Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.

The following combined discussion and analysis should be read in combination with the consolidated financial statements included in Item 8 herein. When discussing CenterPoint Energy’s consolidated financial information, it includes the results of Houston Electric and CERC, which, along with CenterPoint Energy, are collectively referred to as the Registrants. Where appropriate, information relating to a specific registrant has been segregated and labeled as such. Unless the context indicates otherwise, specific references to Houston Electric and CERC also pertain to CenterPoint Energy. In this combined Form 10-K, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries.

Because the Merger closed after December 31, 2018, unless otherwise specifically indicated, the Registrants’ respective consolidated financial statements and notes thereto and the discussion of the Registrants’ financial condition, results of operations, tax payments and other financial and business-related information herein do not include or take into account Vectren and its subsidiaries, the closing of the Merger and the effects of the Merger. See Note 4 to the consolidated financial statements for further information related to the Merger.

OVERVIEW

Background

CenterPoint Energy, Inc. is a public utility holding company and owns interests in Enable as described below. CenterPoint Energy’s operating subsidiaries, Houston Electric and CERC Corp., own and operate electric transmission and distribution and natural gas distribution facilities and supply natural gas to commercial and industrial customers and electric and natural gas utilities.

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

•	CERC Corp. (i) owns and operates natural gas distribution systems in six states and (ii) 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 over 30 states through its wholly-owned subsidiary, CES.

As of December 31, 2018, CenterPoint Energy, indirectly through CNP Midstream, owned approximately 54.0% of the common units representing limited partner interests in Enable, 50% of the management rights and 40% of the incentive distribution rights in Enable GP and also directly owned an aggregate of 14,520,000 Enable Series A Preferred Units. Enable owns, operates and develops natural gas and crude oil infrastructure assets.

On February 1, 2019, pursuant to the Merger Agreement, CenterPoint Energy consummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. For further discussion of the Merger, see Note 4 to the consolidated financial statements.

Reportable Segments

In this Management’s Discussion and Analysis, we discuss our results from continuing operations on a consolidated basis and individually for each of our reportable segments, which are listed below. We also discuss our liquidity, capital resources and critical accounting policies. We are first and foremost an energy delivery company and it is our intention to remain focused on these segments of the energy business. The results of our business operations are significantly impacted by weather, customer growth, economic conditions, cost management, competition, rate proceedings before regulatory agencies and other actions of the various regulatory agencies to whose jurisdiction we are subject, among other factors.

•

Electric transmission and distribution services are subject to rate regulation and are reported in the Electric Transmission & Distribution reportable segment, as are impacts of generation-related stranded costs and other true-up balances recoverable by the regulated electric utility. For further information about the Electric Transmission & Distribution reportable segment, see “Business — Our Business — Electric Transmission & Distribution” in Item 1 of Part I of this report.

•	Natural gas distribution services are also subject to rate regulation and are reported in the Natural Gas Distribution reportable segment. For further information about the Natural Gas Distribution reportable segment, see “Business — Our Business — Natural Gas Distribution” in Item 1 of Part I of this report.

•	The Energy Services reportable segment includes non-rate regulated natural gas sales to, and transportation and storage services, for commercial and industrial customers. For further information about the Energy Services reportable segment, see “Business — Our Business — Energy Services” in Item 1 of Part I of this report.

•	The results of the Midstream Investments reportable segment are dependent upon the results of Enable, which are driven primarily by the volume of natural gas, NGLs and crude oil that Enable gathers, processes and transports across its systems and other factors as discussed below under “— Factors Influencing Midstream Investments.”

•	CenterPoint Energy’s Other Operations reportable segment includes office buildings and other real estate used for business operations, home repair protection plans through a third party and other corporate support operations that support

CenterPoint Energy’s business operations. CERC’s Other Operations reportable segment includes unallocated corporate costs and inter-segment eliminations.

EXECUTIVE SUMMARY

We expect our and Enable’s businesses to continue to be affected by the key factors and trends discussed below. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

Factors Influencing Our Businesses and Industry Trends

We are an energy delivery company. The majority of our revenues are generated from the transmission and delivery of electricity and the sale of natural gas by our subsidiaries, Houston Electric and CERC, respectively. The Electric Transmission & Distribution reportable segment does not own or operate electric generating facilities or make retail sales to end-use electric customers. To assess our financial performance, our management primarily monitors operating income and cash flows, among other things, from our reportable segments. Within these broader financial measures, we monitor margins, operation and maintenance expense, interest expense, capital spending and working capital requirements. In addition to these financial measures, we also monitor a number of variables that management considers important to our reportable segments, including the number of customers, throughput, use per customer, commodity prices and heating and cooling degree days. From an operational standpoint, we monitor safety factors, system reliability and customer satisfaction to gauge our performance.

The nature of our businesses requires significant amounts of capital investment, and we rely on internally generated cash, borrowings under our credit facilities, proceeds from commercial paper and issuances of debt and equity in the capital markets to satisfy these capital needs. We strive to maintain investment grade ratings for our securities to access the capital markets on terms we consider reasonable. A reduction in our ratings generally would increase our borrowing costs for new issuances of debt, as well as borrowing costs under our existing revolving credit facilities, and may prevent us from accessing the commercial paper markets. Disruptions in the financial markets can also affect the availability of new capital on terms we consider attractive. In those circumstances, we may not be able to obtain certain types of external financing or may be required to accept terms less favorable than they would otherwise accept. For that reason, we seek to maintain adequate liquidity for our businesses through existing credit facilities and prudent refinancing of existing debt.

Long-term national trends indicate customers have reduced their energy consumption, which could adversely affect our results. However, due to more affordable energy prices and continued economic improvement in the areas we serve, the trend toward lower usage has slowed.

To the extent adverse economic conditions affect our suppliers and customers, results from our energy delivery businesses may suffer. For example, Houston Electric is largely concentrated in Houston, Texas, where a higher percentage of employment is tied to the energy sector relative to other regions of the country. Although Houston, Texas has a diverse economy, employment in the energy industry remains important with overall Houston employment growing at a moderate rate in 2018.

Also, adverse economic conditions, coupled with concerns for protecting the environment and increased availability of alternate energy sources, may cause consumers to use less energy or avoid expansions of their facilities, resulting in less demand for our services. To the extent population growth is affected by lower energy prices and there is financial pressure on some of our customers who operate within the energy industry, there may be an impact on the growth rate of our customer base and overall demand. Primarily due to the cyclical correction of over-building in multifamily residential construction, residential meter growth for Houston Electric remained at approximately 1.6% in 2018. Based on, among other things, the anticipated completion of more apartment units in 2019, management expects residential meter growth to increase this year to 2%, in line with long-term trends.

Performance of the Electric Transmission & Distribution reportable segment and the Natural Gas Distribution reportable segment is significantly influenced by energy usage per customer, which is significantly impacted by weather conditions. For Houston Electric, revenues are generally higher during the warmer months when more electricity is used for cooling purposes. For CERC’s NGD, demand for natural gas for heating purposes is generally higher in the colder months. Therefore, we compare our results on a weather-adjusted basis.

Overall, in 2018 the Houston area experienced weather that was much closer to normal relative to 2017. Although January, April and November experienced colder than normal weather, this was offset during the remaining months of the year due to warmer than normal weather. While overall rainfall was higher than normal in 2018, it did not rise to the record rainfall levels experienced in 2017 that occurred largely due to Hurricane Harvey. After two years of consistently warmer than normal weather in 2016 and 2017 in our NGD territories, 2018 experienced a return to normal weather in the first and fourth quarters.

Historically, both CenterPoint Energy’s TDU and CERC’s NGD have utilized weather hedges to help reduce the impact of mild weather on their financial results. CenterPoint Energy’s TDU and CERC’s NGD entered into a weather hedge for the 2017-2018 and 2018-2019 winter heating seasons in Texas where no weather normalization mechanisms exist. In CERC’s non-Texas jurisdictions, weather normalization mechanisms or decoupling in the Minnesota division help to mitigate the impact of abnormal weather on our financial results.

In Minnesota and Arkansas for CERC, there are rate adjustment mechanisms to counter the impact of declining usage from energy efficiency improvements. In addition, in many of our service areas, particularly in the Houston area and Minnesota, as applicable to each registrant, we have benefited from growth in the number of customers, which could mitigate the effects of reduced consumption. We anticipate that this trend will continue as the regions’ economies continue to grow. The profitability of our businesses is influenced significantly by the regulatory treatment we receive from the various state and local regulators who set our electric and natural gas distribution rates.

With respect to upcoming general rate cases, as required by a settlement related to the TCJA filed with the PUCT in February 2018, Houston Electric expects to make its comprehensive base rate filing by the April 30, 2019 deadline. The amount and other terms of the rate filing have not been established at this time. There is no guarantee that current rates will continue while that case is pending, or that the rate case will result in rates that fully recover Houston Electric’s costs or enable it to earn a reasonable return on its invested capital. The results of this rate case may significantly impact Houston Electric’s business.

The Energy Services reportable segment contracts with customers for transportation, storage and sales of natural gas on an unregulated basis. Its operations serve customers throughout the United States. The segment is impacted by price differentials on both a regional and seasonal basis, as well as fluctuations in regional daily natural gas prices driven by weather and other market factors. While this business utilizes financial derivatives to mitigate the effects of price movements, it does not enter into risk management contracts for speculative purposes and evaluates VaR daily to monitor significant financial exposures to realized income. At the end of 2017, a weather-driven spike in natural gas prices caused the accrual of unusually high unrealized mark-to-market income, which substantially reversed in the first quarter of 2018 as natural gas prices normalized.

The regulation of natural gas pipelines and related facilities by federal and state regulatory agencies affects CERC’s business. In accordance with natural gas pipeline safety and integrity regulations, CERC is making, and will continue to make, significant capital investments in its service territories, which are necessary to help operate and maintain a safe, reliable and growing natural gas system. CERC’s compliance expenses may also increase as a result of preventative measures required under these regulations. Consequently, new rates in the areas it serves are necessary to recover these increasing costs.

Consistent with the regulatory treatment of pension costs, the Registrants defer the amount of pension expense that differs from the level of pension expense included in the Registrants’ base rates for the Electric Transmission & Distribution reportable segment and Natural Gas Distribution reportable segment in Texas. CenterPoint Energy expects to contribute a minimum of approximately $93 million to its pension plans in 2019.

Additional Considerations Relating to Vectren (CenterPoint Energy)

The following additional considerations affect the business and industry of the utility and non-utility businesses and operations of Vectren that CenterPoint Energy acquired upon consummation of the Merger. With respect to Vectren’s utilities, its natural gas operations (comprised of Indiana Gas, VEDO and SIGECO’s natural gas distribution business) provide natural gas distribution and transportation services to nearly 67% of Indiana and about 20% of Ohio, primarily in the west-central area. Its electric operations (comprised of Indiana Electric) provide electric transmission and distribution services to southwestern Indiana, and include power generating and wholesale power operations. In total, these utility operations supply natural gas and electricity to over one million customers in Indiana and Ohio.

Similar to Houston Electric and CERC’s NGD, sales of natural gas and electricity to residential and commercial customers are largely seasonal and are impacted by weather. Trends in the average consumption among natural gas residential and commercial customers have tended to decline as more efficient appliances and furnaces are installed, and as Vectren’s utilities have implemented conservation programs. In Vectren’s two Indiana natural gas service territories, normal temperature adjustment and decoupling mechanisms largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns. The Ohio natural gas service territory has a straight fixed variable rate design for its residential customers. This rate design mitigates approximately 90% of the Ohio service territory’s weather risk and risk of decreasing consumption specific to its small customer classes. While Indiana Electric has neither a normal temperature adjustment mechanism nor a decoupling mechanism, rate designs provide for a lost margin recovery mechanism that operates in tandem with conservation initiatives.

Vectren’s non-utility operations include Infrastructure Services and energy services, provided through ESG. Infrastructure Services, through its wholly-owned subsidiaries, provides underground pipeline and repair services to many utilities, including Vectren’s utilities, as well as other industries. ESG provides energy services through performance-based energy contracting operations and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects. ESG assists schools, hospitals, governmental facilities and other private institutions with reducing energy and maintenance costs by upgrading their facilities with energy-efficient equipment. ESG operates throughout the United States.

Demand for Infrastructure Services remains high due to the aging infrastructure and evolving safety and reliability regulations across the United States. The long-term focus for Infrastructure Services is recurring work in both the distribution and transmission businesses, but opportunities for large transmission pipeline construction projects will continue to be pursued and Infrastructure Services is well positioned to do this work. The timing and recurrence of these large transmission projects is less predictable and may create volatility in its year-over-year results.

We believe the long-term outlook for ESG’s performance contracting and sustainable infrastructure opportunities remains strong with continued national focus expected on energy conservation and sustainability, renewable energy and security as power prices across the country rise and customer focus on new, efficient and clean sources of energy grows.

Factors Influencing Midstream Investments (CenterPoint Energy)

The results of CenterPoint Energy’s Midstream Investments reportable segment are dependent upon the results of Enable, which are driven primarily by the volume of natural gas, NGLs and crude oil that Enable gathers, processes and transports across its systems. These volumes depend significantly on the level of production from natural gas wells connected to Enable’s systems across a number of U.S. mid-continent markets. Aggregate production volumes are affected by the overall amount of oil and gas drilling and completion activities. Production must be maintained or increased by new drilling or other activity, because the production rate of oil and gas wells declines over time.

Enable expects its business to continue to be impacted by the trends affecting the midstream industry. Enable’s outlook is based on its management’s assumptions regarding the impact of these trends that it has developed by interpreting the information currently available to it. If Enable management’s assumptions or interpretation of available information prove to be incorrect, Enable’s future financial condition and results of operations may differ materially from its expectations.

Enable’s business is impacted by commodity prices, which have declined and otherwise experienced significant volatility in recent years. Commodity prices impact the drilling and production of natural gas and crude oil in the areas served by Enable’s systems. In addition, Enable’s processing arrangements expose it to commodity price fluctuations. Enable has attempted to mitigate the impact of commodity prices on its business by entering into hedges, focusing on contracting fee-based business and converting existing commodity-based contracts to fee-based contracts.

Enable’s long-term view is that natural gas and crude oil production in the U.S. will increase. Natural gas continues to be a critical component of energy demand in the U.S. Enable’s management believes that the prospects for continued natural gas demand are favorable and will be driven by population and economic growth, as well as the continued displacement of coal-fired power plants by natural gas-fired power plants due to the price of natural gas and stricter government environmental regulations on the mining and burning of coal. Enable’s management believes that increasing consumption of natural gas over the long term in these sectors will continue to drive demand for Enable’s natural gas gathering, processing, transportation and storage services.

Significant Events

Merger with Vectren. On February 1, 2019, pursuant to the Merger Agreement, CenterPoint Energy consummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. For further discussion of the Merger, see Note 4 to the consolidated financial statements.

Credit Facility. On October 5, 2018, CenterPoint Energy terminated all remaining commitments by lenders to provide the Bridge Facility, which resulted in increased aggregate commitments under CenterPoint Energy’s revolving credit facility. For further information, see Note 14 to the consolidated financial statements.

Enable Midstream Spin. On September 4, 2018, CERC completed the Internal Spin of its equity investment in Enable and Enable GP. For further information regarding the Internal Spin, see Note 11 to the consolidated financial statements.

Equity Offerings. On August 22, 2018, CenterPoint Energy completed an offering of its Series A Preferred Stock. On October 1, 2018, CenterPoint Energy completed concurrent equity offerings of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, and Common Stock. For further information about the equity offerings, see Note 13 to the consolidated financial statements.

Debt Transactions. In February 2018, Houston Electric issued $400 million aggregate principal amount of general mortgage bonds. In March 2018, CERC issued $600 million aggregate principal amount of unsecured senior notes. In October 2018, CenterPoint Energy issued $1.5 billion aggregate principal amount of senior notes. In January 2019, Houston Electric issued $700 million aggregate principal amount of general mortgage bonds. For further information about the Registrants’ debt issuance in 2018 and to date in 2019, see Note 14 to the consolidated financial statements.

Regulatory Proceedings. For details related to pending and completed regulatory proceedings during 2018 and to date in 2019, see “—Liquidity and Capital Resources — Regulatory Matters” below.

CERTAIN FACTORS AFFECTING FUTURE EARNINGS

Our past earnings and results of operations are not necessarily indicative of our future earnings and results of operations. The magnitude of our and Enable’s future earnings and results of our and Enable’s operations will depend on or be affected by numerous factors that apply to all Registrants unless otherwise indicated including:

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

◦	competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including the extent and timing of the entry of additional competition in the markets served by Enable;

◦

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

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

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

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

◦	changes in tax status; and

◦	access to debt and equity capital;

•

CenterPoint Energy’s expected benefits of the Merger and integration, including the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits of the Merger, as well as the ability to successfully integrate the Vectren businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what CenterPoint Energy expects;

•	industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-utility products and services and effects of energy efficiency measures and demographic patterns;

•	timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment, including Houston Electric’s anticipated rate case in 2019, the outcome of which may not result in expected rates or recovery of costs;

•	future economic conditions in regional and national markets and their effect on sales, prices and costs;

•	weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;

•	state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable), including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses;

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

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

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

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

•	changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;

•	problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;

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

•	local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;

•	the impact of unplanned facility outages;

•	any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;

•	our ability to invest planned capital and the timely recovery of our investments;

•	our ability to control operation and maintenance costs;

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

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

•	commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;

•	changes in rates of inflation;

•	inability of various counterparties to meet their obligations to us;

•	non-payment for our services due to financial distress of our customers;

•	the extent and effectiveness of our and Enable’s risk management and hedging activities, including, but not limited to financial and weather hedges and commodity risk management activities;

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

•

CenterPoint Energy’s or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses (including a reduction of CenterPoint Energy’s interest in Enable, if any, whether through its decision to sell a portion of the Enable common units it owns in the public equity markets or otherwise, subject to certain limitations), which CenterPoint Energy and Enable cannot assure will be completed or will have the anticipated benefits to CenterPoint Energy or Enable;

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

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

•	the outcome of litigation;

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

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

•	the timing and outcome of any audits, disputes and other proceedings related to taxes;

•	the effective tax rates;

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

•	other factors discussed in “Risk Factors” in Item 1A of this report and in other reports that the Registrants file from time to time with the SEC.

CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS

	Year Ended December 31,
	2018				2017				2016
	(in millions, except per share amounts)
Revenues	$	10,589			$	9,614			$	7,528
Expenses	9,758				8,478				6,505
Operating Income	831				1,136				1,023
Gain (Loss) on Marketable Securities	(22		)		7				326
Gain (Loss) on Indexed Debt Securities	(232		)		49				(413		)
Interest and Other Finance Charges	(361		)		(313		)		(338		)
Interest on Securitization Bonds	(59		)		(77		)		(91		)
Equity in Earnings of Unconsolidated Affiliates	307				265				208
Other Income (Expense), net	50				(4		)		(29		)
Income Before Income Taxes	514				1,063				686
Income Tax Expense (Benefit)	146				(729		)		254
Net Income	368				1,792				432
Preferred Stock dividend requirement	35				—				—
Income Available to Common Shareholders	$	333			$	1,792			$	432
Basic Earnings Per Common Share	$	0.74			$	4.16			$	1.00
Diluted Earnings Per Common Share	$	0.74			$	4.13			$	1.00

2018 Compared to 2017

Net Income. CenterPoint Energy reported income available to common shareholders of $333 million ($0.74 per diluted common share) for 2018 compared to $1,792 million ($4.13 per diluted common share) for 2017.

The decrease in income available to common shareholders of $1,459 million was primarily due to the following key factors:

•

an $875 million increase in income tax expense, resulting from a reduction in income tax expense of $1,113 million due to tax reform in 2017, discussed further in Note 15 to the consolidated financial statements, offset by a $238 million decrease in income tax expense primarily due to a reduction in the corporate income tax rate resulting from the TCJA in 2018 and lower income before income taxes year over year;

•	a $305 million decrease in operating income, discussed below by reportable segment in Results of Operations by Reportable Segment;

•	a $281 million increase in losses on indexed debt securities related to the ZENS, resulting from a loss of $11 million from Meredith’s acquisition of Time in March 2018, a loss of $242 million from AT&T’s acquisition of TW in June 2018 and reduced gains of $28 million in the underlying value of the indexed debt securities;

•	a $48 million increase in interest expense primarily due to higher outstanding other long-term debt and the amortization of Bridge Facility fees of $24 million;

•	a $35 million increase in preferred stock dividend requirements; and

•	a $29 million increase in losses on marketable securities.

These decreases were partially offset by:

• a $42 million increase in equity earnings from the investment in Enable, discussed further in Note 11 to the consolidated financial statements;

• a $25 million increase in interest income on investments included in Other Income (Expense), net shown above;

•	an $17 million decrease in the non-service cost components of net periodic pension and post-retirement costs included in Other Income (Expense), net shown above;

• an $18 million decrease in interest expense related to lower outstanding balances of the Securitization Bonds;

• a $6 million increase in miscellaneous other non-operating income included in Other Income (Expense), net shown above;

•	a $4 million increase in dividend income on CenterPoint Energy’s ZENS-Related Securities included in Other Income (Expense), net shown above; and

• a $2 million increase in gains on interest rate economic hedges included in Other Income (Expense), net shown above.

Income Tax Expense. CenterPoint Energy reported an effective tax rate of 28% and (69%) for the years ended December 31, 2018 and 2017, respectively. The effective tax rate of 28% is primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA and the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate as a result of the establishment of a valuation allowance on certain state net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. The effective tax rate was also increased for state law changes that resulted in remeasurement of state deferred taxes in those jurisdictions.

2017 Compared to 2016

Net Income. CenterPoint Energy reported income available to common shareholders of $1,792 million ($4.13 per diluted common share) for 2017 compared to $432 million ($1.00 per diluted common share) for 2016.

The increase in income available to common shareholders of $1,360 million was primarily due to the following key factors:

•	a $983 million decrease in income tax expense, resulting from a reduction in income tax expense of $1,113 million due to tax reform, discussed further in Note 15 to the consolidated financial statements, offset by a $130 million increase in income tax expense primarily due to higher net income year over year;

•	a $462 million increase in gains on indexed debt securities related to the ZENS, resulting from increased gains of $345 million in the underlying value of the indexed debt securities and a loss of $117 million from the Charter merger in 2016;

•	a $113 million increase in operating income discussed below by reportable segment in Results of Operations by Reportable Segment;

•	a $57 million increase in equity earnings from the investment in Enable, discussed further in Note 11 to the consolidated financial statements;

•	a $25 million decrease in interest expense due to lower weighted average interest rates on outstanding debt;

•	a $17 million decrease in losses on early debt redemption;

•	a $14 million increase in cash distributions on the Enable Series A Preferred Units included in Other Income (Expense), net shown above; and

•	a $14 million decrease in interest expense related to lower outstanding balances of the Securitization Bonds.

These increases were partially offset by:

• a $319 million decrease in gains on marketable securities; and

• a $6 million decrease in miscellaneous other non-operating income included in Other Income (Expense), net shown above.

Income Tax Expense. CenterPoint Energy reported an effective tax rate of (69%) and 37% for the years ended December 31, 2017 and 2016, respectively. The effective tax rate of (69%) was primarily due to 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%. See Note 15 to the consolidated financial statements for a more in-depth discussion of the 2017 impacts of the TCJA.

HOUSTON ELECTRIC CONSOLIDATED RESULTS OF OPERATIONS

Houston Electric’s results of operations are affected by seasonal fluctuations in the demand for electricity. Houston Electric’s results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates Houston Electric charges, debt service costs, income tax expense, Houston Electric’s ability to collect receivables from REPs and Houston Electric’s ability to recover its regulatory assets.

	Year Ended December 31,
	2018				2017				2016
	(in millions)
Revenues	$	3,234			$	2,998			$	3,059
Expenses	2,609				2,361				2,407
Operating Income	625				637				652
Interest and other finance charges	(138		)		(128		)		(126		)
Interest on Securitization Bonds	(59		)		(77		)		(91		)
Other expense, net	(3		)		(8		)		(10		)
Income before income taxes	425				424				425
Income tax expense (benefit)	89				(9		)		149
Net income	$	336			$	433			$	276

2018 Compared to 2017

Net Income. Houston Electric reported net income of $336 million for 2018 compared to $433 million for 2017.

The decrease of $97 million in net income was primarily due to the following key factors:

•	a $98 million increase in income tax expense, resulting from a reduction in income tax expense of $158 million due to tax reform in 2017, discussed further in Note 15 to the consolidated financial statements, offset by a $60 million decrease in income tax expense primarily due to a reduction in the corporate income tax rate resulting from the TCJA in 2018; and

•	an $10 million increase in interest expense due to higher outstanding other long-term debt.

These decreases to net income were partially offset by the following:

•	a $5 million decrease in non-service cost components of net periodic pension and post-retirement costs included in Other expense, net shown above; and

•	an $8 million increase in TDU operating income resulting from a $7 million increase discussed below in Results of Operations by Reportable Segment and increased usage of $1 million, primarily due to a return to more normal weather, which was not offset by the weather hedge loss recorded on CenterPoint Energy.

Income Tax Expense. Houston Electric reported an effective tax rate of 21% and (2%) for the years ended December 31, 2018 and 2017, respectively. The effective tax rate of 21% is primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA and the amortization of EDIT.

2017 Compared to 2016

Net Income. Houston Electric reported net income of $433 million for 2017 compared to $276 million for 2016.

The increase of $157 million in net income was primarily due to the following key factors:

•	a $158 million decrease in income tax expense due to a reduction in the corporate income tax rate resulting from the TCJA; and

•	a $1 million increase in TDU operating income resulting from a $1 million decrease discussed below in Results of Operations by Reportable Segment, which was more than offset by increased usage of $2 million, primarily due to a return to more normal weather, which was not offset by the weather hedge loss recorded on CenterPoint Energy.

This increase in net income was partially offset by a $2 million increase in interest expense due to higher outstanding other long-term debt.

Income Tax Expense. Houston Electric reported an effective tax rate of (2%) and 35% for the years ended December 31, 2017 and 2016, respectively. The effective tax rate of (2%) was primarily due to the remeasurement of Houston Electric’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%. See Note 15 to the consolidated financial statements for a more in-depth discussion of the 2017 impacts of the TCJA.

CERC CONSOLIDATED RESULTS OF OPERATIONS

CERC’s results of operations are affected by seasonal fluctuations in the demand for natural gas and price movements of energy commodities as well as natural gas basis differentials. CERC’s results of operations are also affected by, among other things, the actions of various federal, state and local governmental authorities having jurisdiction over rates CERC charges, competition in CERC’s various business operations, the effectiveness of CERC’s risk management activities, debt service costs and income tax expense.

	Year Ended December 31,
	2018				2017				2016
	(in millions)
Revenues	$	7,343			$	6,603			$	4,454
Expenses	7,121				6,136				4,113
Operating Income	222				467				341
Interest and other finance charges	(122		)		(123		)		(122		)
Other expense, net	(8		)		(25		)		(20		)
Income from continuing operations before income taxes	92				319				199
Income tax expense (benefit)	22				(265		)		81
Income from continuing operations	70				584				118
Income from discontinued operations, net of tax	138				161				127
Net Income	$	208			$	745			$	245

2018 Compared to 2017

Net Income. CERC reported net income of $208 million for 2018 compared to $745 million for 2017.

The decrease in net income of $537 million was primarily due to the following key factors:

•

a $287 million increase in income tax expense, resulting from a reduction in income tax expense of $396 million due to tax reform in 2017, discussed further in Note 15 to the consolidated financial statements, offset by a $109 million decrease in income tax expense primarily due to lower income from continuing operations and a reduction in the corporate income tax rate resulting from the TCJA in 2018;

•	a $245 million decrease in operating income, discussed below by reportable segment in Results of Operations by Reportable Segment; and

•	a $23 million decrease in income from discontinued operations, net of tax, due to the Internal Spin discussed further in Note 11 to the consolidated financial statements.

These decreases were partially offset by:

•	a $12 million decrease in the non-service cost components of net periodic pension and post-retirement costs included in Other expense, net shown above;

•	a $5 million increase in miscellaneous other non-operating income included in Other expense, net shown above; and

•	a $1 million decrease in interest expense due to lower outstanding long-term debt.

Income Tax Expense. CERC’s effective tax rate reported on income from continuing operations was 24% and (83%) for the years ended December 31, 2018 and 2017, respectively. The effective tax rate of 24% on income from continuing operations is primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA and the amortization of EDIT.

2017 Compared to 2016

Net Income. CERC reported net income of $745 million for 2017 compared to net income of $245 million for 2016.

The increase in net income of $500 million was primarily due to the following key factors:

•	a $346 million decrease in income tax expense, resulting from a reduction in income tax expense of $396 million due to tax reform, discussed further in Note 15 to the consolidated financial statements, offset by a $50 million increase in income tax expense primarily due to higher income from continuing operations year-over-year;

•	a $126 million increase in operating income discussed below in Results of Operations by Reportable Segment; and

•	a $34 million increase in income from discontinued operations, net of tax, discussed further in Notes 11 and 15 to the consolidated financial statements.

These increases were partially offset by:

•	a $5 million decrease in miscellaneous other non-operating income included in Other Income, net shown above; and

•	a $1 million increase in interest expense due to the issuance of $300 million of unsecured senior notes and higher weighted average commercial paper interest rates discussed further in Note 14 to the consolidated financial statements.

Income Tax Expense. CERC’s effective tax rate reported on income from continuing operations was (83%) and 41% for the years ended December 31, 2017 and 2016, respectively. The effective tax rate of (83%) on income from continuing operations is primarily due to the remeasurement of CERC’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%. See Note 15 to the consolidated financial statements for a more in-depth discussion of the 2017 impacts of the TCJA.

RESULTS OF OPERATIONS BY REPORTABLE SEGMENT

As of December 31, 2018, reportable segments by Registrant are as follows:

Registrant		Electric Transmission & Distribution		Natural Gas Distribution		Energy Services		Midstream Investments		Other Operations
CenterPoint Energy		X		X		X		X		X
Houston Electric		X
CERC				X		X				X

The following table presents operating income (loss) for each reportable segment for 2018, 2017 and 2016. Included in revenues by reportable segment below are intersegment sales, which are accounted for as if the sales were to third parties at current market prices. These revenues are eliminated during consolidation. See Note 19 to the consolidated financial statements for details of reportable segments by registrant.

Operating Income (Loss) by Reportable Segment

	Year Ended December 31,
	2018				2017				2016
	(in millions)
CenterPoint Energy
Electric Transmission & Distribution	$	623			$	636			$	653
Natural Gas Distribution	266				348				321
Energy Services	(47		)		126				21
Other Operations	(11		)		26				28
Total CenterPoint Energy Consolidated Operating Income	$	831			$	1,136			$	1,023
Houston Electric
Electric Transmission & Distribution (1)	$	625			$	637			$	652
CERC
Natural Gas Distribution	$	266			$	348			$	321
Energy Services	(47		)		126				21
Other Operations	3				(7		)		(1		)
Total CERC Consolidated Operating Income	$	222			$	467			$	341

(1)	Excludes weather hedge gain (loss) of $(2) million, $(1) million and $1 million recorded on CenterPoint Energy. See Note 9(a) to the consolidated financial statements for more information on the weather hedge.

Electric Transmission & Distribution (CenterPoint Energy and Houston Electric)

The following table provides summary data of the Electric Transmission & Distribution reportable segment:

	Year Ended December 31,
	2018				2017				2016
Revenues:	(in millions, except throughput and customer data)
TDU	$	2,638			$	2,588			$	2,507
Bond Companies	594				409				553
Total revenues	3,232				2,997				3,060
Expenses:
Operation and maintenance, excluding Bond Companies	1,444				1,397				1,330
Depreciation and amortization, excluding Bond Companies	386				395				384
Taxes other than income taxes	240				235				231
Bond Companies	539				334				462
Total expenses	2,609				2,361				2,407
Operating Income	$	623			$	636			$	653
Operating Income:
TDU	$	568			$	561			$	562
Bond Companies (1)	55				75				91
Total segment operating income	$	623			$	636			$	653
Throughput (in GWh):
Residential	30,405				29,703				29,586
Total	90,409				88,636				86,829
Number of metered customers at end of period:
Residential	2,198,225				2,164,073				2,129,773
Total	2,485,370				2,444,299				2,403,340

(1)	Represents the amount necessary to pay interest on the Securitization Bonds.

2018 Compared to 2017. The Electric Transmission & Distribution reportable segment reported operating income of $623 million for 2018, consisting of $568 million from the TDU and $55 million related to the Bond Companies. For 2017, operating income totaled $636 million, consisting of $561 million from the TDU and $75 million related to the Bond Companies.

TDU operating income increased $7 million primarily due to the following key factors:

•	higher transmission-related revenues of $37 million, exclusive of the TCJA, and lower transmission costs billed by transmission providers of $32 million;

•	customer growth of $31 million from the addition of over 41,000 customers;

•	rate increases of $36 million related to distribution capital investments, exclusive of the TCJA;

•	higher equity return of $32 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months;

•	higher miscellaneous revenues of $9 million largely due to right-of-way and fiber and wireless revenues; and

•	higher usage of $8 million, primarily due to a return to more normal weather.

These increases to operating income were partially offset by the following:

•	increased operation and maintenance expenses of $79 million, excluding transmission costs billed by transmission providers, primarily due to the following:

◦	contract services of $24 million, largely due to increased resiliency spend and services related to fiber and wireless;

◦	support services of $23 million, primarily related to technology projects;

◦	labor and benefits costs of $14 million;

◦	other miscellaneous operation and maintenance expenses of $12 million; and

◦	damage claims from third parties of $6 million;

•

lower revenues of $79 million due to the recording of a regulatory liability and a corresponding decrease to revenue of $31 million reflecting the difference in revenues collected under customer rates at the pre-TCJA tax rate and the revenues that would have been collected had rates been adjusted to the lower corporate tax rate upon TCJA enactment and lower revenues of $48 million due to lower transmission and distribution rate filings as a result of the TCJA; and

•	higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $17 million.

Lower depreciation and amortization expenses related to AMS of $21 million were offset by a corresponding decrease in related revenues.

2017 Compared to 2016. The Electric Transmission & Distribution reportable segment reported operating income of $636 million for 2017, consisting of $561 million from the TDU and $75 million related to the Bond Companies. For 2016, operating income totaled $653 million, consisting of $562 million from the TDU and $91 million related to the Bond Companies.

TDU operating income decreased $1 million primarily due to the following key factors:

•	lower equity return of $22 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during the preceding 12 months;

•	higher depreciation, primarily because of ongoing additions to plant in service, and other taxes of $20 million;

•	higher operation and maintenance expenses of $18 million, primarily due to higher labor and benefits costs of $10 million and corporate support services expenses of $8 million;

•	lower usage of $15 million; and

• lower miscellaneous revenues, including right-of-way, of $10 million.

These decreases to operating income were partially offset by the following:

•	rate increases of $47 million related to distribution capital investments;

• customer growth of $32 million from the addition of almost 41,000 customers; and

•	higher transmission-related revenues of $61 million, partially offset by transmission costs billed by transmission providers of $56 million.

Natural Gas Distribution (CenterPoint Energy and CERC)

The following table provides summary data of the Natural Gas Distribution reportable segment:

	Year Ended December 31,
	2018				2017				2016
	(in millions, except throughput and customer data)
Revenues	$	2,967			$	2,639			$	2,409
Expenses:
Natural gas	1,467				1,164				1,008
Operation and maintenance	803				722				696
Depreciation and amortization	277				260				242
Taxes other than income taxes	154				145				142
Total expenses	2,701				2,291				2,088
Operating Income	$	266			$	348			$	321
Throughput (in Bcf):
Residential	186				151				152
Commercial and industrial	285				261				259
Total Throughput	471				412				411
Number of customers at end of period:
Residential	3,246,277				3,213,140				3,183,538
Commercial and industrial	260,033				256,651				255,806
Total	3,506,310				3,469,791				3,439,344

2018 Compared to 2017. The Natural Gas Distribution reportable segment reported operating income of $266 million for 2018 compared to $348 million for 2017.

Operating income decreased $82 million primarily as a result of the following key factors:

•

lower revenue of $47 million, associated with the recording of a regulatory liability and a corresponding decrease to revenue in certain jurisdictions of $14 million reflecting the difference in revenues collected under customer rates at the pre-TCJA tax rates and the revenues that would have been collected had rates been adjusted to the lower corporate tax rate upon TCJA enactment and lower filing amounts of $33 million associated with the lower corporate tax rate as a result of the TCJA;

•	higher operation and maintenance expenses of $41 million, primarily consisting of:

◦	materials and supplies, contracts and services and bad debt expenses of $15 million;

◦	support services expenses of $16 million, primarily related to technology projects; and

◦	other miscellaneous operation and maintenance expenses of $10 million;

•	higher labor and benefits costs of $30 million, resulting from the recording in 2017 of regulatory assets (and a corresponding reduction in expense) to recover $16 million of prior post-retirement expenses in future rates established in the Texas Gulf rate order and additional maintenance activities;

•	increased depreciation and amortization expense of $17 million, primarily due to ongoing additions to plant-in-service;

•	decreased revenue of $10 million, primarily driven by timing of weather normalization adjustments; and

•	higher other taxes of $2 million, primarily due to higher property taxes.

These decreases were partially offset by:

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

•	an increase in non-volumetric revenues of $10 million; and

•	a $10 million increase associated with customer growth from the addition of over 36,000 customers.

Increased operation and maintenance expense related to energy efficiency programs of $10 million and increased other taxes expense related to gross receipt taxes of $7 million were offset by a corresponding increase in the related revenues.

2017 Compared to 2016. The Natural Gas Distribution reportable segment reported operating income of $348 million for 2017 compared to $321 million for 2016.

Operating income increased $27 million primarily as a result of the following key factors:

•	rate increases of $38 million, primarily from Texas rate filings of $14 million, Arkansas rate case and formula rate plan filings of $9 million, Minnesota interim rates of $7 million and Mississippi RRA of $4 million;

•	higher other revenues of $8 million, primarily driven by transportation revenues;

•	customer growth of $7 million from the addition of over 30,000 new customers;

•	labor and benefits were favorable by $5 million, resulting primarily from the recording of a regulatory asset (and a corresponding reduction in expense) to recover $16 million of prior postretirement expenses in future rates established in the Texas Gulf rate order; and

•	an increase of $7 million from weather normalization adjustments, partially offset by $4 million of milder weather effects.

These increases were partially offset by:

•	higher operation and maintenance expenses of $18 million, primarily due to increased bad debt expenses of $7 million, increased contract services of $7 million and increased insurance costs of $3 million; and

•	increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $16 million.

Increased operation and maintenance expense related to energy efficiency programs of $13 million and decreased other taxes expense related to gross receipt taxes of $5 million were offset by a corresponding increase or decrease in the related revenues.

Energy Services (CenterPoint Energy and CERC)

The following table provides summary data of the Energy Services reportable segment:

	Year Ended December 31,
	2018				2017				2016
	(in millions, except throughput and customer data)
Revenues	$	4,521			$	4,049			$	2,099
Expenses:
Natural gas	4,453				3,816				2,011
Operation and maintenance	96				86				58
Depreciation and amortization	16				19				7
Taxes other than income taxes	3				2				2
Total expenses	4,568				3,923				2,078
Operating Income (Loss)	$	(47	)		$	126			$	21
Timing impacts related to mark-to-market gain (loss) (1)	$	(110	)		$	79			$	(21	)
Throughput (in Bcf)	1,355				1,200				777
Number of customers at end of period (2)	30,000				31,000				30,000

(1)	Includes the change in unrealized mark-to-market value and the impact from derivative assets and liabilities acquired through the purchase of Continuum and AEM.

(2)	These numbers do not include approximately 65,000, 72,000 and 60,100 natural gas customers as of December 31, 2018, 2017 and 2016, respectively, that are under residential and small commercial choice programs invoiced by their host utility.

2018 Compared to 2017. The Energy Services reportable segment reported an operating loss of $47 million for 2018 compared to operating income of $126 million for 2017.

Operating income decreased $173 million as a result of the following key factors:

•	a $189 million decrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins; and

•	an $10 million increase in operation and maintenance expenses, attributable to increased technology expenses, higher contract and services expense related to pipeline integrity testing, higher support services and legal expenses.

These decreases were partially offset by the following:

•

a $22 million increase in margin due to increased opportunities to optimize natural gas supply costs through storage and transportation capacity, primarily in the first quarter of 2018, and incremental volumes from customers. Realized commercial opportunities attributable to the Continuum and AEM acquisitions and colder than normal weather in several regions of the United States, primarily in the first quarter of 2018, drove incremental sales volumes; and

•	a $5 million increase in margin due to increased revenues from energy delivery to customers through CEIP interconnect projects and MES’ portable natural gas supply services.

2017 Compared to 2016. The Energy Services reportable segment reported operating income of $126 million for 2017 compared to $21 million for 2016. The increase in operating income of $105 million was primarily due to a $100 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. A weather-driven spike in natural gas prices at the end of 2017 caused the accrual of an unusually high mark-to-market asset, expected to be substantially reversed in the first quarter of 2018 as natural gas prices normalize. Operating income in 2017

also included approximately $5 million of expenses related to the acquisition and integration of AEM. The remaining increase in operating income was primarily due to increased throughput related to the acquisition of AEM in 2017.

Midstream Investments (CenterPoint Energy)

The following table provides pre-tax equity income of the Midstream Investments reportable segment:

	Year Ended December 31,
	2018				2017				2016
	(in millions)
Equity earnings from Enable, net	$	307			$	265			$	208

Other Operations (CenterPoint Energy and CERC)

The following table shows the operating income (loss) of CenterPoint Energy’s Other Operations reportable segment:

	Year Ended December 31,
	2018				2017				2016
	(in millions)
Revenues	$	15			$	14			$	15
Expenses	26				(12		)		(13		)
Operating Income (Loss)	$	(11	)		$	26			$	28

2018 Compared to 2017. CenterPoint Energy’s Other Operations reportable segment reported an operating loss of $11 million for 2018 compared to operating income of $26 million for 2017. Operating income decreased $37 million primarily due to costs related to the Merger.

2017 Compared to 2016. CenterPoint Enegy’s Other Operations reportable segment reported operating income of $26 million for 2017 compared to $28 million for 2016. Operating income decreased $2 million primarily due to increased operating expenses, partially offset by decreased depreciation and amortization.

The following table shows the operating income (loss) of CERC’s Other Operations reportable segment:

	Year Ended December 31,
	2018				2017				2016
	(in millions)
Revenues	$	1			$	—			$	1
Expenses	(2		)		7				2
Operating Income (Loss)	$	3			$	(7	)		$	(1	)

LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

The net cash provided by (used in) operating, investing and financing activities for 2018, 2017 and 2016 is as follows:

	Year Ended December 31,
	2018												2017												2016
	CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC
	(in millions)
Cash provided by (used in):
Operating activities	$	2,136			$	1,115			$	814			$	1,417			$	905			$	278			$	1,923			$	1,102			$	512
Investing activities	(1,207		)		(911		)		(697		)		(1,257		)		(776		)		(346		)		(1,034		)		(951		)		42
Financing activities	3,053				(108		)		(104		)		(245		)		(236		)		79				(808		)		(69		)		(553		)

Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities:

	Year Ended December 31,
	2018 compared to 2017												2017 compared to 2016
	CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC
	(in millions)
Changes in net income after adjusting for non-cash items	$	(63	)		$	154			$	(243	)		$	141			$	(22	)		$	215
Changes in working capital	604				57				595				(545		)		(189		)		(474		)
Change in equity in earnings from Enable, net of distributions (1)	225				—				—				(57		)		—				—
Changes related to discontinued operations (2)	—				—				176				—				—				—
Higher pension contribution	(21		)		—				—				(39		)		—				—
Other	(26		)		(1		)		8				(6		)		14				25
	$	719			$	210			$	536			$	(506	)		$	(197	)		$	(234	)

(1)	This change is partially offset by the change in distributions from Enable in excess of cumulative earnings in investing activities noted in the table below.

(2)	See Notes 2(c) and 11 to the consolidated financial statements for a discussion of CERC’s discontinued operations.

Investing Activities. The following items contributed to (increased) decreased net cash used in investing activities:

	Year Ended December 31,
	2018 compared to 2017												2017 compared to 2016
	CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC
	(in millions)
Proceeds from the sale of marketable securities	$	398			$	—			$	—			$	(178	)		$	—			$	—
Acquisitions, net of cash acquired	132				—				132				(30		)		—				(30		)
Net change in capital expenditures	(225		)		(47		)		(120		)		(12		)		(13		)		4
Investment in Enable Series A Preferred Units	—				—				—				363				—				—
Net change in notes receivable from unconsolidated affiliates	—				(96		)		(114		)		(363		)		192				—
Change in distributions from Enable in excess of cumulative earnings	(267		)		—				—				—				—				—
Changes related to discontinued operations (1)	—				—				(250		)		—				—				(363		)
Other	12				8				1				(3		)		(4		)		1
	$	50			$	(135	)		$	(351	)		$	(223	)		$	175			$	(388	)

(1)	See Notes 2(c) and 11 to the consolidated financial statements for a discussion of CERC’s discontinued operations.

Financing Activities. The following items contributed to (increased) decreased net cash used in financing activities:

	Year Ended December 31,
	2018 compared to 2017												2017 compared to 2016
	CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC
	(in millions)
Net changes in commercial paper outstanding	$	(1,892	)		$	—			$	(1,017	)		$	(120	)		$	—			$	(21	)
Increased proceeds from issuances of preferred stock	1,740				—				—				—				—				—
Increased proceeds from issuance of Common Stock	1,844				—				—				—				—				—
Net changes in long-term debt outstanding, excluding commercial paper	2,126				77				851				503				(123		)		73
Net changes in reacquired debt	5				—				5				17				—				(5		)
Net changes in debt issuance costs	(34		)		(1		)		(1		)		(4		)		3				(4		)
Net changes in short-term borrowings	(43		)		—				(43		)		9				—				9
Distributions to ZENS note holders	(398		)		—				—				178				—				—
Increased payment of Common Stock dividends	(38		)		—				—				(18		)		—				—
Increased payment of preferred stock dividends	(11		)		—				—				—				—				—
Net change in notes payable from affiliated companies	—				(119		)		(1,140		)		—				372				570
Contribution from parent	—				200				922				—				(374		)		(34		)
Dividend to parent	—				(29		)		241				—				(45		)		42
Other	(1		)		—				(1		)		(2		)		—				2
	$	3,298			$	128			$	(183	)		$	563			$	(167	)		$	632

Future Sources and Uses of Cash

The liquidity and capital requirements of the Registrants are affected primarily by results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Capital expenditures are expected to be used for investment in infrastructure for electric and natural gas distribution operations. These capital expenditures are anticipated to maintain reliability and safety, increase resiliency and expand our systems through value-added projects. In addition to dividend payments on CenterPoint Energy’s Series A Preferred Stock, Series B Preferred Stock and Common Stock, and in addition to interest payments on debt, the Registrants’ principal anticipated cash requirements for 2019 include the following:

		CenterPoint Energy				Houston Electric				CERC
		(in millions)
Merger consideration for Vectren acquisition (1)		$	5,982			$	—			$	—
Estimated capital expenditures (2)		2,432				979				714
Change in control debt redemption (1)		759				—				—
Scheduled principal payments on Securitization Bonds		458				458				—
Minimum contributions to pension plans and other post-retirement plans		110				10				4
Maturing Vectren senior notes		60				—				—

(1)	On February 1, 2019, pursuant to the Merger Agreement, CenterPoint Energy consummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. In conjunction with the consummation of the Merger, $759 million of debt at Vectren was redeemed due to the change in control. For further discussion of the Merger, see Note 4 to the consolidated financial statements.

(2)	CenterPoint Energy’s estimated capital expenditures include estimated capital expenditures for Vectren and its subsidiaries as of the closing of the Merger.

The Registrants expect that anticipated 2019 cash needs will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt (including Houston Electric’s January 2019 issuance of $700 million aggregate principal

amount of general mortgage bonds), anticipated cash flows from operations, with respect to CenterPoint Energy and CERC, proceeds from commercial paper and with respect to CenterPoint Energy, distributions from Enable. In addition, if CenterPoint Energy decides to sell Enable common units that it owns in the public equity markets or otherwise in 2019 (reducing the amount of future distributions CenterPoint Energy receives from Enable to the extent of any such sales), any net proceeds received from such sales could provide a source for CenterPoint Energy’s remaining 2019 cash needs. Discretionary financing or refinancing may result in the issuance of equity securities of CenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets, additional credit facilities and any sales of CenterPoint Energy’s Enable common units may not, however, be available on acceptable terms.

The following table sets forth the Registrants’ actual capital expenditures by reportable segment for 2018 and estimates of the Registrants’ capital expenditures currently planned for projects for 2019 through 2023:

	2018				2019				2020				2021				2022				2023
CenterPoint Energy	(in millions)
Electric Transmission & Distribution	$	952			$	979			$	1,028			$	1,178			$	979			$	980
Natural Gas Distribution	638				673				678				691				694				711
Energy Services	20				40				16				15				39				13
Other Operations	110				71				39				33				34				35
Vectren and its subsidiaries (1)	—				669				740				867				1,056				896
Total	$	1,720			$	2,432			$	2,501			$	2,784			$	2,802			$	2,635
Houston Electric (2)	$	952			$	979			$	1,028			$	1,178			$	979			$	980
CERC
Natural Gas Distribution	$	638			$	673			$	678			$	691			$	694			$	711
Energy Services	20				40				16				15				39				13
Other Operations	—				1				—				—				—				—
Total	$	658			$	714			$	694			$	706			$	733			$	724

(1)	Vectren 2019 capital expenditures reflect capital expenditure estimates for the period February through December 2019 only.

(2)	Houston Electric consists of a single reportable segment, Electric Transmission & Distribution.

The following table sets forth estimates of the Registrants’ contractual obligations as of December 31, 2018, including payments due by period but does not include any amounts for Vectren or its subsidiaries:

Contractual Obligations		Total				2019				2020-2021				2022-2023				2024 and thereafter
		(in millions)
CenterPoint Energy
Securitization Bonds		$	1,435			$	458			$	442			$	375			$	160
Other long-term debt (1)		7,798				—				1,495				1,510				4,793
Interest payments — Securitization Bonds (2)		125				46				51				24				4
Interest payments — other long-term debt (2)		4,482				350				679				541				2,912
Operating leases (3)		36				6				11				7				12
Benefit obligations (4)		—				—				—				—				—
Non-trading derivative liabilities		131				126				5				—				—
Commodity and other commitments (5)		3,058				454				773				385				1,446
Total contractual cash obligations (6)		$	17,065			$	1,440			$	3,456			$	2,842			$	9,327

Contractual Obligations		Total				2019				2020-2021				2022-2023				2024 and thereafter
		(in millions)
Houston Electric
Securitization Bonds		$	1,435			$	458			$	442			$	375			$	160
Other long-term debt (1)		3,281				—				402				500				2,379
Interest payments — Securitization Bonds (2)		125				46				51				24				4
Interest payments — other long-term debt (2)		2,150				132				255				226				1,537
Non-trading derivative liabilities		24				24				—				—				—
Operating leases (3)		1				1				—				—				—
Benefit obligations (4)		—				—				—				—				—
Total contractual cash obligations (6)		$	7,016			$	661			$	1,150			$	1,125			$	4,080
CERC
Long-term debt		$	2,371			$	—			$	593			$	510			$	1,268
Interest payments — long-term debt (1)		1,488				111				209				153				1,015
Operating leases (3)		32				5				9				7				11
Benefit obligations (4)		—				—				—				—				—
Non-trading derivative liabilities		107				102				5				—				—
Commodity and other commitments (5)		3,058				454				773				385				1,446
Total contractual cash obligations (6)		$	7,056			$	672			$	1,589			$	1,055			$	3,740

(1)

ZENS obligations are included in the 2024 and thereafter column at their contingent principal amount as of December 31, 2018 of $93 million. These obligations are exchangeable for cash at any time at the option of the holders for 95% of the current value of the reference shares attributable to each ZENS ($540 million as of December 31, 2018), as discussed in Note 12 to the consolidated financial statements.

(2)

The Registrants calculated estimated interest payments for long-term debt as follows: for fixed-rate debt and term debt, the Registrants calculated interest based on the applicable rates and payment dates; for variable-rate debt and/or non-term debt, the Registrants used interest rates in place as of December 31, 2018. The Registrants typically expect to settle such interest payments with cash flows from operations and short-term borrowings.

(3)	For a discussion of operating leases, please read Note 16(c) to the consolidated financial statements.

(4)	See Note 8(g) to the consolidated financial statements for information on the Registrants’ expected contributions to pension plans and other postretirement plans in 2019.

(5)	For a discussion of commodity and other commitments, please read Note 16(a) to the consolidated financial statements.

(6)	This table does not include estimated future payments for expected future AROs. These payments are primarily estimated to be incurred after 2024. See Note 3(c) to the consolidated financial statements for further information.

Off-Balance Sheet Arrangements

Other than Houston Electric’s first mortgage bonds and general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy (see Note 14 to the consolidated financial statements) and operating leases, the Registrants have no off-balance sheet arrangements.

Regulatory Matters

Brazos Valley Connection Project (CenterPoint Energy and Houston Electric)

Houston Electric completed construction on and energized the Brazos Valley Connection in March 2018, ahead of the original June 1, 2018 energization date. The final capital costs of the project reported to the PUCT in December 2018 were $281 million, which was within the estimated range of approximately $270-$310 million in the PUCT’s original order. Houston Electric applied

for interim recovery of project costs incurred through July 31, 2018, which were not already included in rates in a filing with the PUCT in September 2018 and received approval for interim recovery in November 2018. Final approval by the PUCT of the project costs is expected to occur in Houston Electric’s next base rate case, which is anticipated to be filed in April 2019.

Bailey to Jones Creek Project (CenterPoint Energy and Houston Electric)

In April 2017, Houston Electric submitted a proposal to ERCOT requesting its endorsement of a transmission project in the greater Freeport, Texas area, which includes enhancements to two existing substations and the construction of a new 345 kV double-circuit line to be located in the counties of Brazoria, Matagorda and Wharton. On December 12, 2017, Houston Electric received approval from ERCOT. In September 2018, Houston Electric filed a certificate of convenience and necessity application with the PUCT that included capital cost estimates for the project that ranged from approximately $482-$695 million, which were higher than the initial cost estimates. The revised project cost estimates include additional costs associated with the routing of the line to mitigate environmental and other land use impacts and structure design to address soil and coastal wind conditions. The actual capital costs of the project will depend on those factors as well as other factors, including land acquisition costs, construction costs and the ultimate route approved by the PUCT. On the request of the PUCT, ERCOT intervened in the proceeding and performed a re-evaluation of the cost-effectiveness of the proposed project. Based on that re-evaluation, ERCOT’s recommended transmission option for the project remains unchanged. Houston Electric anticipates that the PUCT will issue a final decision on the certificate of convenience and necessity application in the fourth quarter of 2019.

Rate Change Applications

The Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. In addition, Houston Electric is periodically involved in proceedings to adjust its capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms in Texas (GRIP), its cost of service adjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC, respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR, respectively). The recently acquired Vectren entities are also routinely involved in rate change applications before regulatory authorities. However, disclosures related to rate change applications for Vectren entities during 2018 have not been included in the table below. The table below reflects significant applications pending or completed during 2018 and to date in 2019 for the Registrants.

Mechanism		Annual Increase (Decrease) (1) (in millions)		Filing Date		Effective Date		Approval Date		Additional Information
CenterPoint Energy and Houston Electric (PUCT)
TCOS		N/A		February 2018		April 2018		April 2018		Revised TCOS annual revenue application approved in November 2017 by a reduction of $41.6 million to recognize a decrease in the federal income tax rate, amortize certain EDIT balances and adjust rate base by EDIT attributable to new plant since the last rate case, all of which are related to the TCJA.
TCOS		$40.8		May 2018		July 2018		July 2018		Requested an increase of $285 million to rate base and reflects a $40.8 million annual increase in current revenues. Also reflects a one-time refund of $6.6 million in excess federal income tax collected from January to April 2018.
TCOS		2.4		September 2018		November 2018		November 2018		Requested an increase of $15.4 million to rate base and reflects a $2.4 million annual increase in current revenues.
EECRF		8.4		June 2018		March 2019		December 2018		The PUCT issued a final order in December 2018 approving recovery of 2019 EECRF of $39.5 million, including an $8.4 million performance bonus.
DCRF		30.9		April 2018		September 2018		August 2018		Unanimous settlement agreement approved by the PUCT in August 2018 results in incremental annual revenue of $30.9 million. It results in a $120.6 million annual revenue requirement effective September 1, 2018. The settlement agreement also reflects an approximately $39 million decrease resulting from the 21% federal income tax rate, a $20 million decrease to return to customers the reserve recorded recognizing this decrease in the federal income tax rate from January 25, 2018 through August 31, 2018 and a $19.2 million decrease related to the unprotected EDIT. Effective September 1, 2019, the reserve amount returned to customers ends. In December 2018, Houston Electric filed an updated DCRF tariff to adjust the interim DCRF rates to reflect the difference between the $20 million estimated tax-expense regulatory liability and the $23.4 million actual tax-expense regulatory liability recorded by Houston Electric.

Mechanism		Annual Increase (Decrease) (1) (in millions)		Filing Date		Effective Date		Approval Date		Additional Information
CenterPoint Energy and CERC - South Texas (Railroad Commission)
Rate Case		(1.0)		November 2017		May 2018		May 2018		Unanimous settlement agreement approved by the Railroad Commission in May 2018 that provides for a $1 million annual decrease in current revenues. The settlement agreement also reflects an approximately $2 million decrease in the federal income tax rate and amortization of certain EDIT balances and establishes a 9.8% ROE for future GRIP filings for the South Texas jurisdiction.
CenterPoint Energy and CERC - Beaumont/East Texas, Houston and Texas Coast (Railroad Commission)
GRIP		14.7		March 2018		July 2018		June 2018		Based on net change in invested capital of $70.0 million and reflects a $14.7 million annual increase in current revenues, net of an approximate $1.0 million decrease from the federal income tax rate reduction as a result of the TCJA.
Administrative 104.111		N/A		July 2018		September 2018		August 2018		Beaumont/East Texas, Houston and Texas Coast proposed to decrease base rates by $12.9 million to reflect the change in the federal income tax rate. In addition, Beaumont/East Texas proposed to decrease the GRIP charge to reflect the change in the federal income tax rate. The impact of deferred taxes is expected to be reflected in the next rate case.
CenterPoint Energy and CERC - Arkansas (APSC)
FRP		13.2		August 2018		October 2018		September 2018		Based on ROE of 9.5% as approved in the last rate case and reflects a $13.2 million annual increase in current revenues, excluding the effects of the TCJA. The annual increase is reduced from TCJA impacts by approximately $8.1 million, which include the effects of a lower federal income tax rate and amortization of EDIT balances.
CenterPoint Energy and CERC - Louisiana (LPSC)
RSP		6.1		December 2018		December 2018		February 2019		Based on ROE of 9.95% and the 21% federal income tax rate and reflects a $6.1 million annual increase in current revenues. Other impacts of the TCJA, which were calculated outside the band, reduced the annual increase by approximately $4 million. Interim rates were implemented in December 2018. Final rates were implemented February 2019 upon receipt of the LPSC’s final order. The LPSC also approved the refund of $5.6 million of other TCJA impacts over a three month period, beginning January 31, 2019.
CenterPoint Energy and CERC - Minnesota (MPUC)
Rate Case		3.9		August 2017		November 2018		July 2018		Includes a proposal to extend decoupling beyond current expiration date of June 2018. Interim rates reflecting an annual increase of $47.8 million were effective October 1, 2017. A unanimous settlement agreement was filed in March 2018, subject to MPUC approval. The settlement agreement increases base rates by $3.9 million, makes decoupling a permanent part of the tariff, incorporates the impact of the decrease in the federal income tax rate and amortization of EDIT balances (approximately $20 million) and establishes or continues tracker recovery mechanisms that account for approximately $13.3 million in the initial filing. The MPUC voted to approve the settlement and a formal order was issued on July 20, 2018. Final rates (and the refund of interim rates that exceed final rates) were implemented beginning November 1, 2018.
Decoupling		(13.8)		September 2018		September 2018		January 2019		Represents revenue over-recovery of $21.9 million recorded for and during the period July 1, 2017 through June 30, 2018 offset by the rate and prior period adjustments totaling $8.1 million recorded in 2018.
CIP		12.5		May 2018		September 2018		September 2018		Annual reconciliation filing for program year 2017 and includes performance bonus of $12.5 million which was recorded in September 2018.
CenterPoint Energy and CERC - Mississippi (MPSC)
RRA		3.2		May 2018		November 2018		November 2018		Based on authorized ROE of 9.144% and a capital structure of 50% debt and 50% equity and reflects a $3.2 million annual increase in revenues.
CenterPoint Energy and CERC - Oklahoma (OCC)
PBRC		5.4		March 2018		October 2018		October 2018		Based on ROE of 10% and reflects a $5.4 million annual increase in revenues. As a result of the final order, all EDIT was removed from the PBRC calculation. Protected EDIT amortization will begin to be refunded in April 2019 via one-time annual bill credits. Unprotected EDIT will be refunded over a five-year period via annual bill credits which began in October 2018.

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

Tax Reform

For the Registrants, federal income tax expense is included in the rates approved by state commissions and local municipalities and charged by those utilities to consumers. As the Registrants file general rate cases and other periodic rate adjustments, the impacts of the TCJA (including the lower tax rate and the calculation and amortization of EDIT), along with other increases and decreases in their revenue requirements, will be incorporated into the Registrants’ future rates as allowed by IRS rules. The effect of any potential return of tax savings resulting from the TCJA to consumers may differ depending on how each regulatory body requires the Registrants to return such savings. Regulatory commissions across most of the Registrants’ jurisdictions have issued accounting orders to track or record a regulatory liability for (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates.

On January 25, 2018, the PUCT issued an accounting order in Project No. 47945 directing electric utilities, including Houston Electric, to record as a regulatory liability (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates. On February 13, 2018, Houston Electric and other likely parties to a future rate case announced a settlement that required Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017 (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 (and such filing was timely submitted) and (iii) a full rate case filing by April 30, 2019. The settlement was presented to the PUCT during its open meeting on February 15, 2018. In response to the settlement, the PUCT did not proceed with a prior proposal to require Houston Electric to file a rate case in the summer of 2018. The PUCT also amended its prior accounting order to remove the requirement that utilities include carrying costs in the new regulatory liability. Additional information related to tax reform for Houston Electric is described in the table above.

On January 12, 2018, the APSC issued an order in Docket No. 18-006-U opening an investigatory docket into the TCJA and directing utilities, including CERC, to record as a regulatory liability the current and deferred impacts of the TCJA. On July 26, 2018, the APSC issued an order in the investigatory docket requiring CERC to (1) include the reduction in tax expense due to the January 1, 2018 change in the tax rate from 35% to 21% in the utility’s FRP as a reduction to the revenue requirement; this reduction will be reflected in the utility’s historical year netting process in the 2019 FRP filing; (2) file and include all unprotected EDIT, including plant-related unprotected EDIT, in a separate rider within 30 days and refund the entire balance before December 31, 2019; (3) include protected EDIT in the FRP and amortize such amount using the ARAM method; and (4) adjust all other riders impacted by the TCJA changes and apply carrying charges calculated using the pre-tax cost of capital of 6.44% for the amounts related to the TCJA within 30 days of the July 26, 2018 order. On August 24, 2018 CERC filed Rider TCJA in Docket No. 18-050- TF. This rider returns the entire unprotected EDIT of approximately $19 million over five months from October 2018 through February 2019. The GMES Rider, which is not currently in effect, was revised to reflect the effects of the TCJA. No other riders were impacted. On September 21, 2018, the APSC approved Rider TCJA as filed, with an effective date of October 1, 2018. On December 3, 2018, CERC filed an adjustment to Rider TCJA reflecting unprotected EDIT of approximately $17 million, as compared to the originally estimated amount of $19 million. This update reflects known amounts as a result of CNP’s 2017 corporate income tax filing. On December 21, 2018, the APSC approved the updated Rider TCJA effective through February 2019.

On October 5, 2018, the LPSC Staff filed its Final Report and Recommended Proposed Rule in Docket No. R-34754, which addresses the TCJA. The proposed rule recommends that CERC (1) adjust rates prospectively to reflect the new 21% federal corporate income tax rate; (2) refund to ratepayers 100% of federal corporate income taxes collected that are in excess of the new lower applicable tax rate plus carrying cost at the utility’s WACC over a 12-month period or other period approved by the LPSC; (3) accrue carrying charges on EDIT balances at the utility’s WACC until fully amortized, except to the extent ratepayers are receiving benefits of EDIT as a reduction to rate base; (4) amortize protected EDIT over ARAM and implement through an outside- the-band reduction in rates attributable to the annual amortization; and (5) amortize unprotected EDIT over 24 months or other period approved by the LPSC and implement through an outside-the-band reduction in rates or special tax rider. The LPSC Staff presented this proposed rule to the LPSC for vote at the October 26, 2018 Business & Executive Session. The interim RSP rates, protected EDIT impacts and the reduction of corporate income tax were implemented on December 26, 2018. On January 16, 2019, the LPSC approved the TCJA impacts implemented in December and a separate TCJA rider to return the unprotected EDIT and excess funds collected over a three-month period, which began on January 31, 2019, as provided in the final order issued February 1, 2019.

On November 6, 2018, within the order approving the 2018 Mississippi RRA, the MPSC ruled that protected EDIT will be amortized over ARAM beginning with the 2019 RRA, unprotected EDIT will be amortized over a three-year period beginning December 1, 2018, and the refund due to the change in tax rate for 2018 billings prior to the 2018 RRA implementation will be a

component of the 2019 RRA filing for the 2018 calendar year.

FERC Revised Policy Statement and NOPR (CenterPoint Energy and CERC)

On March 15, 2018, the FERC addressed treatment of federal income tax allowances in FERC-regulated pipeline rates. The FERC issued a Revised Policy Statement stating that it will no longer permit pipelines organized as MLPs to recover an income tax allowance in their cost-of-service rates. The FERC issued the Revised Policy Statement in response to a remand from the U.S. Court of Appeals for the D.C. Circuit in United Airlines v. FERC. On July 18, 2018, the FERC issued an order denying requests for rehearing of its Revised Policy Statement because it is a non-binding policy and parties will have the opportunity to address the policy as applied in future cases. On September 14, 2018, MRT, filed a Petition for Review. That case remains undecided.

On March 15, 2018, the FERC also proposed, in a NOPR, the method by which it would apply the Revised Policy Statement to FERC-jurisdictional natural gas pipeline rates, as well as account for the corporate income tax rate reduction in the TCJA. On July 18, 2018, the FERC issued a final rule requiring FERC-regulated natural gas pipelines that have cost-based rates to make a filing providing certain cost and revenue information and then either propose to reduce or support current cost-based rates, or take no further action. The final rule is currently subject to requests for rehearing. On January 16, 2019, the FERC used this filing as the basis to open an investigation into the rates of Northern Natural Gas Company. CERC is a shipper on Northern Natural Gas Company’s pipeline system.

EGT, made its required filing on October 11, 2018, in which it asserted that no rate reduction is warranted. That filing remains subject to FERC review. MRT is not required to make such a filing as it is engaged in an ongoing rate case. As part of that rate case, FERC ordered the filings to conform to its tax policy. That order is currently subject to requests for rehearing. SESH, in which Enable owns a 50% interest, made its required filing in November 2018 and a limited rate reduction filing. With regard to FERC-jurisdictional rates on Enable’s crude oil pipelines, the FERC plans to address the Revised Policy Statement and corporate tax rate reduction in its next five-year review of the oil pipeline rate index, which will occur in 2020 and become effective July 1, 2021. At this time, we cannot predict the outcome of the final rule on Enable, but it could continue to adversely impact the rates Enable is permitted to charge its customers.

Other Matters

Credit Facilities

The Registrants may draw on their respective revolving credit facilities from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop CenterPoint Energy’s and CERC’s commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to the Registrants’ revolving credit facilities, please see Note 14 to the consolidated financial statements.

Based on the consolidated debt to capitalization covenant in the Registrants’ revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately $4.5 billion as of December 31, 2018. As of February 12, 2019, the Registrants had the following revolving credit facilities and utilization of such facilities:

						Amount Utilized as of February 12, 2019
Registrant/Subsidiary		Size of Facility				Loans				Letters of Credit				Commercial Paper				Weighted Average Interest Rate		Termination Date
		(in millions, except weighted average interest rate)
CenterPoint Energy (1)		$	3,300			$	—			$	6			$	2,592			2.88%		March 2022
VUHI (2)		400				—				—				190				2.73%		July 2022
Vectren Capital Corp. (2)		200				37				—				—				3.63%		July 2022
Total CenterPoint Energy		3,900				37				6				2,782
Houston Electric		300				—				4				—				—		March 2022
CERC (3)		900				—				1				—				—		March 2022
Total		$	5,100			$	37			$	11			$	2,782

(1)	Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility increased to $3.3 billion on October 5, 2018 due to the satisfaction of certain conditions, including the termination of the Bridge Facility. For further information, see Note 4 to the consolidated financial statements.

(2)	Vectren’s outstanding short-term and long-term debt on the closing date of the Merger became debt of CenterPoint Energy.

(3)	Issued by CERC Corp.

Borrowings under each of the revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower makes representations prior to borrowing as to the absence of material adverse changes or litigation that could be expected to have a material adverse effect. Borrowings under each of the revolving credit facilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilities also provide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In each of the revolving credit facilities, the spread to LIBOR and the commitment fees fluctuate based on the borrower’s credit rating. The borrowers are currently in compliance with the various business and financial covenants in the three revolving credit facilities.

Long-term Debt

For detailed information about the Registrants’ debt issuances in 2018 and to date in 2019, see Note 14 to the consolidated financial statements.

Vectren Debt

As a result of the Merger, Vectren’s outstanding short-term and long-term debt on the closing date of the Merger became debt of CenterPoint Energy, which included debt of Vectren and its subsidiaries with maturities ranging from 2019 to 2055 and containing customary covenants for investment grade debt.

Securities Registered with the SEC

On January 31, 2017, the Registrants filed a joint shelf registration statement with the SEC, as amended on September 24, 2018, registering indeterminate principal amounts of Houston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate number of shares of Common Stock, shares of preferred stock, depositary shares, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on January 31, 2020. For information related to the Registrants’ debt and equity security issuances in 2018 and to date in 2019, see Notes 13 and 14 to the consolidated financial statements.

Temporary Investments

As of February 12, 2019, the Registrants had no temporary investments.

Money Pool

The Registrants participate in a money pool through which they and certain of their subsidiaries can borrow or invest on a short-term basis. CNP Midstream cannot borrow from the money pool but can invest in it. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper. The money pool may not provide sufficient funds to meet the Registrants’ cash needs.

The table below summarizes money pool activity by participant as of February 12, 2019:

	Weighted Average Interest Rate		Houston Electric				CERC				CNP Midstream
			(in millions)
Money pool investments	2.92%		$	485			$	27			$	293

Impact on Liquidity of a Downgrade in Credit Ratings

The interest on borrowings under the Registrants’ credit facilities is based on their credit ratings. On January 28, 2019, in anticipation of the closing of the Merger, Moody’s downgraded CenterPoint Energy’s senior unsecured debt rating to Baa2 from Baa1 and changed the rating outlook for CenterPoint Energy to stable from negative. On February 1, 2019, as a result of the closing of the Merger, S&P lowered its issuer credit rating on CenterPoint Energy’s senior unsecured debt to BBB from BBB+. S&P also lowered its issuer credit ratings on Houston Electric and CERC Corp. to BBB+ from A- in each case, affirmed the A credit rating on Houston Electric’s senior secured debt and lowered the credit rating on CERC’s senior unsecured debt to BBB+ from A-. Additionally, S&P removed the issuer credit ratings for each Registrant from CreditWatch and changed the rating outlooks to stable. As of February 12, 2019, Moody’s, S&P and Fitch had assigned the following credit ratings to senior debt of the Registrants:

		Moody’s				S&P				Fitch
Registrant/Instrument		Rating		Outlook (1)		Rating		Outlook (2)		Rating		Outlook (3)
CenterPoint Energy Senior Unsecured Debt		Baa2		Stable		BBB		Stable		BBB		Stable
Houston Electric Senior Secured Debt		A1		Stable		A		Stable		A+		Stable
CERC Senior Unsecured Debt (4)		Baa1		Positive		BBB+		Stable		BBB+		Stable

(1)	A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.

(2)	An S&P outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.

(3)	A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period.

(4)	Issued by CERC Corp.

As of February 12, 2019, Moody’s and S&P had assigned the following credit ratings to CenterPoint Energy’s Vectren entities:

		Moody’s				S&P
Company/Instrument		Rating		Outlook (1)		Rating		Outlook (2)
Vectren Corp. Issuer Rating		n/a		n/a		BBB+		Stable
VUHI Senior Unsecured Debt		A2		Negative		BBB+		Stable
Indiana Gas Senior Unsecured Debt		A2		Negative		BBB+		Stable
SIGECO Senior Secured Debt		Aa3		Negative		A		Stable

(1)	A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.

(2)	An S&P outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.

The Registrants cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. The Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold the Registrants’ securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of the Registrants’ credit ratings could have a material adverse impact on the Registrants’ ability to obtain short- and long-term financing, the cost of such financings and the execution of the Registrants’ commercial strategies.

A decline in credit ratings could increase borrowing costs and other fees under the Registrants’ revolving credit facilities. As a result of the January 28, 2019 and February 1, 2019 credit ratings downgrade of CenterPoint Energy at Moody’s and S&P, respectively, commitment fees on undrawn balances under CenterPoint Energy’s revolving credit facility of $3.3 billion as of December 31, 2018 are expected to increase by approximately $2 million annually. Additionally, as a result of the February 1, 2019 credit rating downgrades of CERC at S&P, commitment fees on undrawn balances under CERC’s revolving credit facility of $0.9 billion as of December 31, 2018 are expected to increase by less than $1 million annually. If the Registrants’ credit ratings had been further downgraded one notch by each of Moody’s and S&P from the ratings that existed immediately after February 1, 2019, the impact on the borrowing costs under the respective revolving credit facilities would not have been material.

CES, a wholly-owned subsidiary of CERC Corp. operating in the Energy Services reportable segment, provides natural gas sales and services primarily to commercial and industrial customers and electric and natural gas utilities throughout the United

States. To economically hedge its exposure to natural gas prices, CES uses derivatives with provisions standard for the industry, including those pertaining to credit thresholds. Typically, the credit threshold negotiated with each counterparty defines the amount of unsecured credit that such counterparty will extend to CES. To the extent that the credit exposure that a counterparty has to CES at a particular time does not exceed that credit threshold, CES is not obligated to provide collateral. Mark-to-market exposure in excess of the credit threshold is routinely collateralized by CES. Similarly, mark-to-market exposure offsetting and exceeding the credit threshold may cause the counterparty to provide collateral to CES. As of December 31, 2018, the amount posted by CES as collateral aggregated approximately $36 million. Should the credit ratings of CERC Corp. (as the credit support provider for CES) fall below certain levels, CES would be required to provide additional collateral up to the amount of its previously unsecured credit limit. CenterPoint Energy and CERC estimate that as of December 31, 2018, unsecured credit limits extended to CES by counterparties aggregated $268 million, and none of such amount was utilized.

Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as $186 million as of December 31, 2018. The amount of collateral will depend on seasonal variations in transportation levels.

ZENS and Securities Related to ZENS (CenterPoint Energy)

If CenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought its liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of ZENS-Related Securities that CenterPoint Energy owns or from other sources. CenterPoint Energy owns shares of ZENS-Related Securities equal to approximately 100% of the reference shares used to calculate its obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and shares of ZENS-Related Securities would typically cease when ZENS are exchanged or otherwise retired and shares of ZENS-Related Securities are sold. The ultimate tax liability related to the ZENS continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement or exchange of the ZENS. If all ZENS had been exchanged for cash on December 31, 2018, deferred taxes of approximately $438 million would have been payable in 2018. If all the shares of ZENS-Related Securities had been sold on December 31, 2018, capital gains taxes of approximately $90 million would have been payable in 2018 based on 2018 tax rates in effect. For additional information about ZENS, see Note 12 to the consolidated financial statements.

Cross Defaults

Under CenterPoint Energy’s revolving credit facility, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125 million by it or any of its significant subsidiaries will cause a default. A default by CenterPoint Energy would not trigger a default under its subsidiaries’ debt instruments or revolving credit facilities.

Possible Acquisitions, Divestitures and Joint Ventures

From time to time, the Registrants consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. The Registrants may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to the Registrants at that time due to a variety of events, including, among others, maintenance of their credit ratings, industry conditions, general economic conditions, market conditions and market perceptions.

Additionally, CenterPoint Energy may also reduce its ownership in Enable over time through sales in the public equity markets, or otherwise, of the Enable common units it holds, subject to market conditions. CenterPoint Energy’s ability to execute any sale of Enable common units is subject to a number of uncertainties, including the timing, pricing and terms of any such sale. Any sales of Enable common units CenterPoint Energy owns could have an adverse impact on the price of Enable common units or on any trading market for Enable common units. Further, CenterPoint Energy’s sales of Enable common units may have an adverse impact on Enable’s ability to issue equity on satisfactory terms, or at all, which may limit its ability to expand operations or make future acquisitions. Any reduction in CenterPoint Energy’s interest in Enable would result in decreased distributions from Enable and decrease income, which may adversely impact its ability to meet its payment obligations and pay dividends on its Common

Stock. Further, any sales of Enable common units would result in a significant amount of taxes due. There can be no assurances that any sale of Enable common units in the public equity markets or otherwise will be completed. Any sale of Enable common units in the public equity markets or otherwise may involve significant costs and expenses, including, in connection with any public offering, a significant underwriting discount. CenterPoint Energy may not realize any or all of the anticipated strategic, financial, operational or other benefits from any completed sale or reduction in its investment in Enable.

Enable Midstream Partners (CenterPoint Energy and CERC)

In September 2018, CERC completed the Internal Spin, after which CERC’s equity investment in Enable met the criteria for discontinued operations classification. As a result, the operations have been classified as Income from discontinued operations, net of tax, in CERC’s Statements of Consolidated Income for the periods presented. For further information, see Note 11 to the consolidated financial statements.

CenterPoint Energy receives quarterly cash distributions from Enable on its common units and Enable Series A Preferred Units. A reduction in the cash distributions CenterPoint Energy receives from Enable could significantly impact CenterPoint Energy’s liquidity. For additional information about cash distributions from Enable, see Notes 11 and 22 to the consolidated financial statements.

Hedging of Interest Expense for Future Debt Issuances

From time to time, the Registrants may enter into forward interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 9(a) to the consolidated financial statements.

Weather Hedge (CenterPoint Energy and CERC)

CenterPoint Energy and CERC have historically entered into partial weather hedges for certain NGD jurisdictions and electric operations’ service territory to mitigate the impact of fluctuations from normal weather. CenterPoint Energy and CERC remain exposed to some weather risk as a result of the partial hedges. For more information about weather hedges, see Note 9(a) to the consolidated financial statements.

Collection of Receivables from REPs (CenterPoint Energy and Houston Electric)

Houston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity Houston Electric distributes to their customers. Before conducting business, a REP must register with the PUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for Houston Electric’s services or could cause them to delay such payments. Houston Electric depend on these REPs to remit payments on a timely basis, and any delay or default in payment by REPs could adversely affect Houston Electric’s cash flows. In the event of a REP’s default, Houston Electric’s tariff provides a number of remedies, including the option for Houston Electric to request that the PUCT suspend or revoke the certification of the REP. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. However, Houston Electric remain at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations and claims might be made against Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, PUCT regulations authorize utilities, such as Houston Electric, to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.

Other Factors that Could Affect Cash Requirements

In addition to the above factors, the Registrants’ liquidity and capital resources could be affected by:

•	cash collateral requirements that could exist in connection with certain contracts, including weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services reportable segments;

•	acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices and concentration of natural gas suppliers (CenterPoint Energy and CERC);

•	increased costs related to the acquisition of natural gas (CenterPoint Energy and CERC);

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

•	various legislative or regulatory actions;

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

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

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

•	the outcome of litigation;

•	contributions to pension and postretirement benefit plans (CenterPoint Energy);

•	restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and

•	various other risks identified in “Risk Factors” in Item 1A of Part I of this report.

Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money

Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions. For information about the total debt to capitalization financial covenants in the Registrants’ revolving credit facilities, see Note 14 to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both important to the presentation of the Registrants’ financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in the Registrants’ historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require the Registrants to make assumptions about matters that are highly uncertain at the time the estimate is made. Additionally, different estimates that the Registrants could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of their financial condition, results of operations or cash flows. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. The Registrants base their estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Registrants’ operating environment changes. The Registrants’ significant accounting policies are discussed in Note 2 to the consolidated financial statements. The Registrants believe the following accounting policies involve the application of critical accounting estimates. Accordingly, these accounting estimates have been reviewed and discussed with the Audit Committee of CenterPoint Energy’s Board of Directors.

Accounting for Rate Regulation

Accounting guidance for regulated operations provides that rate-regulated entities account for and report assets and liabilities consistent with the recovery of those incurred costs in rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. CenterPoint Energy’s and Houston Electric’s Electric Transmission & Distribution reportable segment and CenterPoint Energy’s and CERC’s Natural Gas Distribution reportable segment apply this accounting guidance. Certain expenses and revenues subject to utility

regulation or rate determination normally reflected in income are deferred on the balance sheet as regulatory assets or liabilities and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. Regulatory assets and liabilities are recorded when it is probable that these items will be recovered or reflected in future rates. Determining probability requires significant judgment on the part of management and includes, but is not limited to, consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders and the strength or status of applications for rehearing or state court appeals. If events were to occur that would make the recovery of these assets and liabilities no longer probable, the Registrants would be required to write off or write down these regulatory assets and liabilities. For further detail on the Registrants’ regulatory assets and liabilities, see Note 7 to the consolidated financial statements.

Impairment of Long-Lived Assets, Including Identifiable Intangibles, Goodwill, Equity Method Investments, and Investments without a Readily Determinable Fair Value

The Registrants review the carrying value of long-lived assets, including identifiable intangibles, goodwill, equity method investments, and investments without a readily determinable fair value whenever events or changes in circumstances indicate that such carrying values may not be recoverable, and at least annually for goodwill as required by accounting guidance for goodwill and other intangible assets. Unforeseen events and changes in market conditions could have a material effect on the value of long-lived assets, including intangibles, goodwill, equity method investments, and investments without a readily determinable fair value due to changes in observable or estimated marked value, estimates of future cash flows, interest rate and regulatory matters and could result in an impairment charge. A loss in value of an equity method investment is recognized when the decline is deemed to be other than temporary. The Registrants recorded no impairments to goodwill, long-lived assets, including intangibles, equity method investment, or readily determinable fair value during 2018, 2017 and 2016.

CenterPoint Energy and CERC performed the annual goodwill impairment test in the third quarter of 2018 and determined, based primarily on the income approach, that no goodwill impairment charge was required for any reporting unit, which approximate the Registrants’ applicable reportable segments.

Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value of the asset could be different using different estimates and assumptions in these valuation techniques.

The determination of fair value requires significant assumptions by management which are subjective and forward-looking in nature. To assist in making these assumptions, CenterPoint Energy and CERC utilized a third-party valuation specialist in both determining and testing key assumptions used in the valuation of each of the reporting units. CenterPoint Energy and CERC based their assumptions on projected financial information that they believe is reasonable; however, actual results may differ materially from those projections. These projected cash flows factor in planned growth initiatives, and for CenterPoint Energy’s and CERC’s Natural Gas Distribution reporting unit, the regulatory environment. The fair values of CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services reporting units significantly exceeded the carrying values.

Although there was not a goodwill asset impairment in the 2018 annual test, an interim impairment test could be triggered by the following: actual earnings results that are materially lower than expected, significant adverse changes in the operating environment, an increase in the discount rate, changes in other key assumptions which require judgment and are forward looking in nature, or if CenterPoint Energy’s market capitalization falls below book value for an extended period of time. No impairment triggers were identified subsequent to the 2018 annual test.

Unbilled Energy Revenues

Revenues related to electricity delivery and natural gas sales and services are generally recognized upon delivery to customers. However, the determination of deliveries to individual customers is based on the reading of their meters, which is performed on a systematic basis throughout the month either electronically through AMS meter communications or manual readings. At the end of each month, deliveries to non-AMS customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Information regarding deliveries to AMS customers after the last billing is obtained from actual AMS meter usage data. Unbilled electricity delivery revenue is estimated each month based on actual AMS meter data, daily supply volumes and applicable rates. Unbilled natural gas sales are estimated based on estimated purchased gas volumes, estimated lost and unaccounted for gas and tariffed rates in effect. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.

Pension and Other Retirement Plans

CenterPoint Energy sponsors pension and other retirement plans in various forms covering all employees who meet eligibility requirements. CenterPoint Energy uses several statistical and other factors that attempt to anticipate future events in calculating the expense and liability related to its plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as estimated by management, within certain guidelines. In addition, CenterPoint Energy’s actuarial consultants use subjective factors such as withdrawal and mortality rates. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded. Please read “— Other Significant Matters — Pension Plans” for further discussion.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2(r) to the consolidated financial statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect the Registrants.

OTHER SIGNIFICANT MATTERS

Pension Plans (CenterPoint Energy). As discussed in Note 8(b) to the consolidated financial statements, CenterPoint Energy maintains a non-contributory qualified defined benefit pension plan covering substantially all employees. Employer contributions for the qualified plan are based on actuarial computations that establish the minimum contribution required under ERISA and the maximum deductible contribution for income tax purposes.

Under the terms of CenterPoint Energy’s pension plan, it reserves the right to change, modify or terminate the plan. CenterPoint Energy’s funding policy is to review amounts annually and contribute an amount at least equal to the minimum contribution required under ERISA.

Additionally, CenterPoint Energy maintains an unfunded non-qualified benefit restoration plan that allows participants to receive the benefits to which they would have been entitled under the non-contributory qualified pension plan except for the federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated.

	Year Ended December 31,
	2018				2017				2016
CenterPoint Energy	(in millions)
Minimum funding requirements for qualified pension plan	$	60			$	39			$	—
Employer contributions to the qualified pension plan	60				39				—
Employer contributions to the non-qualified benefit restoration plan	9				9				9

CenterPoint Energy expects to contribute a minimum of approximately $86 million to the qualified pension plan and contributions aggregating approximately $7 million to the non-qualified benefit restoration plan in 2019.

Changes in pension obligations and assets may not be immediately recognized as pension expense in CenterPoint Energy’s Statements of Consolidated Income, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension expense recorded in any period may not reflect the actual level of benefit payments provided to plan participants.

As the sponsor of a plan, CenterPoint Energy is required to (a) recognize on its Consolidated Balance Sheet as an asset a plan’s over-funded status or as a liability such plan’s under-funded status, (b) measure a plan’s assets and obligations as of the end of the fiscal year and (c) recognize changes in the funded status of the plans in the year that changes occur through adjustments to other comprehensive income and, when related to its rate-regulated utilities with recovery mechanisms, to regulatory assets.

The projected benefit obligation for all defined benefit pension plans was $2,013 million and $2,225 million as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, the projected benefit obligation exceeded the market value of plan assets of CenterPoint Energy’s pension plans by $497 million. Changes in interest rates or the market values of the securities held by the plan during 2019 could materially, positively or negatively, change the funded status and affect the level of pension expense and required contributions.

Houston Electric and CERC participate in CenterPoint Energy’s qualified and non-qualified pension plans covering substantially all employees. Pension cost and the impact to pre-tax earnings, after capitalization and regulatory impacts, by Registrant were as follows:

	Year Ended December 31,
	2018												2017												2016
	CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC				CenterPoint Energy				Houston Electric				CERC
	(in millions)
Pension cost	$	61			$	25			$	22			$	95			$	42			$	35			$	102			$	45			$	37
Impact to pre-tax earnings	64				27				23				71				23				29				67				20				28

The calculation of pension cost and related liabilities requires the use of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions. Two of the most critical assumptions are the expected long-term rate of return on plan assets and the assumed discount rate.

As of December 31, 2018, CenterPoint Energy’s qualified pension plan had an expected long-term rate of return on plan assets of 6.00%, which is unchanged from the rate assumed as of December 31, 2017. The expected rate of return assumption was developed using the targeted asset allocation of our plans and the expected return for each asset class. CenterPoint Energy regularly reviews its actual asset allocation and periodically rebalances plan assets to reduce volatility and better match plan assets and liabilities.

As of December 31, 2018, the projected benefit obligation was calculated assuming a discount rate of 4.35%, which is 0.70% higher than the 3.65% discount rate assumed as of December 31, 2017. The discount rate was determined by reviewing yields on high-quality bonds that receive one of the two highest ratings given by a recognized rating agency and the expected duration of pension obligations specific to the characteristics of CenterPoint Energy’s plan.

CenterPoint Energy’s actuarially determined pension and other postemployment expense for 2018 and 2017 that is greater or less than the amounts being recovered through rates in certain jurisdictions is deferred as a regulatory asset or liability, respectively. Pension cost for 2019, including the benefit restoration plan, is estimated to be $93 million, of which CenterPoint Energy expects approximately $70 million to impact pre-tax earnings after effecting such deferrals and capitalization, based on an expected return on plan assets of 6.00% and a discount rate of 4.35% as of December 31, 2018. If the expected return assumption were lowered by 0.50% from 6.00% to 5.50%, 2019 pension cost would increase by approximately $7 million.

As of December 31, 2018, the pension plan projected benefit obligation, including the unfunded benefit restoration plan, exceeded plan assets by $497 million. If the discount rate were lowered by 0.50% from 4.35% to 3.85%, the assumption change would increase CenterPoint Energy’s projected benefit obligation by approximately $98 million and decrease its 2019 pension cost by approximately $2 million. The expected reduction in pension cost due to the decrease in discount rate is a result of the expected correlation between the reduced interest rate and appreciation of fixed income assets in pension plans with significantly more fixed income instruments than equity instruments. In addition, the assumption change would impact CenterPoint Energy’s Consolidated Balance Sheets by increasing the regulatory asset recorded as of December 31, 2018 by $84 million and would result in a charge to comprehensive income in 2018 of $11 million, net of tax of $3 million, due to the increase in the projected benefit obligation.

Future changes in plan asset returns, assumed discount rates and various other factors related to the pension plans will impact CenterPoint Energy’s future pension expense and liabilities. CenterPoint Energy cannot predict with certainty what these factors will be in the future.