 2017-04 will have an impact on CenterPoint Energy’s future calculation of goodwill impairments if an impairment is identified.

In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies when and how to apply ASC 610-20 Gains and Losses from the Derecognition of Nonfinancial Assets, which was issued as part of ASU 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2017-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Companies can elect a retrospective or modified retrospective approach to adoption. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components and prospectively for the capitalization of the service cost component. The adoption of this guidance is expected to result in an increase to operating income and a decrease to other income. Prospectively, other components previously capitalized in assets will be recorded as regulatory assets in CenterPoint Energy’s rate-regulated businesses. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 should be applied prospectively for awards modified on or after the adoption date. This standard, upon adoption on January 1, 2018, will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements, and updates the presentation and disclosure requirements. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness upon adoption is required for existing cash flow and net investment hedges. Presentation and disclosure guidance should be applied prospectively. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

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 Lives		December 31,
	(in years)		2017				2016
			(in millions)
Electric Transmission & Distribution	32		$	11,496			$	10,840
Natural Gas Distribution	28		6,735				6,219
Energy Services	27		102				83
Other property	26		698				689
Total			19,031				17,831
Accumulated depreciation and amortization:
Electric Transmission & Distribution			3,633				3,443
Natural Gas Distribution			1,968				1,722
Energy Services			35				29
Other property			338				330
Total accumulated depreciation and amortization			5,974				5,524
Property, plant and equipment, net			$	13,057			$	12,307

(b) Depreciation and Amortization

The following table presents depreciation and amortization expense for 2017, 2016 and 2015.

	2017				2016				2015
	(in millions)
Depreciation expense	$	619			$	607			$	557
Amortization expense	417				519				413
Total depreciation and amortization expense	$	1,036			$	1,126			$	970

(c) AROs

A reconciliation of the changes in the ARO liability is as follows:

	December 31,
	2017				2016
	(in millions)
Beginning balance	$	205			$	195
Accretion expense	8				10
Revisions in estimates of cash flows	68				—
Ending balance	$	281			$	205

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 $68 million in the ARO from the revision in estimates in 2017 is primarily attributable to a decrease in the long-term discounts rates used in the ARO calculation for CERC.

(4) Acquisition

On January 3, 2017, CES, an indirect, wholly-owned subsidiary of CenterPoint Energy, completed its acquisition of AEM. After working capital adjustments, the final purchase price was $147 million and was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values on the acquisition date.

The following table summarizes the final purchase price allocation and the fair value amounts recognized for the assets acquired and liabilities assumed related to the acquisition:

		(in millions)
Total purchase price consideration		$	147
Cash		$	15
Receivables		140
Natural gas inventory		78
Derivative assets		35
Prepaid expenses and other current assets		5
Property and equipment		8
Identifiable intangibles		25
Total assets acquired		306
Accounts payable		113
Derivative liabilities		43
Other current liabilities		7
Other liabilities		1
Total liabilities assumed		164
Identifiable net assets acquired		142
Goodwill		5
Net assets acquired		$	147

The goodwill of $5 million resulting from the acquisition reflects the excess of the purchase price over the fair value of the net identifiable assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the complementary operational and geographic footprints, scale and expanded capabilities provided by the acquisition.

Identifiable intangible assets were recorded at estimated fair value as determined by management based on available information, which included a valuation prepared by an independent third party. The significant assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, the discount rate which is based on the weighted average cost of capital for comparable publicly traded guideline companies and projected customer attrition rates. The useful lives for the identifiable intangible assets were determined using methods that approximate the pattern of economic benefit provided by the utilization of the assets.

The estimated fair value of the identifiable intangible assets and related useful lives as included in the final purchase price allocation include:

		Estimate Fair Value				Estimate Useful Life
		(in millions)				(in years)
Customer relationships		$	25			15

Amortization expense related to the above identifiable intangible assets was $2 million for the year ended December 31, 2017.

Revenues of approximately $1.3 billion and operating income of approximately $74 million attributable to the AEM acquisition are reported in the Energy Services business segment and included in CenterPoint Energy’s Statements of Consolidated Income for the year ended December 31, 2017.

The following unaudited pro forma financial information reflects the consolidated results of operations of CenterPoint Energy, assuming the AEM acquisition had taken place on January 1, 2016. Adjustments to pro forma net income include intercompany sales, amortization of intangible assets, depreciation of fixed assets, interest expense associated with debt financing to fund the acquisition, and related income tax effects. The pro forma information does not include the mark-to-market impact of financial instruments designated as cash flow hedges of anticipated purchases and sales at index prices. The effective portion of these hedges is excluded from earnings and reported as changes in Other comprehensive income. Additionally, the pro forma information does not include the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the acquisition taken place on the dates indicated or the future consolidated results of operations of the combined company.

		Year Ended December 31,
		2017				2016
		(in millions)
Operating Revenue		$	9,614			$	8,541
Net Income (1)		1,792				442

(1)	Net income for the year ended December 31, 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.

(5) Goodwill and Other Intangibles

Goodwill by reportable business segment as of December 31, 2016 and changes in the carrying amount of goodwill as of December 31, 2017 are as follows:

	December 31, 2016				AEM Acquisition (1)				December 31, 2017
	(in millions)
Natural Gas Distribution	$	746			$	—			$	746
Energy Services	105			(2)	5				110			(2)
Other Operations	11				—				11
Total	$	862			$	5			$	867

(1) See Note 4.

(2) Amount presented is net of the 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 2017 and 2016 and determined, based on the results of the first step, that no goodwill impairment charge was required for any reporting unit, which approximate the reportable segments.

The tables below present information on CenterPoint Energy’s other intangible assets recorded in Other non-current assets on the Consolidated Balance Sheets.

	December 31, 2017
	Useful Lives		Gross Carrying Amount				Accumulated Amortization				Net Balance
	(in years)		(in millions)
Customer relationships	15		$	86			$	(21	)		$	65
Covenants not to compete	4		4				(2		)		2
Other	Various		15				(8		)		7
Total			$	105			$	(31	)		$	74

	December 31, 2016
	Useful Lives		Gross Carrying Amount				Accumulated Amortization				Net Balance
	(in years)		(in millions)
Customer relationships	15		$	61			$	(16	)		$	45
Covenants not to compete	4		4				(1		)		3
Other	Various		2				(1		)		1
Total			$	67			$	(18	)		$	49

Amortization expense of intangible assets was $13 million, $4 million and $2 million in the years ended December 31, 2017, 2016 and 2015, respectively. CenterPoint Energy estimates that amortization expense of intangible assets with finite lives will be $12 million, $11 million, $6 million, $6 million and $5 million in the years ending December 31, 2018, 2019, 2020, 2021 and 2022, respectively.

(6) Regulatory Accounting

The following is a list of regulatory assets and liabilities reflected on CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 2017 and 2016:

	December 31,
	2017				2016
	(in millions)
Current regulatory assets (1)	$	130			$	70
Non-current regulatory assets:
Securitized regulatory assets	1,590				1,919
Unrecognized equity return (2)	(287		)		(329		)
Unamortized loss on reacquired debt	75				84
Pension and postretirement-related regulatory asset (3)	646				809
Hurricane Harvey restoration costs (4)	64				—
Excess deferred income taxes (5)	48				—
Other long-term regulatory assets (6)	211				194
Total non-current regulatory assets	2,347				2,677
Total regulatory assets	2,477				2,747
Current regulatory liabilities (7)	24				18
Non-current regulatory liabilities:
Excess deferred income taxes (5)	1,354				—
Estimated removal costs	878				1,010
Other long-term regulatory liabilities	232				288
Total non-current regulatory liabilities	2,464				1,298
Total regulatory liabilities	2,488				1,316
Total regulatory assets and liabilities, net	$	(11	)		$	1,431

(1)	Current regulatory assets are included in Prepaid expenses and other current assets in CenterPoint Energy’s Consolidated Balance Sheets.

(2)

The unrecognized allowed equity return will be recognized as it is recovered in rates through 2024. During the years ended December 31, 2017, 2016 and 2015, Houston Electric recognized approximately $42 million, $64 million and $49 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 recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.

(3)	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 $7 million and $6 million as of December 31, 2017 and 2016, respectively, were not earning a return.

(4)	CenterPoint Energy is not earning a return on its Hurricane Harvey restoration costs.

(5)	The EDIT will be recovered or refunded to customers as required by tax and regulatory authorities. See Note 14 for additional information.

(6)	Other long-term regulatory assets that are not earning a return were not material as of December 31, 2017 and 2016.

(7)	Current regulatory liabilities are included in Other current liabilities in CenterPoint Energy’s Consolidated Balance Sheets.

Hurricane Harvey. Houston Electric’s electric delivery system and CERC Corp.’s NGD suffered damage as a result of Hurricane Harvey, a major storm classified as a Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale, that first struck the Texas coast on Friday, August 25, 2017 and remained over the Houston area for the next several days. The unprecedented flooding from torrential amounts of rainfall accompanying the storm caused significant damage to or destruction of residences and businesses served by Houston Electric and NGD.

Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Harvey will be approximately $120 million and estimates that the total restoration costs covered by insurance will be approximately $28 million. NGD estimates that total costs to restore natural gas distribution facilities damaged as a result of Hurricane Harvey will be approximately $25 million and estimates that the total restoration costs covered by insurance will be approximately $19 million. Houston Electric and NGD will defer the uninsured storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and through the next base rate proceeding for operation and maintenance expenses. As a result, storm restoration costs did not materially affect Houston Electric’s or CERC’s reported net income for 2017.

As of December 31, 2017, Houston Electric and NGD recorded the following:

		Houston Electric				NGD
		(in millions)
Property, plant and equipment		$	42			$	5
Insurance proceeds received		(11		)		—
Insurance receivable		—				(5		)
Net property, plant and equipment		$	31			$	—
Operation and maintenance expense		$	75			$	10
Insurance proceeds received		(3		)		—
Insurance receivable		(14		)		(4		)
Net regulatory asset		$	58			$	6

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

(a) Stock-Based Incentive Compensation Plans

CenterPoint Energy has 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 2017, 2016 and 2015 are distributed based upon the achievement of certain objectives over a three-year performance cycle. The stock awards granted in 2017, 2016 and 2015 are service based. 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 to satisfy stock-based payments related to LTIPs.

CenterPoint Energy recorded LTIP compensation expense of $21 million, $19 million and $17 million for the years ended December 31, 2017, 2016 and 2015, 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 $8 million, $7 million and $6 million for the years ended December 31, 2017, 2016 and 2015, respectively. No compensation cost related to LTIPs was capitalized as a part of inventory or fixed assets in 2017, 2016 or 2015. The actual tax benefit realized for tax deductions related to LTIPs totaled $6 million, $5 million and $6 million for 2017, 2016 and 2015, 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 2017:

Performance Awards

	Outstanding and Non-Vested Shares
	Year Ended December 31, 2017
	Shares (Thousands)			Weighted-Average Grant Date Fair Value				Remaining Average Contractual Life (Years)		Aggregate Intrinsic Value (Millions)
Outstanding as of December 31, 2016	3,423			$	20.90
Granted	1,263			26.64
Forfeited or canceled	(846	)		23.38
Vested and released to participants	(213	)		23.68
Outstanding as of December 31, 2017	3,627			22.15				1		$	51

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, 2017
	Shares (Thousands)			Weighted-Average Grant Date Fair Value				Remaining Average Contractual Life (Years)		Aggregate Intrinsic Value (Millions)
Outstanding as of December 31, 2016	920			$	20.74
Granted	414			26.77
Forfeited or canceled	(47	)		22.25
Vested and released to participants	(307	)		22.46
Outstanding as of December 31, 2017	980			22.68				1.2		$	28

The weighted-average grant-date fair values per unit of awards granted were as follows for 2017, 2016 and 2015:

	Year Ended December 31,
	2017				2016				2015
Performance awards	$	26.64			$	18.98			$	21.28
Stock awards	26.77				19.24				21.39

Valuation Data

The total intrinsic value of awards received by participants was as follows for 2017, 2016 and 2015:

	Year Ended December 31,
	2017				2016				2015
	(in millions)
Performance awards	$	7			$	7			$	9
Stock awards	9				6				7

The total grant date fair value of performance and stock awards which vested during the years ended December 31, 2017, 2016 and 2015 was $12 million, $13 million and $13 million, respectively. As of December 31, 2017, there was $24 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 1.7 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 qualified 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 hired before January 1, 2018 become eligible for these benefits if they have met certain age and service requirements at retirement, as defined in the plans. Employees hired on or after January 1, 2018 are not eligible for these benefits, except for those employees represented by IBEW. Benefit costs are accrued over the active service period of employees. Effective January 1, 2017, members of the IBEW Local Union 66 who retire on or after January 1, 2017, and their dependents, will receive any retiree medical and prescription drug benefits exclusively through the NECA/IBEW Family Medical Care Plan pursuant to the terms of the renegotiated collective bargaining agreement entered into in May 2016.

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,
	2017								2016								2015
	Pension Benefits				Post-retirement Benefits				Pension Benefits				Post-retirement Benefits				Pension Benefits				Post-retirement Benefits
	(in millions)
Service cost	$	36			$	2			$	38			$	2			$	41			$	2
Interest cost	89				16				93				16				93				20
Expected return on plan assets	(97		)		(5		)		(101		)		(6		)		(120		)		(7		)
Amortization of prior service cost (credit)	9				(5		)		9				(3		)		9				(1		)
Amortization of net loss	58				—				63				1				57				5
Curtailment (1)	—				—				—				(5		)		—				—
Settlement (2)	—				—				—				—				10				—
Net periodic cost	$	95			$	8			$	102			$	5			$	90			$	19

(1)

A curtailment gain or loss is required when the expected future services of a significant number of current employees are reduced or eliminated for the accrual of benefits. During 2016, postretirement healthcare benefits were amended resulting in a net curtailment gain of $5 million. In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the IBEW Local Union 66 that provides that for Houston Electric union employees covered under the agreement who retire on or after January 1, 2017, retiree medical and prescription drug coverage will be provided exclusively through the NECA/IBEW Family Medical Care Plan in exchange for the payment of monthly premiums as determined under the agreement. As a result, the accrued postretirement benefits related to such future Houston Electric union retirees were eliminated. Houston Electric recognized a curtailment gain of $3 million as an accelerated recognition of the prior service credit that would otherwise be recognized in future periods for the postretirement plan. CenterPoint Energy also recognized an additional curtailment gain of $2 million in October 2016 related to other amendments in the postretirement plan. As a result of these amendments, the 2016 postretirement expense was significantly lower than expenses reported for previous years.

(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,
	2017						2016						2015
	Pension Benefits			Post-retirement Benefits			Pension Benefits			Post-retirement Benefits			Pension Benefits			Post-retirement Benefits
Discount rate	4.15	%		4.15	%		4.40	%		4.35	%		4.05	%		3.90	%
Expected return on plan assets	6.00			4.50			6.25			4.80			6.50			5.20
Rate of increase in compensation levels	4.50			—			4.15			—			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, 2017 and 2016.

	December 31,
	2017								2016
	Pension Benefits				Post-retirement Benefits				Pension Benefits				Post-retirement Benefits
	(in millions, except for actuarial assumptions)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	2,197			$	383			$	2,193			$	432
Service cost	36				2				38				2
Interest cost	89				16				93				16
Participant contributions	—				7				—				10
Benefits paid	(168		)		(26		)		(181		)		(37		)
Actuarial loss	71				4				54				13
Medicare reimbursement	—				—				—				3
Plan amendment (1)	—				—				—				(56		)
Benefit obligation, end of year	2,225				386				2,197				383
Change in Plan Assets
Fair value of plan assets, beginning of year	1,656				113				1,679				136
Employer contributions	48				16				9				18
Participant contributions	—				7				—				10
Benefits paid	(168		)		(26		)		(181		)		(37		)
Plan amendment (2)	—				—				—				(20		)
Actual investment return	265				10				149				6
Fair value of plan assets, end of year	1,801				120				1,656				113
Funded status, end of year	$	(424	)		$	(266	)		$	(541	)		$	(270	)
Amounts Recognized in Balance Sheets
Current liabilities-other	$	(7	)		$	(6	)		$	(7	)		$	(6	)
Other liabilities-benefit obligations	(417		)		(260		)		(534		)		(264		)
Net liability, end of year	$	(424	)		$	(266	)		$	(541	)		$	(270	)

	December 31,
	2017								2016
	Pension Benefits				Post-retirement Benefits				Pension Benefits				Post-retirement Benefits
Actuarial Assumptions
Discount rate	3.65		%		3.60		%		4.15		%		4.15		%
Expected return on plan assets	6.00				4.55				6.00				4.50
Rate of increase in compensation levels	4.45				—				4.50				—
Medical cost trend rate assumed for the next year - Pre-65	—				6.15				—				5.75
Medical/prescription drug cost trend rate assumed for the next year - Post-65	—				23.85				—				10.65
Prescription drug cost trend rate assumed for the next year - Pre-65	—				9.85				—				10.75
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	—				4.50				—				4.50
Year that the cost trend rates reach the ultimate trend rate - Pre-65	—				2026				—				2024
Year that the cost trend rates reach the ultimate trend rate - Post-65	—				2024				—				2024

(1)

The postretirement benefits were amended during 2016 to change retiree medical coverage, effective January 1, 2017, as follows: (i) members of the IBEW Local Union 66 who retire on or after January 1, 2017, and their dependents, will receive any retiree medical and prescription drug coverage exclusively through the NECA/IBEW Family Medical Care Plan pursuant to the terms of the renegotiated collective bargaining agreement entered into in May 2016; and (ii) Medicare eligible post-65 retirees will receive coverage through a Medicare Advantage Program, an insured benefit, in lieu of the previous self-insured benefit. These changes resulted in a reduction in our postretirement plan liability of $56 million as of December 31, 2016.

(2)

In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the IBEW Local Union 66. The Houston Lighting & Power Company Union Retirees’ Medical and Dental Benefits Trust was amended to reflect the renegotiated collective bargaining agreement by establishing a segregated and restricted account under the trust for the retiree medical benefits of post-2016 union retirees who are now covered exclusively by the NECA/IBEW Family Medical Care Plan. $20 million was transferred to the account for post-2016 union retirees.

The accumulated benefit obligation for all defined benefit pension plans was $2,164 million and $2,168 million as of December 31, 2017 and 2016, 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 and prescription drug costs are assumed to increase to 6.15% and 9.85%, respectively, for the pre-65 retirees, and the combined medical/prescription drug cost increase is assumed to be 23.85% for the post-65 retirees during 2018, after which these rates decrease until reaching the ultimate trend rate of 4.50% in 2026 and 2024 for the pre-65 and post-65 retirees, respectively.

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

	Year Ended December 31,
	2017				2016
	(in millions)
Beginning Balance	$	(72	)		$	(65	)
Other comprehensive income (loss) before reclassifications (1)	4				(19		)
Amounts reclassified from accumulated other comprehensive income:
Prior service cost (2)	1				—
Actuarial losses (2)	7				8
Total reclassifications from accumulated other comprehensive income	8				8
Tax benefit (expense)	(6		)		4
Net current period other comprehensive income (loss)	6				(7		)
Ending Balance	$	(66	)		$	(72	)

(1)	Total other comprehensive income (loss) related to the remeasurement 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,
	2017								2016
	Pension Benefits				Postretirement Benefits				Pension Benefits				Postretirement Benefits
	(in millions)
Unrecognized actuarial loss (gain)	$	94			$	(8	)		$	100			$	3
Unrecognized prior service cost	1				6				2				6
Net amount recognized in accumulated other comprehensive loss (gain)	$	95			$	(2	)		$	102			$	9

The changes in plan assets and benefit obligations recognized in other comprehensive income during 2017 are as follows:

	Pension Benefits				Postretirement Benefits
	(in millions)
Net loss (gain)	$	1			$	(10	)
Amortization of net loss	(7		)		—
Amortization of prior service cost	(1		)		(1		)
Total recognized in comprehensive income	$	(7	)		$	(11	)

The total expense recognized in net periodic costs and other comprehensive income was $88 million and $(3) million for pension and postretirement benefits, respectively, for the year ended December 31, 2017.

The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2018 are as follows:

	Pension Benefits				Postretirement Benefits
	(in millions)
Unrecognized actuarial loss	$	6			$	—
Unrecognized prior service cost	1				1
Amounts in accumulated comprehensive loss to be recognized in net periodic cost in 2018 (1)	$	7			$	1

(1)	Upon adoption of ASU 2017-07 on January 1, 2018, these amounts will be recognized as Other Income (Expense) in CenterPoint Energy’s Statements of Consolidated Income.

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,
	2017								2016
	Pension Qualified				Pension Non-qualified				Pension Qualified				Pension Non-qualified
	(in millions)
Accumulated benefit obligation	$	2,090			$	74			$	2,097			$	71
Projected benefit obligation	2,151				74				2,126				71
Fair value of plan assets	1,801				—				1,656				—

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% Increase				1% Decrease
	(in millions)
Effect on postretirement benefit obligation	$	12			$	11
Effect on total of service and interest cost	—				—

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, 2017:

	Pension Benefits		Postretirement Benefits
U.S. equity	12 – 28%		13 – 23%
International developed market equity	7 – 17%		3 – 13%
Emerging market equity	3 – 13%		—
Fixed income	54 – 66%		69 – 79%
Cash	0 – 2%		0 – 2%

The following tables set forth by level, within the fair value hierarchy (see Note 9), CenterPoint Energy’s pension plan assets at fair value as of December 31, 2017 and 2016:

	Fair Value Measurements as of December 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3) (3)				Total
	(in millions)
Cash	$	18			$	—			$	—			$	18
Corporate bonds:
Investment grade or above	—				432				—				432
Equity securities:
U.S. companies	76				—				—				76
Cash received as collateral from securities lending	76				—				—				76
U.S. treasuries	67				—				—				67
Mortgage backed securities	—				8				—				8
Asset backed securities	—				1				—				1
Municipal bonds	—				47				—				47
Mutual funds (1)	211				—				—				211
International government bonds	—				17				—				17
Obligation to return cash received as collateral from securities lending	(76		)		—				—				(76		)
Total investments at fair value	$	372			$	505			$	—			$	877
Investments measured by net asset value per share or its equivalent (2)													924
Total Investments													$	1,801

(1)	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.

(2)	This represents the common collective trust funds with 55% of the amount invested in fixed income securities, 6% in U.S. equities, 34% in international equities and 5% in emerging market equities.

(3)	The changes in the fair value of the pension plan’s Level 3 investments for the year ended December 31, 2017 were not material.

	Fair Value Measurements as of December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3) (3)				Total
	(in millions)
Cash	$	14			$	—			$	—			$	14
Corporate bonds:
Investment grade or above	—				401				—				401
Equity securities:
U.S. companies	73				—				—				73
Cash received as collateral from securities lending	69				—				—				69
U.S. treasuries	49				—				—				49
Mortgage backed securities	—				3				—				3
Asset backed securities	—				2				—				2
Municipal bonds	—				52				—				52
Mutual funds (1)	171				—				—				171
International government bonds	—				16				—				16
Obligation to return cash received as collateral from securities lending	(69		)		—				—				(69		)
Total investments at fair value	$	307			$	474			$	—			$	781
Investments measured by net asset value per share or its equivalent (2)													875
Total Investments													$	1,656

(1)	57% of the amount invested in mutual funds was in international equities, 28% was in emerging market equities and 15% was in U.S. equities.

(2)	This represents the common collective trust funds with 53% of the amount invested in fixed income securities, 12% in U.S. equities, 30% in international equities and 5% in emerging market equities.

(3)	The changes in the fair value of the pension plan’s Level 3 investments for the year ended December 31, 2016 were not material.

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, 2017 or 2016.

The following tables present by level, within the fair value hierarchy, CenterPoint Energy’s postretirement plan assets at fair value as of December 31, 2017 and 2016, by asset category:

	Fair Value Measurements as of December 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
	(in millions)
Mutual funds (1)	$	120			$	—			$	—			$	120
Total	$	120			$	—			$	—			$	120

(1)	74% of the amount invested in mutual funds was in fixed income securities, 18% was in U.S. equities and 8% was in international equities.

	Fair Value Measurements as of December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
	(in millions)
Mutual funds (1)	$	113			$	—			$	—			$	113
Total	$	113			$	—			$	—			$	113

(1)	74% of the amount invested in mutual funds was in fixed income securities, 18% was in U.S. equities and 8% was in international equities.

CenterPoint Energy contributed $39 million, $9 million and $16 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 2017. CenterPoint Energy expects to contribute a minimum of approximately $60 million, $7 million and $16 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 2018.

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

	Pension Benefits				Postretirement Benefit Payments
	(in millions)
2018	$	144			$	19
2019	147				21
2020	153				24
2021	156				27
2022	158				29
2023-2027	774				145

(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 under Section 4975(e)(7) of the Code. Under the plan, participating employees may make pre-tax or Roth contributions up to 50%, and after tax contributions up to 16%, of their eligible compensation, not to exceed certain federally mandated limits. CenterPoint Energy matches 100% of the first 6% of each employee’s compensation contributed. The matching contributions are fully vested at all times.

Prior to January 1, 2016, participating employees could elect to invest all or a portion of their contributions to the plan in CenterPoint Energy, Inc. common stock, to have dividends reinvested in additional shares or to receive dividend payments in cash on any investment in CenterPoint Energy, Inc. common stock, and to transfer all or part of their investment in CenterPoint Energy, Inc. 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, Inc. 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, Inc. common stock.

The savings plan has significant holdings of CenterPoint Energy, Inc. common stock. As of December 31, 2017, 12,806,085 shares of CenterPoint Energy, Inc. common stock were held by the savings plan, which represented approximately 16% of its investments. Given the concentration of the investments in CenterPoint Energy, Inc. common stock, the savings plan and its participants have market risk related to this investment.

CenterPoint Energy’s savings plan benefit expenses were $41 million, $38 million and $35 million in 2017, 2016 and 2015, 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 $6 million, $5 million and $2 million in 2017, 2016 and 2015, respectively.

Included in Benefit Obligations in the accompanying Consolidated Balance Sheets as of December 31, 2017 and 2016 was $20 million and $22 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 or 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 for each of the years in 2017, 2016 and 2015. Included in Benefit Obligations in the accompanying Consolidated Balance Sheets as of December 31, 2017 and 2016 was $45 million and $47 million, respectively, relating to deferred compensation plans.

Included in Benefit Obligations in CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 2017 and 2016 was $39 million and $40 million, respectively, relating to split-dollar life insurance arrangements.

(f) Change in Control Agreements and Other Employee Matters

CenterPoint Energy has a change in control plan, which was effective January 1, 2015. The plan 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, 2017, approximately 35% of CenterPoint Energy’s employees were covered by collective bargaining agreements. The collective bargaining agreement with the IBEW Local 66 and the two collective bargaining agreements with Professional Employees International Union Local 12, covering approximately 21% of CenterPoint Energy’s employees, will expire in May of 2020 and March and May of 2021, respectively. These three agreements were last negotiated in 2016.

The collective bargaining agreements with Gas Workers Union, Local 340 and the IBEW Local 949, covering approximately 8% of CenterPoint Energy’s employees, will expire in April and December of 2020, respectively. These two agreements were last negotiated in 2015.

The two collective bargaining agreements with the United Steelworkers Union, Locals 13-227 and 13-1, which cover approximately 5% of CenterPoint Energy’s employees, were successfully negotiated in 2017. The new agreements will expire in June and July of 2022 for the Local 13-227 and Local 13-1, respectively.

(8) 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, weather and interest rates on its operating results and cash flows.

(a) Non-Trading Activities

Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to mitigate the effects of commodity price movements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services business segment are designated as fair value hedges for accounting purposes. All other 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 Houston Electric’s results in its service territory.

CenterPoint Energy 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 2014-2015 winter heating season, which contained a bilateral dollar cap of $16 million. However, CenterPoint Energy did not enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons. CenterPoint Energy entered into heating-degree day swaps for certain NGD Texas jurisdictions for the 2017–2018 winter heating season, which contained a bilateral dollar cap of $8 million. CenterPoint Energy entered into weather hedges for the Houston Electric service territory to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows, which contained bilateral dollar caps of $7 million, $9 million and $9 million for the 2015–2016, 2016–2017 and 2017–2018 winter seasons, respectively. The swaps are based on 10-year normal weather. During the years ended December 31, 2017, 2016 and 2015, CenterPoint Energy recognized a loss of $1 million, gain of $1 million and a loss of $6 million, respectively, related to these swaps. Weather hedge gains and losses are included in revenues in the Statements of Consolidated Income.

Hedging of Interest Expense for Future Debt Issuances. In January 2017, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 10-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $300 million issuance of fixed rate debt in January 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $1 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the bonds.

In 2017, CenterPoint Energy entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $350 million. These agreements were executed to hedge, in part, volatility in the 5-year U.S. treasury rate by reducing CenterPoint Energy’s exposure to variability in cash flows relating to interest payments of CenterPoint Energy’s $500 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $3 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the fixed rate debt.

In August 2017, CERC Corp. entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing CERC Corp.’s exposure to variability in cash flows related to interest payments of CERC Corp.’s $300 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $2 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the fixed rate debt.

As of December 31, 2017, none of CenterPoint Energy, Houston Electric or CERC Corp. had any pre-issuance interest rate hedges in place.

In January and February 2018, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $200 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments on a forecasted issuance of fixed rate debt in 2018. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of unrealized gains and losses associated with the forward interest rate agreements will be recorded as a component of accumulated other comprehensive income and the ineffective portion, if any, will be recorded in 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, 2017 and 2016, while the last table provides a breakdown of the related income statement impacts for the years ending December 31, 2017, 2016 and 2015.

Fair Value of Derivative Instruments
		December 31, 2017
Derivatives designated as fair value hedges:		Balance Sheet Location		Derivative Assets Fair Value				Derivative Liabilities Fair Value
				(in millions)
Natural gas derivatives (1) (2) (3)		Current Liabilities: Non-trading derivative liabilities		$	13			$	1
Derivatives not designated as hedging instruments:
Natural gas derivatives (1) (2) (3)		Current Assets: Non-trading derivative assets		114				4
Natural gas derivatives (1) (2) (3)		Other Assets: Non-trading derivative assets		44				—
Natural gas derivatives (1) (2) (3)		Current Liabilities: Non-trading derivative liabilities		38				78
Natural gas derivatives (1) (2) (3)		Other Liabilities: Non-trading derivative liabilities		9				24
Indexed debt securities derivative		Current Liabilities		—				668
Total				$	218			$	775

(1)	The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,795 Bcf or a net 224 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)

Natural gas contracts are presented on a net basis in the Consolidated Balance Sheets as they 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 natural gas derivative assets and liabilities was a $130 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, impacted by collateral netting of $19 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, 2017
		Gross Amounts Recognized (1)				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amount Presented in the Consolidated Balance Sheets (2)
		(in millions)
Current Assets: Non-trading derivative assets		$	165			$	(55	)		$	110
Other Assets: Non-trading derivative assets		53				(9		)		44
Current Liabilities: Non-trading derivative liabilities		(83		)		63				(20		)
Other Liabilities: Non-trading derivative liabilities		(24		)		20				(4		)
Total		$	111			$	19			$	130

(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, 2016
Total derivatives not designated as hedging instruments		Balance Sheet Location		Derivative Assets Fair Value				Derivative Liabilities Fair Value
				(in millions)
Natural gas derivatives (1) (2) (3)		Current Assets: Non-trading derivative assets		$	79			$	14
Natural gas derivatives (1) (2) (3)		Other Assets: Non-trading derivative assets		24				5
Natural gas derivatives (1) (2) (3)		Current Liabilities: Non-trading derivative liabilities		2				43
Natural gas derivatives (1) (2) (3)		Other Liabilities: Non-trading derivative liabilities		—				5
Indexed debt securities derivative		Current Liabilities		—				717
Total				$	105			$	784

(1)	The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,035 Bcf or a net 59 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(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 $24 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, impacted by collateral netting of $14 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, 2016
		Gross Amounts Recognized (1)				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amount Presented in the Consolidated Balance Sheets (2)
		(in millions)
Current Assets: Non-trading derivative assets		$	81			$	(30	)		$	51
Other Assets: Non-trading derivative assets		24				(5		)		19
Current Liabilities: Non-trading derivative liabilities		(57		)		16				(41		)
Other Liabilities: Non-trading derivative liabilities		(10		)		5				(5		)
Total		$	38			$	(14	)		$	24

(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.

Realized and unrealized gains and losses on natural gas derivatives are recognized in the Statements of Consolidated Income as revenue for physical sales derivative contracts and as natural gas expense for financial natural gas derivatives and physical purchase natural gas derivatives. Realized and unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Statements of Consolidated Income.

Hedge ineffectiveness is recorded as a component of natural gas expense and primarily results from differences in the location of the derivative instrument and the hedged item. Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. The impact of natural gas derivatives designated as fair value hedges, the related hedged item, and natural gas derivatives not designated as hedging instruments are presented in the table below.

Income Statement Impact of Derivative Activity
				Year Ended December 31,
		Income Statement Location		2017				2016				2015
Derivatives designated as fair value hedges:				(in millions)
Natural gas derivatives		Gains (Losses) in Expenses: Natural Gas		$	(9	)		$	—			$	—
Fair value adjustments for natural gas inventory designated as the hedged item		Gains (Losses) in Expenses: Natural Gas		14				—				—
Total increase in Expenses: Natural Gas (1)				$	5			$	—			$	—
Derivatives not designated as hedging instruments:
Natural gas derivatives		Gains (Losses) in Revenues		$	211			$	(18	)		$	134
Natural gas derivatives		Gains (Losses) in Expenses: Natural Gas		(72		)		70				(105		)
Indexed debt securities derivative		Gains (Losses) in Other Income (Expense)		49				(413		)		74
Total - derivatives not designated as hedging instruments				$	188			$	(361	)		$	103

(1)

Hedge ineffectiveness results from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness. Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on natural gas expense.

(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 S&P or Moody’s 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 as of December 31, 2017 and 2016 was $2 million and $1 million, respectively. CenterPoint Energy posted no assets as collateral towards derivative instruments that contain credit risk contingent features as of either December 31, 2017 or 2016. If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered at December 31, 2017 and 2016, $2 million and $-0-, respectively, 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, 2017 and 2016:

	December 31, 2017								December 31, 2016
	Investment Grade (1)				Total				Investment Grade (1)				Total
	(in millions)
Energy marketers	$	6			$	45			$	1			$	4
Financial institutions	—				—				33				33
End users (2)	17				109				2				47
Total	$	23			$	154		(3)	$	36			$	84		(3)

(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.

(3)	The net of total non-trading natural gas derivative assets was $154 million and $70 million as of December 31, 2017 and 2016, respectively, as shown on CenterPoint Energy’s Consolidated Balance Sheets, and was comprised of the natural gas contracts derivatives assets separately shown above, impacted by collateral netting of $-0- and $14 million as of December 31, 2017 and 2016, respectively.

(9) 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, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.

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. As of December 31, 2017, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and its indexed debt securities. Level 3 physical natural gas forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.73 to $9.02 per MMBtu) 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 83%) as an unobservable input. CenterPoint Energy’s Level 3 physical natural gas forward contracts and options 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’s Level 3 indexed debt securities are valued using a Black-Scholes option model and a discounted cash flow model, which use option volatility (17%) and a projected dividend growth rate (7%) as unobservable inputs. An increase in either volatilities or projected dividends will increase the value of the indexed debt securities, and a decrease in either the volatilities or projected dividends will decrease the value of the indexed debt securities.

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, 2017, 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, 2017 and December 31, 2016, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value.

	December 31, 2017
	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
	(in millions)
Assets
Corporate equities	$	963			$	—			$	—			$	—			$	963
Investments, including money market funds (2)	68				—				—				—				68
Natural gas derivatives (3)	—				161				57				(64		)		154
Hedged portion of natural gas inventory	14				—				—				—				14
Total assets	$	1,045			$	161			$	57			$	(64	)		$	1,199
Liabilities
Indexed debt securities derivative	$	—			$	—			$	668			$	—			$	668
Natural gas derivatives (3)	—				96				11				(83		)		24
Total liabilities	$	—			$	96			$	679			$	(83	)		$	692

(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 $19 million posted with the same counterparties.

(2)	Amounts are included in Prepaid and Other Current Assets and Other Assets in the Consolidated Balance Sheets.

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

	December 31, 2016
	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
	(in millions)
Assets
Corporate equities	$	956			$	—			$	—			$	—			$	956
Investments, including money market funds (2)	77				—				—				—				77
Natural gas derivatives (3)	11				74				20				(35		)		70
Total assets	$	1,044			$	74			$	20			$	(35	)		$	1,103
Liabilities
Indexed debt securities derivative	$	—			$	—			$	717			$	—			$	717
Natural gas derivatives (3)	4				56				7				(21		)		46
Total liabilities	$	4			$	56			$	724			$	(21	)		$	763

(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 $14 million held by CES from the same counterparties.

(2)	Amounts are included in Prepaid and Other Current Assets and Other Assets in the Consolidated Balance Sheets.

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

The following table presents 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,
	2017				2016				2015
	(in millions)
Beginning balance	$	(704	)		$	12			$	17
Purchases (1)	—				12				—
Total gains	96				12				7
Total settlements	(11		)		(27		)		(12		)
Transfers out of Level 3	(17		)		(1		)		(1		)
Transfers into Level 3	14				(712		)		1
Ending balance (2)	$	(622	)		$	(704	)		$	12
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date (3)	$	87			$	(402	)		$	6

(1)	Mark-to-market value of Level 3 derivative assets acquired through the purchase of AEM was less than $1 million at the acquisition date.

(2)	CenterPoint Energy did not have significant Level 3 sales during any of the years ended December 31, 2017, 2016 or 2015.

(3)	During 2016, CenterPoint Energy transferred its indexed debt securities from Level 2 to Level 3 to reflect changes in the significance of the unobservable inputs used in the valuation. As of December 31, 2017, the indexed debt securities liability was $668 million. During the year ended December 31, 2017, there was a gain of $49 million on the indexed debt securities.

Items Measured at Fair Value on a Nonrecurring Basis

In 2015, CenterPoint Energy determined that an other than temporary decrease in the value of its investment in Enable had occurred and, using multiple valuation methodologies under both the market and income approaches, recorded an impairment on its investment in Enable of $1,225 million. Key assumptions in the market approach included recent market transactions of comparable companies and EBITDA to total enterprise multiples for comparable companies. Due to volatility of the quoted price of Enable’s units at the valuation date, a volume weighted average price was used under the market approach to best approximate fair value at the measurement date. Key assumptions in the income approach included Enable’s forecasted cash distributions, projected cash flows of incentive distribution rights, forecasted growth rate of Enable’s cash distributions beyond 2020, and the discount rate used to determine the present value of the estimated future cash flows. A weighing of the different approaches was utilized to determine the estimated fair value of our investment in Enable. 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. See Note 10 for further discussion of the impairments. As of December 31, 2017 and 2016, 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 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 a combination of historical trading prices and comparable issue data. These 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 2 in the fair value hierarchy.

	December 31, 2017								December 31, 2016
	Carrying Amount				Fair Value				Carrying Amount				Fair Value
	(in millions)
Financial liabilities:
Long-term debt	$	8,679			$	9,220			$	8,443			$	8,846

(10) Unconsolidated Affiliates

CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accounts for its investment in Enable’s common units using the equity method of accounting for in-substance real estate. See Note 2 for 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 and Series A Preferred Unit investment as presented in the Consolidated Balance Sheet as of December 31, 2017 and outstanding current accounts receivable from Enable.

Limited Partner Interest in Enable (1):

		As of December 31,
		2017			2016 (2)			2015
CenterPoint Energy		54.1	%		54.1	%		55.4	%
OGE		25.7	%		25.7	%		26.3	%

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

(2)	In November 2016, Enable completed a public offering of 11,500,000 common units of which 1,424,281 were sold by ArcLight Capital Partners, LLC. The common units issued and sold by Enable resulted in dilution of both CenterPoint Energy’s and OGE’s limited partner interest in Enable.

Enable Common Units and Series A Preferred Units Held:

	December 31, 2017
	Common			Series A Preferred
CenterPoint Energy	233,856,623		(1)	14,520,000		(2)
OGE	110,982,805			—

(1)

The 139,704,916 subordinated units previously owned by CERC Corp. converted into common units of Enable on a one-for-one basis, on August 30, 2017, at the end of the subordination period, as set forth in Enable’s Fourth Amended and Restated Agreement of Limited Partnership. Upon conversion, holders of common units resulting from the conversion of subordinated units have all the rights and obligations of unitholders holding all other common units, including the right to receive distributions pro rata made with respect to common units.

(2)	On February 18, 2016, CenterPoint Energy purchased an aggregate of 14,520,000 Series A Preferred Units from Enable for a total purchase price of $363 million, which is accounted for as a cost method investment.

Generally, sales of more than 5% of the aggregate of the common units CenterPoint Energy owns in Enable or sales by OGE of more than 5% of the aggregate of the common units it owns in Enable are subject to mutual rights of first offer and first refusal.

Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable’s general partner.

Distributions Received from Enable:

		Year Ended December 31,
		2017				2016				2015
		(in millions)
Investment in Enable’s common units		$	297			$	297			$	294
Investment in Enable’s Series A Preferred Units		36				22			(1)	—
Total		$	333			$	319			$	294

(1)	Represents the period from February 18, 2016 to December 31, 2016.

As of December 31, 2017, CERC Corp. and OGE also owned 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 common unit on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, 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. To date, no incentive distributions have been made.

Effective on the formation date, CenterPoint Energy and Enable entered into the 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, which ended on April 30, 2016. CenterPoint Energy is providing certain services to Enable on a year-to-year basis. Enable may terminate (i) the entire Services Agreement with at least 90 days’ notice prior to the end of any extension term, or (ii) either any service provided under the Services Agreement, or the entire Services Agreement, at any time upon approval by its board of directors and with at least 180 days’ notice.

Transactions with Enable:

		Year Ended December 31,
		2017				2016				2015
		(in millions)
Reimbursement of transition services (1)		$	4			$	7			$	16
Natural gas expenses, including transportation and storage costs		115				110				117
Interest income related to notes receivable from Enable (2)		—				1				8

(1)	Represents amounts billed under the Transition Agreements, including the costs of seconded employees. Substantially all of the seconded employees became employees of Enable effective January 1, 2015. Actual transition services costs are recorded net of reimbursement.

(2)	In connection with CenterPoint Energy’s purchase of Series A Preferred Units, Enable redeemed $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%.

		Year Ended December 31,
		2017				2016
		(in millions)
Accounts receivable for amounts billed for transition services		$	1			$	1
Accounts payable for natural gas purchases from Enable		13				10

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 year ended December 31, 2015, 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 that an other than temporary decrease in the value of its equity method investment in Enable had occurred. CenterPoint Energy wrote down the value of its equity method investment in Enable to its estimated fair value which resulted in impairment charges of $1,225 million for the year ended 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 9 for further discussion of the determination of fair value of CenterPoint Energy’s equity method investment in Enable in 2015.

As of December 31, 2017 and 2016, the carrying value of CenterPoint Energy’s equity method investment in Enable was $10.57 and $10.71 per unit, respectively, which includes limited partner common units, a general partner interest and incentive distribution rights. On December 31, 2017 and 2016, Enable’s common unit price closed at $14.22 and $15.73, respectively. There was no impairment indicated in 2017 or 2016.

As there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of CenterPoint Energy’s cost method investment in Enable’s Series A Preferred Units as of December 31, 2017 and 2016, and the investment’s fair value is not readily determinable, an estimate of the fair value of the cost method investment was not performed.

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

		Year Ended December 31,
		2017				2016				2015
		(in millions)
Operating revenues		$	2,803			$	2,272			$	2,418
Cost of sales, excluding depreciation and amortization		1,381				1,017				1,097
Impairment of goodwill and other long-lived assets		—				9				1,134
Operating income (loss)		528				385				(712		)
Net income (loss) attributable to Enable		400				290				(752		)
Reconciliation of Equity in Earnings (Losses), net:
CenterPoint Energy’s interest		$	216			$	160			$	(416	)
Basis difference amortization (1)		49				48				8
Impairment of CenterPoint Energy’s equity method investment in Enable		—				—				(1,225		)
CenterPoint Energy’s equity in earnings (losses), net (2)		$	265			$	208			$	(1,633	)

(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 31 years, the average life of the assets to which the basis difference is attributed.

(2)

These amounts include impairment charges totaling $1,846 million composed of CenterPoint Energy’s impairment of its equity method 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 for 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,
		2017				2016
		(in millions)
Current assets		$	416			$	396
Non-current assets		11,177				10,816
Current liabilities		1,279				362
Non-current liabilities		2,660				3,056
Non-controlling interest		12				12
Preferred equity		362				362
Enable partners’ capital		7,280				7,420
Reconciliation of Investment in Enable:
CenterPoint Energy’s ownership interest in Enable partners’ capital		$	3,935			$	4,067
CenterPoint Energy’s basis difference		(1,463		)		(1,562		)
CenterPoint Energy’s investment in Enable		$	2,472			$	2,505

(11) 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 TW and received TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW Common, 0.9 million shares of Time Common and 0.9 million shares of Charter Common, 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, 2017. Each ZENS 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 are adjusted for certain corporate events. Prior to the closing of the transactions discussed below, the reference shares for each ZENS 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 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 would be exchanged for cash and Charter Common and as a result, reference shares for the ZENS would consist of Charter Common, TW Common and Time Common. The merger closed on May 18, 2016. CenterPoint Energy received $100 and 0.4891 shares of Charter Common for each share of TWC Common held, resulting in cash proceeds of $178 million and 872,531 shares of Charter Common. In accordance with the terms of the ZENS, CenterPoint Energy remitted $178 million to ZENS holders in June 2016, which reduced contingent principal.

As a result, CenterPoint Energy recorded the following during the year ended December 31, 2016:

	(in millions)
Cash payment to ZENS holders	$	178
Indexed debt – reduction	(40		)
Indexed debt securities derivative – reduction	(21		)
Loss on indexed debt securities	$	117

As of December 31, 2017, the reference shares for each ZENS consisted of 0.5 share of TW Common, 0.0625 share of Time Common and 0.061382 share of Charter Common.

On October 22, 2016, AT&T announced that it had entered into a definitive agreement to acquire TW in a stock and cash transaction. On February 15, 2017, TW shareholders approved the announced transaction with AT&T. Pursuant to the merger agreement, upon closing of the merger, TW shareholders would receive for each of their shares of TW Common an estimated implied value of $107.50, comprised of $53.75 per share in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.437 shares of AT&T Common if AT&T Common’s average stock price is below $37.411 at closing and 1.3 shares of AT&T Common if AT&T Common’s average stock price is above $41.349 at closing. Cash received for the TW Common reference shares would subsequently be distributed to ZENS holders, which is expected to reduce the contingent principal balance, and reference shares would consist of Charter Common, Time Common and AT&T Common. In November 2017, the U.S. Department of Justice filed a civil antitrust lawsuit to block AT&T’s acquisition of TW. AT&T has announced it does not expect the outcome of this matter to prohibit the acquisition. Legal proceedings are expected to begin in the first or second quarter of 2018.

On November 26, 2017, Meredith announced that it had entered into a definitive merger agreement with Time. Pursuant to the merger agreement, a subsidiary of Meredith offered to purchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100% during the pendency of Meredith’s tender offer for all outstanding shares of Time Common. Distributions of additional interest on the ZENS will be made by CenterPoint Energy in connection with the consummation of Meredith’s tender offer and the subsequent merger of Time with a subsidiary of Meredith. CenterPoint Energy's distribution of additional interest in connection with the reference share offer is expected to be proportionate to the percentage of eligible shares that are validly tendered by Time stockholders in Meredith’s tender offer. In accordance with the terms of the ZENS, CenterPoint Energy will remit additional interest of approximately $16 million to ZENS holders on March 6, 2018, which will reduce the contingent principal amount.

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, 2017, ZENS having an original principal amount of $828 million and a contingent principal amount of $505 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, 2017, the market value of such shares was approximately $960 million, which would provide an exchange amount of $1,101 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 19.5% 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 Securities				Debt Component of ZENS (1)				Derivative Component of ZENS
	(in millions)
Balance as of December 31, 2014	$	930			$	142			$	541
Accretion of debt component of ZENS	—				27				—
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				145				442
Accretion of debt component of ZENS	—				26				—
2% interest paid	—				(17		)		—
Sale of TW Securities	(178		)		—				—
Distribution to ZENS holders	—				(40		)		(21		)
Loss on indexed debt securities	—				—				296
Gain on TW Securities	326				—				—
Balance as of December 31, 2016	953				114				717
Accretion of debt component of ZENS	—				27				—
2% interest paid	—				(17		)		—
Distribution to ZENS holders	—				(2		)		—
Gain on indexed debt securities	—				—				(49		)
Gain on TW Securities	7				—				—
Balance as of December 31, 2017	$	960			$	122			$	668

(1)	To reflect adoption of ASU 2015-03, balances have been restated to include unamortized debt issuance costs of $9 million and $10 million as of December 31, 2015 and 2014, respectively.

(12) Equity

Dividends Declared

CenterPoint Energy declared and paid dividends per share of $1.07, $1.03 and $0.99, respectively, during the years ended December 31, 2017, 2016 and 2015.

On December 13, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.2775 per share, payable on March 8, 2018 to shareholders of record at the close of business on February 15, 2018.

Undistributed Retained Earnings

As of both December 31, 2017 and 2016, CenterPoint Energy’s consolidated retained earnings balance includes undistributed earnings from Enable of $-0-.

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

	December 31, 2017								December 31, 2016
	Long-Term				Current (1)				Long-Term				Current (1)
	(in millions)
Short-term borrowings:
Inventory financing (2)	$	—			$	39			$	—			$	35
Total short-term borrowings	—				39				—				35
Long-term debt:
CenterPoint Energy:
ZENS due 2029 (3)	—				122				—				114
Senior notes 2.50% due 2022	500				—				—				250
Pollution control bonds 5.05% to 5.125% due 2018 to 2028 (4)	68				50				118				—
Commercial paper (5)	855				—				835				—
Houston Electric:
First mortgage bonds 9.15% due 2021	102				—				102				—
General mortgage bonds 1.85% to 6.95% due 2021 to 2044	2,812				—				2,512				—
System restoration bonds 3.46% to 4.243% due 2018 to 2022	256				56				312				53
Transition bonds 2.161% to 5.302% due 2019 to 2024	1,181				378				1,560				358
CERC Corp.:
Senior notes 4.10% to 6.625% due 2021 to 2047	1,593				—				1,593				250
Commercial paper (5)	898				—				569				—
Unamortized debt issuance costs	(38		)		—				(33		)		—
Unamortized discount and premium, net	(32		)		—				(36		)		—
Total long-term debt	8,195				606				7,532				1,025
Total debt	$	8,195			$	645			$	7,532			$	1,060

(1)	Includes amounts due or exchangeable within one year of the date noted.

(2)

NGD has AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. The AMAs have varying terms, the longest of which expires in 2020. 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 an inventory financing.

(3)	CenterPoint Energy’s ZENS obligation is bifurcated into a debt component and an embedded derivative component. For additional information regarding ZENS, see Note 11(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.

(4)	$118 million of these series of debt were secured by general mortgage bonds of Houston Electric as of both December 31, 2017 and 2016.

(5)	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.

Long-term Debt

Debt Retirements. In February 2017, CenterPoint Energy retired $250 million aggregate principal amount of its 5.95% senior notes at their maturity. The retirement of senior notes was financed by the issuance of commercial paper.

In November 2017, CERC Corp. retired $250 million aggregate principal amount of its 6.125% senior notes at their maturity. The retirement of senior notes was financed by the issuance of commercial paper.

In December 2017, CERC Corp. redeemed $300 million aggregate principal amount of its 6.00% senior notes due 2018 at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to but excluding the redemption date, plus the make-whole premium. The make-whole premium associated with the redemption was approximately $5 million and was included in Other Income, net on the Statements of Consolidated Income.

Debt Issuances. During the year ended December 31, 2017, CenterPoint Energy, Houston Electric and CERC Corp. issued the following debt instruments:

		Issuance Date		Debt Instrument		Aggregate Principal Amount				Interest Rate		Maturity Date
						(in millions)
Houston Electric		January 2017		General mortgage bonds		$	300			3.00%		2027
CenterPoint Energy		August 2017		Unsecured senior notes		500				2.50%		2022
CERC Corp.		August 2017		Unsecured senior notes		300				4.10%		2047

The proceeds from these issuances were used for general limited liability company and corporate purposes, as applicable, including to repay portions of outstanding commercial paper.

Securitization Bonds. As of December 31, 2017, Houston Electric had special purpose subsidiaries consisting of the 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 Securitization 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 to provide recovery of authorized qualified costs. Houston Electric has no payment obligations in respect of the Securitization 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 Houston Electric have no recourse to any assets or revenues of the Bond Companies (including the transition and system restoration charges), and the holders of Securitization Bonds have no recourse to the assets or revenues of CenterPoint Energy or Houston Electric.

Credit Facilities. In June 2017, CenterPoint Energy, Houston Electric and CERC Corp. each entered into amendments to their respective revolving credit facilities to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendments to the CenterPoint Energy and CERC Corp. revolving credit facilities also increased the aggregate commitments by $100 million and $300 million, respectively, to $1.7 billion and $900 million under their respective revolving credit facilities. No changes were made to the aggregate commitments under the Houston Electric revolving credit facility. In connection with the amendments to increase the aggregate commitments under their respective revolving credit facilities, CenterPoint Energy and CERC Corp. each increased the size of their respective commercial paper programs to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $1.7 billion and $900 million, respectively, at any time outstanding.

As of December 31, 2017 and 2016, CenterPoint Energy, Houston Electric and CERC Corp. had the following revolving credit facilities and utilization of such facilities:

	December 31, 2017																December 31, 2016
	Size of Facility				Loans				Letters of Credit				Commercial Paper				Size of Facility				Loans				Letters of Credit				Commercial Paper
	(in millions)
CenterPoint Energy	$	1,700			$	—			$	6			$	855		(1)	$	1,600			$	—			$	6			$	835		(1)
Houston Electric	300				—				4				—				300				—				4				—
CERC Corp.	900				—				1				898			(2)	600				—				4				569			(2)
Total	$	2,900			$	—			$	11			$	1,753			$	2,500			$	—			$	14			$	1,404

(1)	Weighted average interest rate was 1.88% and 1.04% as of December 31, 2017 and December 31, 2016, respectively.

(2)	Weighted average interest rate was 1.72% and 1.03% as of December 31, 2017 and December 31, 2016, respectively.

Execution Date		Company		Size of Facility				Draw Rate of LIBOR plus (2)		Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio		Debt for Borrowed Money to Capital Ratio as of December 31, 2017 (3)		Termination Date (5)
				(in millions)
March 3, 2016		CenterPoint Energy		$	1,700		(1)	1.250%		65%	(4)	52.9%		March 3, 2022
March 3, 2016		Houston Electric		300				1.125%		65%	(4)	48.6%		March 3, 2022
March 3, 2016		CERC Corp.		900			(1)	1.250%		65%		40.4%		March 3, 2022

(1)	Amended on June 16, 2017 to increase the aggregate commitment size as noted above.

(2)	Based on current credit ratings.

(3)	As defined in the revolving credit facility agreement, excluding Securitization Bonds.

(4)

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

(5)	Amended on June 16, 2017 to extend the termination date as noted above.

CenterPoint Energy, Houston Electric and CERC Corp. were in compliance with all financial debt covenants as of December 31, 2017.

Maturities. Maturities of long-term debt, capital leases and sinking fund requirements, excluding the ZENS obligation, are as follows:

	CenterPoint Energy (1)				Securitization Bonds
	(in millions)
2018	$	484			$	434
2019	458				458
2020	231				231
2021	1,206				211
2022	2,773				219

(1)	These maturities include Securitization Bonds principal repayments on scheduled payment dates.

Liens. As of December 31, 2017, Houston Electric’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 2017, 2016 and 2015 have been satisfied by certification of property additions. The replacement fund requirement to be satisfied in 2018 is approximately $266 million, and the sinking fund requirement to be satisfied in 2018 is approximately $1.6 million. CenterPoint Energy expects Houston Electric to meet these 2018 obligations by certification of property additions. As of December 31, 2017, Houston Electric’s assets were also subject to liens securing approximately $2.9 billion of general mortgage bonds, which are junior to the liens of the first mortgage bonds.

(14) Income Taxes

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

	Year Ended December 31,
	2017				2016				2015
	(in millions)
Current income tax expense (benefit):
Federal	$	32			$	23			$	(37	)
State	9				18				12
Total current expense (benefit)	41				41				(25		)
Deferred income tax expense (benefit):
Federal	(806		)		185				(359		)
State	36				28				(54		)
Total deferred expense (benefit)	(770		)		213				(413		)
Total income tax expense (benefit)	$	(729	)		$	254			$	(438	)

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,
	2017				2016				2015
	(in millions)
Income (loss) before income taxes	$	1,063			$	686			$	(1,130	)
Federal statutory income tax rate	35		%		35		%		35		%
Expected federal income tax expense (benefit)	372				240				(396		)
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	26				27				(27		)
State valuation allowance, net of federal income tax	3				3				—
Federal income tax rate reduction	(1,113		)		—				—
Other, net	(17		)		(16		)		(15		)
Total	(1,101		)		14				(42		)
Total income tax expense (benefit)	$	(729	)		$	254			$	(438	)
Effective tax rate	(69		)%		37		%		39		%

In 2017, CenterPoint Energy recognized a $1.1 billion deferred tax benefit from the remeasurement of CenterPoint Energy’s ADFIT liability as a result of the enactment of the TCJA on December 22, 2017 which reduced the U.S. corporate income tax rate from 35% to 21%. For additional information on the 2017 impacts of the TCJA, please see the discussion following the deferred tax assets and liabilities table below.

In 2016, CenterPoint Energy recognized a $6 million deferred tax expense due to Louisiana state law change and recorded an additional $3 million valuation allowance on certain state carryforwards.

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 equity method investment in Enable. The impairment loss reduced the deferred tax liability on CenterPoint Energy’s equity method investment in Enable.

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

	December 31,
	2017				2016
	(in millions)
Deferred tax assets:
Benefits and compensation	$	162			$	316
Regulatory liabilities	347				57
Loss and credit carryforwards	90				79
Asset retirement obligations	68				77
Other	16				21
Valuation allowance	(7		)		(5		)
Total deferred tax assets	676				545
Deferred tax liabilities:
Property, plant, and equipment	1,808				2,603
Investment in unconsolidated affiliates	927				1,383
Regulatory assets	473				940
Investment in marketable securities and indexed debt	502				772
Indexed debt securities derivative	13				4
Other	127				106
Total deferred tax liabilities	3,850				5,808
Net deferred tax liabilities	$	3,174			$	5,263

Federal Tax Reform. On December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called the Tax Cuts and Jobs Acts, or TCJA, which resulted in significant changes to federal tax laws effective January 1, 2018. The new legislation contains several key tax provisions that will impact CenterPoint Energy, including the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018. The new legislation also includes a variety of other changes, such as, a limitation on the tax deductibility of interest expense, acceleration of business asset expensing and reduction in the amount of executive pay that may qualify for a tax deduction, among others. Several other provisions of the TCJA are not generally applicable to the public utility industry, including the limitation on the tax deductibility of interest expense and the acceleration of business asset expensing.

While the effective date of the rate change in the legislation is January 1, 2018, ASC 740 requires that deferred tax balances be adjusted in the period of enactment to the rate in which those deferred taxes will reverse. The EDIT from the rate change resulted in an adjustment to income tax expense of approximately $1.1 billion and creation of a net regulatory liability of $1.3 billion (includes $0.3 billion gross-up) for the amount that is likely to be returned to ratepayers. The major components of the $1.1 billion benefit to income tax expense are for the remeasurement of CenterPoint Energy's deferred taxes associated with its investment in Enable, investment in marketable securities (ZENS) and stranded costs related to the Securitization Bonds. The amount and expected amortization of the net regulatory tax liability may differ from the $1.3 billion estimate, possibly materially, due to, among other things, regulatory actions, interpretations and assumptions CenterPoint Energy has made, and any guidance that may be issued in the future. CenterPoint Energy will continue to assess the amount and expected amortization of the net regulatory tax liability as it has proceedings with regulators in future periods. For the discussion of risks associated with the amount and expected flow through of EDIT by Houston Electric and NGD, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Regulatory Matters —Tax Reform” in Item 7 of Part II of this report.

Tax Attribute Carryforwards and Valuation Allowance. CenterPoint Energy has no remaining federal net operating loss carryforward or federal tax credits as of December 31, 2017. As of December 31, 2017, CenterPoint Energy had $870 million of state net operating loss carryforwards that expire between 2018 and 2037 and $12 million of state tax credits that do not expire. A state capital loss carryforward of $244 million expired unutilized at the end of 2017. CenterPoint Energy reported a valuation allowance of $7 million because it is more likely than not that the benefit from certain state net operating loss carryforwards will not be realized.

Uncertain Income Tax Positions. CenterPoint Energy reported no uncertain tax liability as of December 31, 2017, 2016 and 2015. CenterPoint Energy expects no significant change to the uncertain tax liability over the next 12 months ending December 31, 2018.

Tax Audits and Settlements. Tax years through 2015 have been audited and settled with the IRS. For the 2016 through 2018 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.

(15) Commitments and Contingencies

(a) Natural Gas Supply and Other 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, 2017 and 2016 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, 2017, minimum payment obligations for natural gas supply and other commitments are approximately:

	Natural Gas Supply				Other (1)
	(in millions)
2018	$	463			$	37
2019	353				17
2020	169				11
2021	79				—
2022	49				—
2023 and beyond	108				—

(1)Primarily relates to technology hardware and software

(b) AMAs

NGD currently has AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. The AMAs have varying terms, the longest of which expires in 2020. Generally, 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 agrees to release transportation and storage capacity to other parties to manage natural 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. NGD has received approval from the state regulatory commissions in Arkansas, Louisiana, Mississippi and Oklahoma to retain a share of the AMA proceeds.

(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, 2017, which primarily consist of rental agreements for building space, data processing equipment, compression equipment and rights-of-way:

	(in millions)
2018	$	5
2019	5
2020	4
2021	4
2022	3
2023 and beyond	5
Total	$	26

Total lease expense for all operating leases was $10 million, $10 million and $9 million during 2017, 2016 and 2015, respectively.

(d) Legal, Environmental and Other Matters

Legal Matters

Gas Market Manipulation Cases. CenterPoint Energy, Houston Electric or their predecessor, 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, 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. 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 Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation.

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 such cases. CES, a subsidiary of CERC Corp., was a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. On May 24, 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. The plaintiffs have appealed that ruling. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. In June 2017, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In December 2017, GenOn received court approval of a restructuring plan and is expected to emerge from Chapter 11 in mid-2018. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. If GenOn were unable to meet its indemnity obligations or satisfy a liability that has been assumed in the gas market manipulation litigation, then CenterPoint Energy, Houston Electric or CERC could incur liability and be responsible for satisfying the liability. CenterPoint Energy does not expect the ultimate outcome of the case against CES to have a material adverse effect on its financial condition, results of operations or cash flows.

Minnehaha Academy. On August 2, 2017, a natural gas explosion occurred at the Minnehaha Academy in Minneapolis, Minnesota, resulting in the deaths of two school employees, serious injuries to others and significant property damage to the school. CenterPoint Energy, certain of its subsidiaries, and the contractor company working in the school have been named in litigation arising out of this incident. Additionally, CenterPoint Energy is cooperating with the ongoing investigation conducted by the National Transportation Safety Board. Further, CenterPoint Energy is contesting approximately $200,000 in fines imposed by the Minnesota Office of Pipeline Safety. In early 2018, the Minnesota Occupational Safety and Health Administration concluded its investigation without any adverse findings against CenterPoint Energy. CenterPoint Energy’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims.

Environmental Matters

MGP Sites. CERC and its predecessors operated 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, 2017, 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 $30 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 PRPs, if any, and the remediation methods used.

In addition to the Minnesota sites, the EPA 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 or its predecessors in interest contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy and its subsidiaries are from time to time named, along

with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and CenterPoint Energy anticipates that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy 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 during its operations or on property where its predecessor companies have conducted operations. Other such sites involving contaminants may be identified in the future. CenterPoint Energy has and expects to continue to remediate any identified sites consistent with its state and federal legal obligations. From time to time CenterPoint Energy has received notices, and may receive notices in the future, 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, or may be, 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 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.

(16) 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,
	2017				2016				2015
	(in millions, except per share and share amounts)
Net income (loss) (1)	$	1,792			$	432			$	(692	)
Basic weighted average shares outstanding	430,964,000				430,606,000				430,180,000
Plus: Incremental shares from assumed conversions:
Restricted stock (2)	3,344,000				2,997,000				—
Diluted weighted average shares	434,308,000				433,603,000				430,180,000
Basic earnings (loss) per share	$	4.16			$	1.00			$	(1.61	)
Diluted earnings (loss) per share	$	4.13			$	1.00			$	(1.61	)

(1)	Net income for the year ended December 31, 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.

(2)	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.

(17) Unaudited Quarterly Information

Summarized quarterly financial data is as follows:

	Year Ended December 31, 2017
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(in millions, except per share amounts)
Revenues	$	2,735			$	2,143			$	2,098			$	2,638
Operating income	274				223				279				296
Net income (1)	192				135				169				1,296
Basic earnings per share (2)	$	0.45			$	0.31			$	0.39			$	3.01
Diluted earnings per share (2)	$	0.44			$	0.31			$	0.39			$	2.99

	Year Ended December 31, 2016
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(in millions, except per share amounts)
Revenues	$	1,984			$	1,574			$	1,889			$	2,081
Operating income	250				182				284				243
Net income (loss)	154				(2		)		179				101
Basic earnings (loss) per share (2)	$	0.36			$	(0.01	)		$	0.42			$	0.23
Diluted earnings (loss) per share (2)	$	0.36			$	(0.01	)		$	0.41			$	0.23

(1)	Net income for the fourth quarter 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.

(2)	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.

(18) 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 other than Midstream Investments, where it uses equity in earnings.

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 (Houston Electric) 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 equity investment in Enable. Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’s business operations.

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 Customers				Intersegment Revenues				Depreciation and Amortization				Operating Income				Total Assets (1)				Expenditures for Long-Lived Assets
	(in millions)
As of and for the year ended December 31, 2017:
Electric Transmission & Distribution	$	2,997		(2)	$	—			$	724			$	610			$	10,292			$	924
Natural Gas Distribution	2,606				33				260				328				6,608				523
Energy Services	3,997				52				19				125				1,521				11
Midstream Investments (3)	—				—				—				—				2,472				—
Other	14				—				33				9				2,497			(4)	36
Eliminations	—				(85		)		—				—				(654		)		—
Consolidated	$	9,614			$	—			$	1,036			$	1,072			$	22,736			1,494
Reconciling items																					(68		)
Capital expenditures per Statements of Consolidated Cash Flows																					$	1,426
As of and for the year ended December 31, 2016:
Electric Transmission & Distribution	$	3,060		(2)	$	—			$	838			$	628			$	10,211			$	858
Natural Gas Distribution	2,380				29				242				303				6,099				510
Energy Services	2,073				26				7				20				1,102				5
Midstream Investments (3)	—				—				—				—				2,505				—
Other	15				—				39				8				2,681			(4)	33
Eliminations	—				(55		)		—				—				(769		)		—
Consolidated	$	7,528			$	—			$	1,126			$	959			$	21,829			1,406
Reconciling items																					8
Capital expenditures per Statements of Consolidated Cash Flows																					$	1,414
As of and for the year ended December 31, 2015:
Electric Transmission & Distribution	$	2,845		(2)	$	—			$	705			$	607			$	10,028			$	934
Natural Gas Distribution	2,603				29				222				273				5,657				601
Energy Services	1,924				33				5				42				857				5
Midstream Investments (3)	—				—				—				—				2,594				—
Other	14				—				38				11				2,879			(4)	35
Eliminations	—				(62		)		—				—				(725		)		—
Consolidated	$	7,386			$	—			$	970			$	933			$	21,290			1,575
Reconciling items																					9
Capital expenditures per Statements of Consolidated Cash Flows																					$	1,584

(1)	Amounts for 2015 have been restated to reflect the adoption of ASU 2015-03.

(2)	Houston Electric’s transmission and distribution revenues from major customers are as follows:

		Year Ended December 31, 2017
		2017				2016				2015
		(in millions)
Affiliates of NRG		$	713			$	698			$	741
Affiliates of Vistra Energy Corp.		229				220				220

(3)	Midstream Investments’ equity earnings (losses) are as follows:

		Year Ended December 31, 2017
		2017				2016				2015 (a)
		(in millions)
Enable		$	265			$	208			$	(1,633	)

(a)

Includes impairment charges totaling $1,846 million composed of CenterPoint Energy’s impairment of its equity method 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 for the year ended December 31, 2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

(4)	Included in total assets of Other Operations as of December 31, 2017, 2016 and 2015, are pension and other postemployment related regulatory assets of $600 million, $759 million and $814 million, respectively.

		Year Ended December 31,
Revenues by Products and Services:		2017				2016				2015
		(in millions)
Electric delivery		$	2,997			$	3,060			$	2,845
Retail gas sales		3,634				3,329				3,725
Wholesale gas sales		2,811				977				657
Gas transportation and processing		29				23				26
Energy products and services		143				139				133
Total		$	9,614			$	7,528			$	7,386

(19) Subsequent Events

On February 9, 2018, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common units for the quarter ended December 31, 2017. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enable in the first quarter of 2018 to be made with respect to CERC Corp.’s limited partner interest in Enable for the fourth quarter of 2017.

On February 9, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended December 31, 2017. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the first quarter of 2018 to be made with respect to CenterPoint Energy’s investment in Series A Preferred Units of Enable for the fourth quarter of 2017.