Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions, except per share amounts)
Revenues:
Utility revenues	$	1,661	$	1,538	$	5,797	$	5,087
Non-utility revenues	88		84		241		277
Total	1,749		1,622		6,038		5,364
Expenses:
Utility natural gas, fuel and purchased power	223		170		1,416		981
Non-utility cost of revenues, including natural gas	61		63		159		196
Operation and maintenance	709		659		2,055		1,976
Depreciation and amortization	353		306		987		885
Taxes other than income taxes	125		122		394		387
Goodwill impairment	—		—		—		185
Total	1,471		1,320		5,011		4,610
Operating Income	278		302		1,027		754
Other Income (Expense):
Gain (loss) on marketable securities	(12)		83		40		14
Gain (loss) on indexed debt securities	11		(84)		(40)		(25)
Gain on sale	8		—		8		—
Interest expense and other finance charges	(114)		(121)		(346)		(388)
Interest expense on Securitization Bonds	(5)		(7)		(16)		(22)



Other income, net	17		11		20		47
Total	(95)		(118)		(334)		(374)
Income from Continuing Operations Before Income Taxes	183		184		693		380
Income tax expense (benefit)	33		(15)		63		33
Income from Continuing Operations	150		199		630		347
Income (Loss) from Discontinued Operations (net of tax expense (benefit) of $15, $5, $56 and $(340), respectively)	68		(78)		202		(1,320)
Net Income (Loss)	218		121		832		(973)
Income allocated to preferred shareholders	23		52		82		127
Income (Loss) Available to Common Shareholders	$	195	$	69	$	750	$	(1,100)

Basic earnings per common share - continuing operations	$	0.21	$	0.27	$	0.94	$	0.42
Basic earnings (loss) per common share - discontinued operations	0.11		(0.14)		0.35		(2.52)
Basic Earnings (Loss) Per Common Share	0.32		0.13		1.29		(2.10)
Diluted earnings per common share - continuing operations	$	0.21	$	0.27	$	0.91	$	0.42
Diluted earnings (loss) per common share - discontinued operations	0.11		(0.14)		0.34		(2.52)
Diluted Earnings (Loss) Per Common Share	$	0.32	$	0.13	$	1.25	$	(2.10)

Weighted Average Common Shares Outstanding, Basic	605		545		581		525
Weighted Average Common Shares Outstanding, Diluted	609		548		601		525

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions)
Net Income (Loss)	$	218	$	121	$	832	$	(973)
Other comprehensive income (loss):
Adjustment to pension and other postretirement plans (net of tax of $1, $1, $2 and $3)	4		1		7		3

Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0-, $-0-, $-0- and $-0-)	1		—		1		—
Reclassification of net deferred losses from cash flow hedges (net of tax of $-0-, $-0-, $-0- and $4)	—		—		—		15
Other comprehensive income (loss) from unconsolidated affiliates (net of tax of $-0-, $-0-, $-0- and $-0-)	—		1		2		(2)
Total	5		2		10		16
Comprehensive income (loss)	223		123		842		(957)
Income allocated to preferred shareholders	23		52		82		127
Comprehensive income (loss) available to common shareholders	$	200	$	71	$	760	$	(1,084)

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS


	September 30, 2021		December 31, 2020
	(in millions)
Current Assets:
Cash and cash equivalents ($105 and $139 related to VIEs, respectively)	$	133	$	147
Investment in marketable securities	911		871
Preferred units – unconsolidated affiliate	363		—
Accounts receivable ($43 and $23 related to VIEs, respectively), less allowance for credit losses of $50 and $52, respectively	650		676
Accrued unbilled revenues, less allowance for credit losses of $2 and $5, respectively	293		505

Natural gas and coal inventory	217		203
Materials and supplies	376		297
Non-trading derivative assets	23		—
Taxes receivable	14		82
Current assets held for sale	3,150		—
Prepaid expenses and other current assets ($18 and $15 related to VIEs, respectively)	1,578		139
Total current assets	7,708		2,920
Property, Plant and Equipment:
Property, plant and equipment	32,692		32,514
Less: accumulated depreciation and amortization	10,078		10,152
Property, plant and equipment, net	22,614		22,362
Other Assets:
Goodwill	4,294		4,697
Regulatory assets ($469 and $633 related to VIEs, respectively)	2,307		2,094

Non-trading derivative assets	9		—

Preferred units – unconsolidated affiliate	—		363

Non-current assets held for sale	—		782
Other non-current assets	228		253
Total other assets	6,838		8,189
Total Assets	$	37,160	$	33,471

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)

(Unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY


	September 30, 2021		December 31, 2020
	(in millions, except share amounts)
Current Liabilities:
Short-term borrowings	$	7	$	24
Current portion of VIE Securitization Bonds long-term debt	217		211
Indexed debt, net	11		15
Current portion of other long-term debt	863		1,669
Indexed debt securities derivative	993		953
Accounts payable	905		853

Taxes accrued	265		265
Interest accrued	126		145
Dividends accrued	107		136
Customer deposits	111		119
Non-trading derivative liabilities	—		3


Current liabilities held for sale	512		—
Other current liabilities	390		432
Total current liabilities	4,507		4,825
Other Liabilities:
Deferred income taxes, net	3,750		3,603
Non-trading derivative liabilities	13		27
Benefit obligations	560		680
Regulatory liabilities	3,144		3,448

Other non-current liabilities	926		1,019
Total other liabilities	8,393		8,777
Long-term Debt:
VIE Securitization Bonds, net	393		536
Other long-term debt, net	15,001		10,985
Total long-term debt, net	15,394		11,521
Commitments and Contingencies (Note 14)
Temporary Equity (Note 19)	1		—
Shareholders’ Equity:
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, 800,000 shares and 2,402,400 shares outstanding, respectively, $800 and $2,402 liquidation preference, respectively (Note 19)	790		2,363
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 628,849,375 shares and 551,355,861 shares outstanding, respectively	6		6
Additional paid-in capital	8,517		6,914
Accumulated deficit	(368)		(845)
Accumulated other comprehensive loss	(80)		(90)
Total shareholders’ equity	8,865		8,348
Total Liabilities and Shareholders’ Equity	$	37,160	$	33,471

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(in millions)
Cash Flows from Operating Activities:
Net income (loss)	$	832	$	(973)


Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	987		885

Amortization of deferred financing costs	27		23
Amortization of intangible assets in non-utility cost of revenues	1		1
Deferred income taxes	86		(429)

Goodwill impairment and loss from reclassification to held for sale	—		175
Goodwill impairment	—		185

Unrealized gain on marketable securities	(40)		(14)
Gain on sale	(8)		—
Loss on indexed debt securities	40		25

Write-down of natural gas inventory	—		3
Equity in (earnings) losses of unconsolidated affiliates	(258)		1,499
Distributions from unconsolidated affiliates	116		109
Pension contributions	(59)		(84)
Changes in other assets and liabilities:
Accounts receivable and unbilled revenues, net	231		326

Inventory	(104)		(50)
Taxes receivable	68		4
Accounts payable	(53)		(251)

Non-trading derivatives, net	(51)		(14)
Margin deposits, net	—		65
Interest and taxes accrued	(12)		(53)
Net regulatory assets and liabilities	(2,309)		(81)
Other current assets	11		6
Other current liabilities	(24)		30
Other non-current assets	2		5
Other non-current liabilities	(46)		46
Other operating activities, net	12		1


Net cash provided by (used in) operating activities	(551)		1,439
Cash Flows from Investing Activities:
Capital expenditures	(2,148)		(1,889)



Distributions from unconsolidated affiliate in excess of cumulative earnings	—		46




Proceeds from divestitures	22		1,136


Other investing activities, net	22		24


Net cash used in investing activities	(2,104)		(683)
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net	(27)		37
Proceeds from (payments of) commercial paper, net	596		(1,057)
Proceeds from long-term debt	4,493		299
Payments of long-term debt	(1,990)		(1,060)
Borrowings from revolving credit facilities	—		1,050
Payments of revolving credit facilities	—		(1,050)


Payment of debt issuance costs	(38)		(4)


Payment of dividends on Common Stock	(278)		(309)
Payment of dividends on Preferred Stock	(106)		(114)
Proceeds from issuance of Common Stock, net	—		672
Proceeds from issuance of Series C Preferred Stock, net	—		723



Other financing activities, net	(6)		(6)


Net cash provided by (used in) financing activities	2,644		(819)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(11)		(63)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	167		271
Cash, Cash Equivalents and Restricted Cash at End of Period	$	156	$	208

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
	(in millions of dollars and shares)
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares
Balance, beginning of period	3	$	1,739	3	$	2,441	3	$	2,363	2	$	1,740

Issuances of Series C Preferred Stock, net of issuance costs and beneficial conversion feature	—	—		—	15		—	—		1	716
Conversion of Series B Preferred Stock and Series C Preferred Stock	(2)	(949)		—	—		(2)	(1,573)		—	—
Balance, end of period	1	790		3	2,456		1	790		3	2,456
Common Stock, $0.01 par value; authorized 1,000,000,000 shares
Balance, beginning of period	593	6		545	5		551	6		502	5
Issuances of Common Stock	36	—		—	—		77	—		42	—
Issuances related to benefit and investment plans	—	—		—	—		1	—		1	—
Balance, end of period	629	6		545	5		629	6		545	5
Additional Paid-in-Capital
Balance, beginning of period		7,553			6,801			6,914			6,080
Issuances of Common Stock, net of issuance costs		949			(1)			1,573			672
Issuances related to benefit and investment plans		15			5			30			21
Recognition of beneficial conversion feature		—			—			—			32
Balance, end of period		8,517			6,805			8,517			6,805
Retained Earnings (Accumulated Deficit)
Balance, beginning of period		(343)			(771)			(845)			632
Net income (loss)		218			121			832			(973)
Common Stock dividends declared (see Note 19)		(202)			(82)			(297)			(309)
Preferred Stock dividends declared (see Note 19)		(41)			(48)			(58)			(114)



Amortization of beneficial conversion feature		—			(16)			—			(25)
Adoption of ASU 2016-13		—			—			—			(7)
Balance, end of period		(368)			(796)			(368)			(796)
Accumulated Other Comprehensive Loss
Balance, beginning of period		(85)			(84)			(90)			(98)
Other comprehensive income		5			2			10			16
Balance, end of period		(80)			(82)			(80)			(82)
Total Shareholders’ Equity		$	8,865		$	8,388		$	8,865		$	8,388

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenues	$	874	$	828	$	2,344	$	2,182
Expenses:
Operation and maintenance	396		381		1,159		1,104
Depreciation and amortization	182		151		484		420
Taxes other than income taxes	64		64		192		192
Total	642		596		1,835		1,716
Operating Income	232		232		509		466
Other Income (Expense):
Interest expense and other finance charges	(46)		(43)		(138)		(127)
Interest expense on Securitization Bonds	(5)		(7)		(16)		(22)



Other income, net	4		1		12		7
Total	(47)		(49)		(142)		(142)
Income Before Income Taxes	185		183		367		324
Income tax expense	34		26		60		47
Net Income	$	151	$	157	$	307	$	277

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Net income	$	151	$	157	$	307	$	277
Other comprehensive income:

Reclassification of net deferred losses from cash flow hedges (net of tax of $-0-, $-0-, $-0- and $4)	—		—		—		15
Total	—		—		—		15
Comprehensive income	$	151	$	157	$	307	$	292

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS


	September 30, 2021		December 31, 2020
	(in millions)
Current Assets:
Cash and cash equivalents ($105 and $139 related to VIEs, respectively)	$	105	$	139
Accounts receivable ($43 and $23 related to VIEs, respectively), less allowance for credit losses of $1 and $1, respectively	381		268
Accounts and notes receivable–affiliated companies	20		7
Accrued unbilled revenues	132		113
Materials and supplies	244		195



Prepaid expenses and other current assets ($18 and $15 related to VIEs, respectively)	26		47
Total current assets	908		769
Property, Plant and Equipment:
Property, plant and equipment	14,643		13,593
Less: accumulated depreciation and amortization	4,079		3,930
Property, plant and equipment, net	10,564		9,663
Other Assets:
Regulatory assets ($469 and $633 related to VIEs, respectively)	811		848

Other non-current assets	26		36
Total other assets	837		884
Total Assets	$	12,309	$	11,316

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)

(Unaudited)

LIABILITIES AND MEMBER’S EQUITY


	September 30, 2021		December 31, 2020
	(in millions)
Current Liabilities:

Current portion of VIE Securitization Bonds long-term debt	217		211
Current portion of other long-term debt	300		402
Accounts payable	451		281
Accounts and notes payable–affiliated companies	110		96
Taxes accrued	179		158
Interest accrued	58		71

Other current liabilities	122		117
Total current liabilities	1,437		1,336
Other Liabilities:
Deferred income taxes, net	1,088		1,041
Benefit obligations	75		75
Regulatory liabilities	1,140		1,252

Other non-current liabilities	101		95
Total other liabilities	2,404		2,463
Long-term Debt:
VIE Securitization Bonds, net	393		536
Other long-term debt, net	4,657		3,870
Total long-term debt, net	5,050		4,406
Commitments and Contingencies (Note 14)
Member’s Equity:
Common stock	—		—
Additional paid-in capital	2,548		2,548
Retained earnings	870		563

Total member’s equity	3,418		3,111
Total Liabilities and Member’s Equity	$	12,309	$	11,316

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(in millions)
Cash Flows from Operating Activities:
Net income	$	307	$	277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	484		420
Amortization of deferred financing costs	8		8
Deferred income taxes	8		(36)


Changes in other assets and liabilities:
Accounts and notes receivable, net	(140)		(145)
Accounts receivable/payable–affiliated companies	(31)		10
Inventory	(49)		(35)
Accounts payable	60		(7)

Interest and taxes accrued	8		16
Non-trading derivatives, net	—		15
Net regulatory assets and liabilities	(190)		5
Other current assets	24		13
Other current liabilities	9		21
Other assets	8		(5)
Other liabilities	5		6
Other operating activities, net	(14)		(11)
Net cash provided by operating activities	497		552
Cash Flows from Investing Activities:
Capital expenditures	(1,108)		(750)
Decrease (increase) in notes receivable–affiliated companies	—		456


Other investing activities, net	4		11
Net cash used in investing activities	(1,104)		(283)
Cash Flows from Financing Activities:

Increase in short-term borrowings, net	—		5
Proceeds from long-term debt	1,096		299
Payments of long-term debt	(540)		(160)
Decrease in notes payable–affiliated companies	32		—
Dividend to parent	—		(457)


Payment of debt issuance costs	(12)		(3)

Net cash provided by (used in) financing activities	576		(316)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(31)		(47)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	154		235
Cash, Cash Equivalents and Restricted Cash at End of Period	$	123	$	188

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
	(in millions, except share amounts)


Common Stock
Balance, beginning of period	1,000	$	—	1,000	$	—	1,000	$	—	1,000	$	—
Balance, end of period	1,000	—		1,000	—		1,000	—		1,000	—
Additional Paid-in-Capital
Balance, beginning of period		2,548			2,486			2,548			2,486


Balance, end of period		2,548			2,486			2,548			2,486
Retained Earnings
Balance, beginning of period		719			495			563			780
Net income		151			157			307			277
Dividend to parent		—			(52)			—			(457)
Balance, end of period		870			600			870			600
Accumulated Other Comprehensive Loss
Balance, beginning of period		—			—			—			(15)
Other comprehensive income		—			—			—			15
Balance, end of period		—			—			—			—
Total Member’s Equity		$	3,418		$	3,086		$	3,418		$	3,086

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions)
Revenues:
Utility revenues	$	472	$	415	$	2,189	$	1,878
Non-utility revenues	15		11		49		42
Total	487		426		2,238		1,920
Expenses:
Utility natural gas	157		106		962		715
Non-utility cost of revenues, including natural gas	4		2		16		15
Operation and maintenance	187		186		579		574
Depreciation and amortization	82		78		242		226
Taxes other than income taxes	41		40		141		134

Total	471		412		1,940		1,664
Operating Income	16		14		298		256
Other Expense:
Gain on sale	11		—		11		—
Interest expense and other finance charges	(24)		(28)		(73)		(87)


Other income (expense), net	(3)		(1)		(3)		(5)
Total	(16)		(29)		(65)		(92)
Income (Loss) From Continuing Operations Before Income Taxes	—		(15)		233		164
Income tax expense (benefit)	1		(9)		25		22
Income (Loss) From Continuing Operations	(1)		(6)		208		142
Income (Loss) from Discontinued Operations (net of tax expense (benefit) of $-0-, $1, $-0- and $(2), respectively)	—		2		—		(66)
Net Income (Loss)	$	(1)	$	(4)	$	208	$	76

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in millions)
Net income (loss)	$	(1)	$	(4)	$	208	$	76




Comprehensive income (loss)	$	(1)	$	(4)	$	208	$	76

See Combined Notes to Interim Condensed Financial Statements

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS


	September 30, 2021		December 31, 2020
	(in millions)
Current Assets:
Cash and cash equivalents	$	—	$	1
Accounts receivable, less allowance for credit losses of $45 and $45, respectively	146		233
Accrued unbilled revenues, less allowance for credit losses of $2 and $4, respectively	92		260
Accounts and notes receivable–affiliated companies	15		8
Materials and supplies	78		58
Natural gas inventory	162		121

Taxes receivable	4		—

Current assets held for sale	1,970		—
Prepaid expenses and other current assets	1,335		26
Total current assets	3,802		707
Property, Plant and Equipment:
Property, plant and equipment	7,726		8,972
Less: accumulated depreciation and amortization	2,049		2,414
Property, plant and equipment, net	5,677		6,558
Other Assets:
Goodwill	611		757
Regulatory assets	571		220




Other non-current assets	41		66
Total other assets	1,223		1,043
Total Assets	$	10,702	$	8,308

See Combined Notes to Interim Condensed Financial Statements

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CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)

(Unaudited)

LIABILITIES AND STOCKHOLDER’S EQUITY


	September 30, 2021		December 31, 2020
	(in millions)
Current Liabilities:
Short-term borrowings	$	7	$	24

Accounts payable	281		296
Accounts and notes payable–affiliated companies	55		50
Taxes accrued	74		74
Interest accrued	30		28
Customer deposits	65		76

Current liabilities held for sale	512		—
Other current liabilities	146		178
Total current liabilities	1,170		726
Other Liabilities:
Deferred income taxes, net	625		584


Benefit obligations	83		83
Regulatory liabilities	1,020		1,226

Other non-current liabilities	564		694
Total other liabilities	2,292		2,587
Long-Term Debt	4,465		2,428
Commitments and Contingencies (Note 14)
Stockholder’s Equity:
Common stock	—		—
Additional paid-in capital	2,046		2,046
Retained earnings	719		511
Accumulated other comprehensive income	10		10
Total stockholder’s equity	2,775		2,567
Total Liabilities and Stockholder’s Equity	$	10,702	$	8,308

See Combined Notes to Interim Condensed Financial Statements

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CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(in millions)
Cash Flows from Operating Activities:
Net income	$	208	$	76
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	242		226

Amortization of deferred financing costs	10		7
Deferred income taxes	27		19
Goodwill impairment and loss from reclassification to held for sale	—		93
Gain on sale	(11)		—
Write-down of natural gas inventory	—		3

Changes in other assets and liabilities:
Accounts receivable and unbilled revenues, net	259		402
Accounts receivable/payable–affiliated companies	(4)		(8)
Inventory	(73)		(3)
Taxes receivable	(4)		—
Accounts payable	(37)		(180)

Interest and taxes accrued	9		(18)
Non-trading derivatives, net	—		(13)
Margin deposits, net	—		65
Net regulatory assets and liabilities	(2,027)		(28)
Other current assets	5		4
Other current liabilities	(20)		(7)
Other assets	—		7
Other liabilities	(49)		8
Other operating activities, net	(1)		(7)
Net cash provided by (used in) operating activities	(1,466)		646
Cash Flows from Investing Activities:
Capital expenditures	(571)		(624)

Increase in notes receivable–affiliated companies	—		(9)





Proceeds from divestiture	22		286
Other investing activities, net	15		8


Net cash used in investing activities	(534)		(339)
Cash Flows from Financing Activities:
Increase in short-term borrowings, net	(27)		31

Proceeds from (payments of) commercial paper, net	338		30
Proceeds from long-term debt	1,699		—


Dividends to parent	—		(80)
Payment of debt issuance costs	(10)		—



Capital distribution to parent associated with the sale of CES	—		(286)
Other financing activities, net	(1)		(2)


Net cash provided by (used in) financing activities	1,999		(307)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(1)		—
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	1		2
Cash, Cash Equivalents and Restricted Cash at End of Period	$	—	$	2

See Combined Notes to Interim Condensed Financial Statements

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CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)

CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
	(in millions, except share amounts)
Common Stock
Balance, beginning of period	1,000	$	—	1,000	$	—	1,000	$	—	1,000	$	—
Balance, end of period	1,000	—		1,000	—		1,000	—		1,000	—
Additional Paid-in-Capital
Balance, beginning of period		2,046			1,829			2,046			2,116

Capital distribution to parent associated with the sale of CES		—			—			—			(286)
Other		—			—			—			(1)
Balance, end of period		2,046			1,829			2,046			1,829
Retained Earnings
Balance, beginning of period		720			518			511			515
Net income (loss)		(1)			(4)			208			76
Dividend to parent		—			(8)			—			(80)
Adoption of ASU 2016-13		—			—			—			(5)
Balance, end of period		719			506			719			506
Accumulated Other Comprehensive Income
Balance, beginning of period		10			10			10			10

Balance, end of period		10			10			10			10
Total Stockholder’s Equity		$	2,775		$	2,345		$	2,775		$	2,345

See Combined Notes to Interim Condensed Financial Statements

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

COMBINED NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS

(1) Background and Basis of Presentation

General. This combined Form 10-Q is filed separately by three registrants: CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other Registrants or the subsidiaries of CenterPoint Energy other than itself or its subsidiaries.

Except as discussed in the penultimate paragraph in Note 12 to the Registrants’ Interim Condensed Financial Statements, no registrant has an obligation in respect of any other Registrant’s debt securities, and holders of such debt securities should not consider the financial resources or results of operations of any Registrant other than the obligor in making a decision with respect to such securities.

Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the Registrants’ financial statements included in the Registrants’ combined 2020 Form 10-K. The Combined Notes to Interim Condensed Financial Statements apply to all Registrants and specific references to Houston Electric and CERC herein also pertain to CenterPoint Energy, unless otherwise indicated.

Background. CenterPoint Energy, Inc. is a public utility holding company and owns interests in Enable, a publicly traded MLP, as described below. As of September 30, 2021, CenterPoint Energy’s operating subsidiaries reported as continuing operations were as follows:

Houston Electric provides electric transmission service to transmission service customers in the ERCOT region and distribution service to REPs serving the Texas Gulf Coast area that includes the city of Houston.
CERC (i) owns and operates natural gas distribution systems in six states and (ii) owns and operates permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
Vectren holds three public utilities through its wholly-owned subsidiary, VUHI, a public utility holding company:
Indiana Gas provides energy delivery services to natural gas customers located in central and southern Indiana;
SIGECO provides energy delivery services to electric and natural gas customers located in and near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market; and
VEDO provides energy delivery services to natural gas customers located in and near Dayton in west-central Ohio.
Vectren performs non-utility activities through ESG, which provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.

On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses. On August 31, 2021, CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of MES to Last Mile Energy. See Note 3 for further information.

As of September 30, 2021, CenterPoint Energy’s reportable segments were Electric and Natural Gas. Houston Electric and CERC each consist of a single reportable segment. For a description of CenterPoint Energy’s reportable segments, see Note 16.

As of September 30, 2021, CNP Midstream owned approximately 53.7% of the common units representing limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets; CNP Midstream also

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owned 50% of the management rights and 40% of the incentive distribution rights in Enable GP. On February 16, 2021, Enable entered into the Enable Merger Agreement. At the closing of the transactions contemplated by the Enable Merger Agreement, if and when it occurs, Energy Transfer will acquire all of Enable’s outstanding equity interests, including all Enable common units and Enable Series A Preferred Units held by CenterPoint Energy, and in return CenterPoint Energy will receive Energy Transfer common units and Energy Transfer Series G Preferred Units. For additional information regarding CenterPoint Energy’s interest in Enable, including the 14,520,000 Enable Series A Preferred Units directly owned by CenterPoint Energy, the Enable Merger and CenterPoint Energy’s plan to exit the Midstream Investment reportable segment, see Notes 3 and 9.

As of September 30, 2021, CenterPoint Energy and Houston Electric had VIEs consisting of the Bond Companies, which are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed solely for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy and Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy or Houston Electric.

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

The Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in the Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests. Certain prior year amounts have been reclassified to conform to the current year reportable segment presentation described in the 2020 Form 10-K and to reflect the impacts of discontinued operations.

(2) New Accounting Pronouncements

Management believes that recently adopted and recently issued accounting standards that are not yet effective will not have a material impact on the Registrants’ financial position, results of operations or cash flows upon adoption.

(3) Held for Sale and Divestitures (CenterPoint Energy and CERC)

Held for Sale. On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses for $2.15 billion in cash, including recovery of approximately $425 million of storm-related incremental natural gas costs incurred in the February 2021 Winter Storm Event, subject to certain adjustments set forth in the Asset Purchase Agreement. The assets include approximately 17,000 miles of main pipeline in Arkansas, Oklahoma and certain portions of Bowie County, Texas serving more than half a million customers. The Arkansas and Oklahoma Natural Gas businesses are reflected in CenterPoint Energy’s Natural Gas reportable segment and CERC’s single reportable segment, as applicable. Filings were made on June 11, 2021 to the APSC and June 24, 2021 to the OCC requesting approval of the transaction. On August 18, 2021, the Hart-Scott-Rodino antitrust waiting period expired. On October 14, 2021, a unanimous settlement agreement was filed with the APSC that, if approved, upon the closing of the transaction, would resolve all matters associated with the sale and the FRP. As part of the settlement agreement, CERC committed to provide $22 million in cash at the closing of the transaction, which will be passed through to Arkansas customers. CERC also committed to return any insurance proceeds it may receive for claims submitted with respect to Arkansas, if any, for costs incurred as part of the February 2021 Winter Storm Event to reduce the balance of the incurred costs. The settlement agreement also provides for the extinguishment of CERC’s obligation to refund through the FRP approximately $10 million as of September 30, 2021. The settling parties requested that the October 22, 2021 hearing be waived and that the APSC enter an order by December 13, 2021 to allow for the closing of the transaction to take place by the end of the year, or shortly thereafter. The Oklahoma filing is still pending state regulatory approval. The transaction is anticipated to close by the end of 2021, subject to customary closing conditions, including final orders from the APSC and OCC approving the transaction. As announced in December 2020, CenterPoint Energy’s business strategy incorporated the Business Review and Evaluation Committee’s recommendations to increase its planned capital expenditures in its electric and natural gas businesses to support rate base growth and sell certain of its Natural Gas businesses located in Arkansas and Oklahoma as a means to efficiently finance a portion of such increased capital expenditures, among other recommendations.

In April 2021, certain assets and liabilities representing the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria. The sale will be considered an asset sale for tax purposes, requiring net deferred tax liabilities to be excluded

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from held for sale balances. The deferred taxes associated with the businesses will be recognized as a deferred income tax benefit by CenterPoint Energy and CERC upon closing.

Although the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria, their expected disposals do not represent a strategic shift to CenterPoint Energy and CERC, as both will retain significant operations in, and will continue to invest in, their natural gas businesses. Therefore, the assets and liabilities associated with the transaction are not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable, and the December 31, 2020 Condensed Consolidated Balance Sheets were not required to be recast for assets held for sale. Since the depreciation on the Arkansas and Oklahoma Natural Gas assets will continue to be reflected in revenues through customer rates until the expected closing of the transaction and will be reflected in the carryover basis of the rate-regulated assets once sold, CenterPoint Energy and CERC will continue to record depreciation on those assets through the expected closing of the transaction.

In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria. CenterPoint Energy’s plan to exit its Midstream Investment reportable segment in 2022 represents a strategic shift to CenterPoint Energy. Therefore, the assets and liabilities associated with the equity investment in Enable are reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income, and the December 31, 2020 Condensed Consolidated Balance Sheet was required to be recast for assets held for sale. For further information about CenterPoint Energy’s equity investment in Enable, see Note 9.

The Registrants record assets and liabilities held for sale at the lower of their carrying value or their estimated fair value less cost to sell. Neither CenterPoint Energy nor CERC recognized any gains or losses on assets held for sale during the three and nine months ended September 30, 2021. See Note 10 for further information about the allocation of goodwill to the businesses to be disposed.

The assets and liabilities of the Arkansas and Oklahoma Natural Gas businesses and equity method investment in Enable classified as held for sale in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets, as applicable, included the following:


	September 30, 2021
	CenterPoint Energy		CERC
	(in millions)
Receivables, net	$	15	$	15
Accrued unbilled revenues	12		12
Natural gas inventory	48		48
Materials and supplies	8		8
Property, plant and equipment, net	1,254		1,254
Goodwill	398		144
Investment in unconsolidated affiliate (1)	926		—
Regulatory assets	403		403
Other	86		86
Total current assets held for sale	$	3,150	$	1,970

Short term borrowings (2)	$	34	$	34
Accounts payable	21		21
Taxes accrued	7		7

Customer deposits	11		11
Regulatory liabilities	317		317
Other	122		122
Total current liabilities held for sale	$	512	$	512

(1)Balance of $782 million as of December 31, 2020 is reported as Non-current assets held for sale on CenterPoint Energy’s Condensed Consolidated Balance Sheets.

(2)Represents third-party AMAs associated with utility distribution service in Arkansas and Oklahoma. These transactions are accounted for as an inventory financing. For further information, see Note 12.

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The pre-tax income for the Arkansas and Oklahoma Natural Gas businesses, excluding interest and corporate allocations, included in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Income (Loss) from Continuing Operations Before Income Taxes	$	(14)	$	(12)	$	48	$	48

Divestitures of Infrastructure Services and Energy Services (CenterPoint Energy and CERC). CenterPoint Energy completed the sale of the Infrastructure Services Disposal Group on April 9, 2020 for $850 million and collected a receivable of $4 million from PowerTeam Services in January 2021 for full and final settlement of the working capital adjustment in the Securities Purchase Agreement. See “—Other Sale Related Matters of Infrastructure Services and Energy Services” below for a discussion of an additional mechanism within the Securities Purchase Agreement. CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of the Energy Services Disposal Group on June 1, 2020 for $286 million in cash and collected a receivable for $79 million in October 2020 for full and final settlement of the working capital adjustment. The earnings and expenses directly associated with these dispositions for the three and nine months ended September 30, 2020 are reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income through the closing of the transactions, as applicable.

A summary of discontinued operations presented in CenterPoint Energy’s Condensed Statements of Consolidated Income is as follows:


	Three Months Ended September 30,
	2021		2020
	Equity Method Investment in Enable		Equity Method Investment in Enable		Infrastructure Services Disposal Group		Energy Services Disposal Group		Total
	(in millions)










Equity in earnings (losses) of unconsolidated affiliate, net	$	83	$	(67)	$	—	$	—	$	(67)
Income (loss) from discontinued operations before income taxes	83		(67)		—		—		(67)
Gain (loss) on classification to held for sale, net (1)	—		—		(9)		3		(6)
Income tax expense (benefit)	15		5		(1)		1		5
Net income (loss) from discontinued operations	$	68	$	(72)	$	(8)	$	2	$	(78)


	Nine Months Ended September 30,
	2021		2020
	Equity Method Investment in Enable		Equity Method Investment in Enable		Infrastructure Services Disposal Group		Energy Services Disposal Group		Total
	(in millions)
Revenues	$	—	$	—	$	250	$	1,167	$	1,417
Expenses:
Non-utility cost of revenues	—		—		50		1,108		1,158
Operation and maintenance	—		—		184		34		218

Taxes other than income taxes	—		—		1		3		4
Total	—		—		235		1,145		1,380
Operating income (loss)	—		—		15		22		37
Equity in earnings (losses) of unconsolidated affiliate, net	258		(1,499)		—		—		(1,499)
Income (loss) from discontinued operations before income taxes	258		(1,499)		15		22		(1,462)
Loss on classification to held for sale, net (1)	—		—		(102)		(96)		(198)
Income tax expense (benefit)	56		(361)		24		(3)		(340)
Net loss from discontinued operations	$	202	$	(1,138)	$	(111)	$	(71)	$	(1,320)

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(1)Loss on classification to held for sale, net is inclusive of goodwill impairment, gains and losses recognized upon sale, and costs to sell.

A summary of discontinued operations presented in CERC’s Condensed Statements of Consolidated Income is as follows:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	Energy Services Disposal Group
	(in millions)
Revenues	$	—	$	1,167
Expenses:
Non-utility cost of revenues	—		1,108
Operation and maintenance	—		34

Taxes other than income taxes	—		3
Total	—		1,145


Income from discontinued operations before income taxes	—		22
Gain (loss) on classification to held for sale, net (1)	3		(90)
Income tax expense (benefit)	1		(2)
Net income (loss) from discontinued operations	$	2	$	(66)

(1)Gain (loss) on classification to held for sale, net is inclusive of goodwill impairment, gains and losses recognized upon sale.

CenterPoint Energy and CERC have elected not to separately disclose discontinued operations on their respective Condensed Statements of Consolidated Cash Flows. The following table summarizes CenterPoint Energy’s and CERC’s cash flows from discontinued operations and certain supplemental cash flow disclosures, as applicable:


	Nine Months Ended September 30, 2021
	CenterPoint Energy
	Equity Method Investment in Enable
	(in millions)


Equity in earnings of unconsolidated affiliate - operating	$	(258)
Distributions from unconsolidated affiliate - operating	116


	Nine Months Ended September 30, 2020
	CenterPoint Energy						CERC
	Equity Method Investment in Enable		Infrastructure Services Disposal Group		Energy Services Disposal Group		Energy Services Disposal Group
			(in millions)


Write-down of natural gas inventory - operating	$	—	$	—	$	3	$	3
Equity in losses of unconsolidated affiliate - operating	1,499		—		—		—
Distributions from unconsolidated affiliate - operating	109		—		—		—
Capital expenditures - investing	—		16		1		1
Distributions from unconsolidated affiliate in excess of cumulative earnings - investing	46		—		—		—
Non-cash transactions:
Accounts payable related to capital expenditures	—		2		4		4

Other Sale Related Matters of Infrastructure Services and Energy Services (CenterPoint Energy and CERC). CES provided natural gas supply to CenterPoint Energy’s and CERC’s Natural Gas under contracts executed in a competitive bidding process, with the duration of some contracts extending into 2021. In addition, CERC is the natural gas transportation provider for a portion of CES’s customer base and will continue to be the transportation provider for these customers as long as these customers retain a relationship with the divested CES business.

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Transactions between CES and CenterPoint Energy’s and CERC’s Natural Gas businesses that were previously eliminated in consolidation have been reflected in continuing operations until June 1, 2020, which was the date of closing of the sale of the Energy Services Disposal Group. Revenues and expenses included in continuing operations were as follows:








	Nine Months Ended September 30, 2020
	CenterPoint Energy		CERC
	(in millions)
Transportation revenue	$	34	$	34
Natural gas expense	48		47

In the normal course of business prior to June 1, 2020, the Energy Services Disposal Group through CES traded natural gas under supply contracts and entered into natural gas related transactions under transportation, storage and other contracts. In connection with the Energy Services Disposal Group’s business activities prior to the closing of the sale of the Energy Services Disposal Group on June 1, 2020, CERC Corp. issued guarantees to certain of CES’s counterparties to guarantee the payment of CES’s obligations. For further information, see Note 14.

CenterPoint Energy’s and CERC’s Natural Gas businesses had AMAs associated with their utility distribution service in Arkansas, Louisiana and Oklahoma with the Energy Services Disposal Group that expired in March 2021. See Note 12 for further information.

The Infrastructure Services Disposal Group provided pipeline construction and repair services to CenterPoint Energy’s and CERC’s Natural Gas. In accordance with consolidation guidance in ASC 980—Regulated Operations, costs incurred by Natural Gas utilities for these pipeline construction and repair services are not eliminated in consolidation when capitalized and included in rate base by the Natural Gas utility. Amounts charged for these services that are not capitalized are included primarily in Operation and maintenance expenses.

Fees incurred by CenterPoint Energy’s and CERC’s Natural Gas reportable segment for pipeline construction and repair services are as follows:








	Nine Months Ended September 30, 2020
	CenterPoint Energy		CERC
	(in millions)
Pipeline construction and repair services capitalized	$	34	$	—
Pipeline construction and repair service charges in operations and maintenance expense	1		1

(1)Represents charges for the period from January 1, 2020 until the closing of the sale of the Infrastructure Services Disposal Group.

In the Securities Purchase Agreement, CenterPoint Energy agreed to a mechanism to reimburse PowerTeam Services subsequent to closing of the sale for certain amounts of specifically identified change orders that may be ultimately rejected by one of VISCO’s customers as part of on-going audits. CenterPoint Energy’s maximum contractual exposure under the Securities Purchase Agreement, in addition to the amount reflected in the working capital adjustment, for these change orders is $21 million. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows. CenterPoint Energy anticipates this matter will be resolved in 2021.

Divestiture of MES (CenterPoint Energy and CERC). CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of MES on August 31, 2021 to Last Mile Energy. Prior to the transaction, MES provided temporary delivery of LNG and CNG throughout the contiguous 48 states and MES was reflected in CenterPoint Energy’s Natural Gas reportable segment and CERC’s single reportable segment, as applicable.

The MES disposal does not represent a strategic shift to CenterPoint Energy and CERC, as both will retain significant operations in, and will continue to invest in, their natural gas businesses. Therefore, the assets and liabilities associated with MES are not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable, and the December 31, 2020 Condensed Consolidated Balance Sheets were not required to be recast for assets held for sale. CenterPoint Energy and CERC recognized a pre-tax gain on the sale of $8 million and $11 million, respectively, during the three and nine months ended September 30, 2021. See Note 10 for further information about the allocation of goodwill to the MES disposal.

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(4) Revenue Recognition and Allowance for Credit Losses

Revenues from Contracts with Customers

In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services. The revenues and related balances in the following tables exclude operating revenues and balances from the Energy Services Disposal Group and the Infrastructure Services Disposal Group, which are reflected as discontinued operations prior to the date of closing of each transaction. See Note 3 for further information. Certain prior year amounts have been reclassified to conform to the current year reportable segment presentation described in the Registrants’ combined 2020 Form 10-K.

ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period.

The following tables disaggregate revenues by reportable segment and major source:

CenterPoint Energy


	Three Months Ended September 30, 2021
	Electric		Natural Gas		Corporate and Other		Total
	(in millions)
Revenue from contracts	$	1,056	$	611	$	73	$	1,740

Other (1)	—		8		1		9

Total revenues	$	1,056	$	619	$	74	$	1,749

	Nine Months Ended September 30, 2021
	Electric		Natural Gas		Corporate and Other		Total
	(in millions)
Revenue from contracts	$	2,822	$	2,984	$	190	$	5,996
Other (1)	1		38		3		42

Total revenues	$	2,823	$	3,022	$	193	$	6,038


	Three Months Ended September 30, 2020
	Electric		Natural Gas		Corporate and Other		Total
	(in millions)
Revenue from contracts	$	985	$	553	$	72	$	1,610
Other (1)	—		11		1		12

Total revenues	$	985	$	564	$	73	$	1,622

	Nine Months Ended September 30, 2020
	Electric		Natural Gas		Corporate and Other		Total
	(in millions)
Revenue from contracts	$	2,602	$	2,483	$	232	$	5,317
Other (1)	(2)		46		3		47

Total revenues	$	2,600	$	2,529	$	235	$	5,364

(1)Primarily consists of income from ARPs, weather hedge gains (losses) and leases. Total lease income was $2 million and $2 million for the three months ended September 30, 2021 and 2020, respectively, and $6 million and $4 million for the nine months ended September 30, 2021 and 2020, respectively.

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Houston Electric


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenue from contracts	$	880	$	828	$	2,358	$	2,188
Other (1)	(6)		—		(14)		(6)
Total revenues	$	874	$	828	$	2,344	$	2,182

(1)Primarily consists of income from ARPs and leases. Lease income was not significant for the three and nine months ended September 30, 2021 and 2020.

CERC


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenue from contracts	$	484	$	417	$	2,214	$	1,873
Other (1)	3		9		24		47

Total revenues	$	487	$	426	$	2,238	$	1,920

(1)Primarily consists of income from ARPs, weather hedge gains (losses) and leases. Lease income was not significant for the three and nine months ended September 30, 2021 and 2020.

Revenues from Contracts with Customers

Electric (CenterPoint Energy and Houston Electric). Houston Electric distributes electricity to customers over time and customers consume the electricity when delivered. Indiana Electric generates, distributes and transmits electricity to customers over time, and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by state regulators, such as the PUCT and the IURC, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services provided by Houston Electric is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the regulator. Payments are received on a monthly basis. Indiana Electric customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing.

Natural Gas (CenterPoint Energy and CERC). CenterPoint Energy and CERC distribute and transport natural gas to customers over time, and customers consume the natural gas when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the state governing agency for that service area, is recognized as natural gas is delivered and represents amounts both billed and unbilled. Discretionary services requested by the customer are satisfied at a point in time and revenue is recognized upon completion of service and the tariff rates set by the applicable state regulator. Payments of natural gas distribution, transportation and discretionary services are aggregated and received on a monthly basis.

Contract Balances. When the timing of delivery of service is different from the timing of the payments made by customers and when the right to consideration is conditioned on something other than the passage of time, the Registrants recognize either a contract asset (performance precedes billing) or a contract liability (customer payment precedes performance). Those customers that prepay are represented by contract liabilities until the performance obligations are satisfied. The Registrants’ contract assets are included in Accrued unbilled revenues in their Condensed Consolidated Balance Sheets. As of September 30, 2021, CenterPoint Energy’s contract assets primarily relate to ESG contracts where revenue is recognized using the input method. The Registrants’ contract liabilities are included in Accounts payable and Other current liabilities in their Condensed Consolidated Balance Sheets. As of September 30, 2021, CenterPoint Energy’s contract liabilities primarily relate to ESG contracts where revenue is recognized using the input method.

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The opening and closing balances of accounts receivable related to ASC 606 revenues, other accrued unbilled revenue, contract assets and contract liabilities from contracts with customers, excluding balances related to assets held for sale, as of December 31, 2020 and September 30, 2021, respectively, are presented below.

CenterPoint Energy


	Accounts Receivable		Other Accrued Unbilled Revenues		Contract Assets		Contract Liabilities
	(in millions)
Opening balance as of December 31, 2020	$	604	$	505	$	27	$	18
Closing balance as of September 30, 2021	568		293		24		22
Increase (decrease)	$	(36)	$	(212)	$	(3)	$	4

The amount of revenue recognized during the nine months ended September 30, 2021 that was included in the opening contract liability was $16 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between CenterPoint Energy’s performance and the customer’s payment.

Houston Electric


	Accounts Receivable		Other Accrued Unbilled Revenues		Contract Liabilities
	(in millions)
Opening balance as of December 31, 2020	$	225	$	113	$	3
Closing balance as of September 30, 2021	339		132		4
Increase	$	114	$	19	$	1

The amount of revenue recognized during the nine months ended September 30, 2021 that was included in the opening contract liability was $3 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between Houston Electric’s performance and the customer’s payment.

CERC


	Accounts Receivable		Other Accrued Unbilled Revenues
	(in millions)
Opening balance as of December 31, 2020	$	214	$	261
Closing balance as of September 30, 2021	108		92
Decrease	$	(106)	$	(169)

CERC does not have any opening or closing contract asset or contract liability balances.

Remaining Performance Obligations (CenterPoint Energy). The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts and (2) when CenterPoint Energy expects to recognize this revenue. Such contracts include energy performance and sustainable infrastructure services contracts of ESG, which are included in Corporate and Other.


	Rolling 12 Months		Thereafter		Total
	(in millions)
Revenue expected to be recognized on contracts in place as of September 30, 2021:

Corporate and Other	$	245	$	564	$	809
	$	245	$	564	$	809

Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price. For contracts for which revenue from the satisfaction of the performance obligations is recognized in the amount invoiced, the practical expedient was elected and revenue expected to be recognized on these contracts has not been disclosed.

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Allowance for Credit Losses

CenterPoint Energy and CERC segregate financial assets that fall under the scope of Topic 326, primarily trade receivables due in one year or less, into portfolio segments based on shared risk characteristics, such as geographical location and regulatory environment, for evaluation of expected credit losses. Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the allowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, among others. Houston Electric recognizes losses on financial assets that fall under the scope of Topic 326. Losses on financial assets are primarily recoverable through regulatory mechanisms and do not materially impact Houston Electric's allowance for credit losses. For a discussion of regulatory deferrals related to COVID-19 and the February 2021 Winter Storm Event, see Note 6.

(5) Employee Benefit Plans

The Registrants’ net periodic cost (benefit), before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes, includes the following components relating to pension and postretirement benefits:

Pension Benefits (CenterPoint Energy)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Service cost (1)	$	9	$	10	$	29	$	32
Interest cost (2)	15		18		44		56
Expected return on plan assets (2)	(26)		(28)		(78)		(85)

Amortization of net loss (2)	9		10		28		31
Settlement cost (benefit) (2) (3)	27		1		26		2

Net periodic cost	$	34	$	11	$	49	$	36

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

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

(3)Amounts presented represent a one-time, non-cash settlement cost (benefit), prior to regulatory deferrals, which are required when the total lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of the net periodic cost for that year.

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Postretirement Benefits


	Three Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Service cost (1)	$	1	$	—	$	—	$	1	$	—	$	1
Interest cost (2)	2		1		1		2		1		—
Expected return on plan assets (2)	(1)		(1)		—		(1)		(1)		(1)
Amortization of prior service cost (credit) (2)	(1)		(1)		—		(1)		(1)		1





Net periodic cost (benefit)	$	1	$	(1)	$	1	$	1	$	(1)	$	1

	Nine Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Service cost (1)	$	2	$	—	$	1	$	2	$	—	$	1
Interest cost (2)	6		3		2		8		4		2
Expected return on plan assets (2)	(3)		(3)		—		(4)		(3)		(1)
Amortization of prior service cost (credit) (2)	(3)		(3)		—		(3)		(4)		1





Net periodic cost (benefit)	$	2	$	(3)	$	3	$	3	$	(3)	$	3

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

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

The table below reflects the expected contributions to be made to the pension and postretirement benefit plans during 2021:


	CenterPoint Energy		Houston Electric		CERC
	(in millions)
Expected minimum contribution to pension plans during 2021	$	61	$	—	$	—
Expected contribution to postretirement benefit plans in 2021	9		1		3

On March 11, 2021, the ARPA was signed into law which includes pension plan funding relief for the sponsoring employers. As a result, the required minimum contribution to pension plans for 2021 has been significantly reduced. However, CenterPoint Energy elects to maintain the same level of funding previously planned for 2021, and therefore, the expected minimum contribution amount does not reflect this funding relief available for 2021.

The table below reflects the contributions made to the pension and postretirement benefit plans during 2021:


	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Pension plans	$	51	$	—	$	—	$	59	$	—	$	—
Postretirement benefit plans	$	2	$	1	$	—	$	6	$	1	$	2

Board of Directors Actions. On July 22, 2021, CenterPoint Energy announced the decision of the independent directors of the Board to implement a new independent Board leadership and governance structure and appointed a new independent chair of the Board. To implement this new governance structure, the independent directors of the Board eliminated the Executive Chairman position that was formerly held by Milton Carroll.

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On the approval and recommendation of the Compensation Committee and approval of the Board (acting solely through its independent directors), CenterPoint Energy entered into a separation agreement between CenterPoint Energy and Mr. Carroll, dated July 21, 2021. Under the terms of the separation agreement, Mr. Carroll exited the positions of Executive Chairman on July 21, 2021 and Board member on September 30, 2021. Under the terms of the separation agreement, Mr. Carroll received a lump sum cash payment of $28 million and his separation was treated as an “enhanced retirement” for purposes of his outstanding 2019, 2020 and 2021 equity award agreements.

On the approval and recommendation of the Compensation Committee and approval of the Board (acting solely through its independent directors), CenterPoint Energy has entered into a retention incentive agreement with David J. Lesar, President and Chief Executive Officer of CenterPoint Energy, dated July 20, 2021. For information about the classification of this award, see Note 19.

(6) Regulatory Matters

Equity Return

The Registrants are at times allowed by a regulator to defer an equity return as part of the recoverable carrying costs of a regulatory asset. A deferred equity return is capitalized for rate-making purposes, but it is not included in the Registrant’s regulatory assets on its Condensed Consolidated Balance Sheets. The allowed equity return is recognized in the Condensed Statements of Consolidated Income as it is recovered in rates. The recoverable allowed equity return not yet recognized by the Registrants is as follows:


	September 30, 2021						December 31, 2020
	CenterPoint Energy (1)		Houston Electric (2)		CERC (3)		CenterPoint Energy (1)		Houston Electric (2)		CERC (3)
	(in millions)
Allowed equity return not recognized	$	206	$	108	$	15	$	229	$	137	$	13

(1)In addition to the amounts described in (2) and (3) below, represents CenterPoint Energy’s allowed equity return on post in-service carrying cost generally associated with investments in Indiana.

(2)Represents Houston Electric’s allowed equity return on its true-up balance of stranded costs, other changes and related interest resulting from the formerly integrated electric utilities prior to Texas deregulation to be recovered in rates through 2024 and certain storm restoration balances pending recovery in the next rate proceeding. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.

(3)CERC’s allowed equity return on post in-service carrying cost associated with certain distribution facilities replacements expenditures in Texas.

The table below reflects the amount of allowed equity return recognized by each Registrant in its Condensed Statements of Consolidated Income:


	Three Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Allowed equity return recognized	$	12	$	11	$	1	$	10	$	10	$	—

	Nine Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
Allowed equity return recognized	$	31	$	29	$	1	$	24	$	24	$	—

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February 2021 Winter Storm Event

In February 2021, certain of the Registrants’ jurisdictions experienced an extreme and unprecedented winter weather event that resulted in prolonged freezing temperatures, which impacted their businesses. In Texas, the February 2021 Winter Storm Event caused an electricity generation shortage that was severely disruptive to Houston Electric’s service territory and the wholesale generation market. While demand for electricity reached extraordinary levels due to the extreme cold, the supply of electricity significantly decreased in part because of the inability of certain power generation facilities to supply electric power to the grid. Houston Electric does not own or operate any electric generation facilities other than leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after the February 2021 Winter Storm Event. Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. ERCOT serves as the independent system operator and regional reliability coordinator for member electric power systems in most of Texas. To comply with ERCOT’s orders, Houston Electric implemented controlled outages across its service territory, resulting in a substantial number of businesses and residents being without power, many for extended periods of time, in compliance with ERCOT’s directives as an emergency procedure to avoid prolonged large-scale state-wide blackouts and long-term damage to the electric system in Texas. In anticipation of this weather event, Houston Electric implemented its emergency operations plan’s processes and procedures necessary to respond to such events, including establishing an incident command center and calling for mutual assistance from other utilities where needed, among other measures. Throughout the February 2021 Winter Storm Event, Houston Electric remained in contact with its regulators and stakeholders, including federal, state and local officials, as well as the PUCT and ERCOT.

The February 2021 Winter Storm Event also impacted wholesale prices of CenterPoint Energy’s and CERC’s natural gas purchases and their ability to serve customers in their Natural Gas service territories, including due to the reduction in available natural gas capacity and impacts to CenterPoint Energy’s and CERC’s natural gas supply portfolio activities, and the effects of weather on their systems and their ability to transport natural gas, among other things. The overall natural gas market, including the markets from which CenterPoint Energy and CERC sourced a significant portion of their natural gas for their operations, experienced significant impacts caused by the February 2021 Winter Storm Event, resulting in extraordinary increases in the price of natural gas purchased by CenterPoint Energy and CERC.

On February 13, 2021, the Railroad Commission authorized each Texas natural gas distribution utility to record in a regulatory asset the extraordinary expenses associated with the February 2021 Winter Storm Event, including, but not limited to, natural gas cost and other costs related to the procurement and transportation of natural gas supply, subject to recovery in future regulatory proceedings. The Texas governor signed legislation in June 2021 that authorizes the Railroad Commission to use securitization financing and the issuance of customer rate relief bonds for recovery of extraordinary natural gas costs incurred by natural gas utilities as a result of the February 2021 Winter Storm Event. In addition, CenterPoint Energy’s and CERC’s Natural Gas utilities in jurisdictions outside of Texas deferred under-recovered natural gas cost as regulatory assets under existing recovery mechanisms and are seeking recovery of the increased cost of natural gas. As of September 30, 2021, CenterPoint Energy and CERC have recorded current regulatory assets of $1,423 million and $1,316 million included in Prepaid expenses and other current assets, respectively, and non-current regulatory assets of $654 million and $654 million, respectively, associated with the February 2021 Winter Storm Event.

Amounts for the under recovery of natural gas costs are reflected in regulatory assets included in Prepaid expenses and other current assets and Regulatory assets on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Recovery of natural gas costs within the regulatory assets are probable and are subject to customary regulatory prudence reviews in all jurisdictions that may impact the amounts ultimately recovered. CenterPoint Energy and CERC, as applicable, have begun recovery of natural gas costs in Arkansas, Indiana, Louisiana, Mississippi and Minnesota. CenterPoint Energy and CERC have filed for securitization of natural gas costs in Oklahoma and Texas, and expect to receive commission approval and issuance of financing orders from both in 2022, and issuance of the securitization bonds from Texas in 2022 and Oklahoma in 2023. The Minnesota Attorney General’s Office and Department of Commerce have proposed significant disallowances for all natural gas utilities, resulting in a potential disallowance of up to approximately $290 million for CenterPoint Energy and CERC. The natural gas costs in Minnesota were incurred in accordance with the plan on file with the MPUC and CenterPoint Energy believes the costs were prudently incurred and are eligible for recovery through an existing mechanism. Additionally, due to the uncertainty of timing and method of recovery in some jurisdictions, CenterPoint Energy and CERC may not earn a return on amounts deferred in the regulatory assets associated with the February 2021 Winter Storm Event.

On February 21, 2021, in response to the 2021 February Winter Storm Event, the PUCT issued an order prohibiting REPs from sending a request to TDUs to disconnect such REPs’ customers for non-payment, effective February 21, 2021. As a result of this order, Houston Electric did not execute any requests for disconnection from any REPs until the PUCT issued orders for disconnects to resume. In June 2021, the PUCT issued an updated order relating to disconnections and REPs resumed the distribution of disconnection notices thereafter. As of September 30, 2021, as authorized by the PUCT, CenterPoint Energy and

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Houston Electric recorded a regulatory asset of $8 million for bad debt expenses resulting from REPs’ default on their obligation to pay delivery charges to Houston Electric net of collateral. Additionally, as of September 30, 2021, CenterPoint Energy and Houston Electric recorded a regulatory asset of $15 million to defer operations and maintenance costs associated with the February 2021 Winter Storm Event.

See Notes 12 and 14(d) for further information regarding debt financing transactions and litigation related to the February 2021 Winter Storm Event, respectively.

COVID-19 Regulatory Matters

Governors, public utility commissions and other authorities in the states in which the Registrants operate issued a number of different orders related to the COVID-19 pandemic, including orders addressing customer non-payment and disconnection. Although the disconnect moratoriums have expired in the Registrants’ service territories, CenterPoint Energy continues to support those customers who may need payment assistance, arrangements or extensions.

The COVID-19 ERP allows program expenses to be recovered in rates. CenterPoint Energy’s and Houston Electric’s COVID-19 ERP regulatory assets were $-0- as of September 30, 2021 and $6 million as of December 31, 2020.

Commissions in all of Indiana Electric’s and CenterPoint Energy’s and CERC’s Natural Gas service territories either (1) issued orders to record a regulatory asset for incremental bad debt expenses related to COVID-19, including costs associated with the suspension of disconnections and payment plans or (2) provided authority to recover bad debt expense through an existing tracking mechanism. CenterPoint Energy and CERC have recorded estimated incremental uncollectible receivables to the associated regulatory asset of $28 million and $26 million, respectively, as of September 30, 2021 and $22 million and $19 million, respectively, as of December 31, 2020.

In some of the states in which the Registrants operate, public utility commissions have authorized utilities to employ deferred accounting authority for certain COVID-19 related costs which ensure the safety and health of customers, employees, and contractors, that would not have been incurred in the normal course of business. CERC’s Natural Gas service territories in Minnesota and Arkansas will include any offsetting savings in the deferral. Other jurisdictions where the Registrants operate may require them to offset the deferral with savings as well. The Arkansas FRP, filed on April 5, 2021, included a request for (1) the regulatory asset as of September 30, 2020 in working capital for the 2021 historical year using a thirteen-month average of the asset balance; (2) the regulatory asset as of September 30, 2020 in working capital for the 2021 projected year using a thirteen-month average of the asset balance; and (3) the amortization of the balance over the 2021 projected year twelve-month period beginning October 1, 2021. The APSC ordered that the regulatory asset be reviewed in a future proceeding. The Mississippi RRA, filed on April 30, 2021, included the unamortized balance of the regulatory asset as of December 31, 2020 in rate base per Docket No. 2018-AD-141 Order Authorizing Utility Response and Accounting for COVID-19.

(7) Derivative Instruments

The Registrants are exposed to various market risks. These risks arise from transactions entered into in the normal course of business. The Registrants utilize derivative instruments such as swaps and options to mitigate the impact of changes in commodity prices, weather and interest rates on operating results and cash flows.

**(a)**Non-Trading Activities

Commodity Derivative Instruments (CenterPoint Energy). CenterPoint Energy, through the Indiana Utilities, enters into certain derivative instruments to mitigate the effects of commodity price movements. Outstanding derivative instruments designated as economic hedges at the Indiana Utilities hedge long-term variable rate natural gas purchases. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging natural gas purchases, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset.

Interest Rate Risk Derivative Instruments. From time to time, the Registrants may enter into interest rate derivatives that are designated as cash flow hedges or accounted for as economic hedges. The objective of these hedges is to offset risk associated with interest rates borne by the Registrants in connection with an anticipated future fixed rate debt offering or other exposure to variable rate debt. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset.

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The table below summarizes the Registrants’ outstanding interest rate hedging activity:


	September 30, 2021		December 31, 2020
Hedging Classification	Notional Principal

	(in millions)
Economic hedge (1)	$	84	$	84

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

Weather Normalization (CenterPoint Energy and CERC). CenterPoint Energy and CERC have weather normalization or other rate mechanisms that largely mitigate the impact of weather on Natural Gas in Arkansas, Indiana, Louisiana, Mississippi, Minnesota, Ohio and Oklahoma, as applicable. CenterPoint Energy’s and CERC’s Natural Gas in Texas and CenterPoint Energy’s electric operations in Texas and Indiana do not have such mechanisms, although fixed customer charges are historically higher in Texas for Natural Gas compared to its other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on CenterPoint Energy’s and CERC’s Natural Gas’ results in Texas and on CenterPoint Energy’s electric operations’ results in its Texas and Indiana service territories. The Registrants do not currently enter into weather hedges.

**(b)**Derivative Fair Values and Income Statement Impacts

The following tables present information about derivative instruments and hedging activities. The first table provides a balance sheet overview of Derivative Liabilities, while the last table provides a breakdown of the related income statement impacts.

Fair Value of Derivative Instruments and Hedged Items (CenterPoint Energy)


		September 30, 2021				December 31, 2020
	Balance Sheet Location	Derivative Assets Fair Value		Derivative Liabilities Fair Value		Derivative Liabilities Fair Value




Derivatives not designated as hedging instruments:		(in millions)
Natural gas derivatives (1)	Current Assets: Non-trading derivative assets	$	23	$	—	$	—
Natural gas derivatives (1)	Other Assets: Non-trading derivative assets	9		—		—
Natural gas derivatives (2)	Current Liabilities: Non-trading derivative liabilities	—		—		3
Natural gas derivatives (2)	Other Liabilities: Non-trading derivative liabilities	—		—		7
Interest rate derivatives	Other Liabilities: Non-trading derivative liabilities	—		13		20
Indexed debt securities derivative (3)	Current Liabilities	—		993		953

Total		$	32	$	1,006	$	983

(1)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the mark-to-market fair value of each natural gas contract is in an asset position with no offsetting amounts.

(2)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the mark-to-market fair value of each natural gas contract is in a liability position with no offsetting amounts.

(3)Derivative component of the ZENS obligation that represents the ZENS holder’s option to receive the appreciated value of the reference shares at maturity. See Note 11 for further information.

Income Statement Impact of Hedge Accounting Activity (CenterPoint Energy)


		Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statement Location	2021		2020		2021		2020
Derivatives not designated as hedging instruments:		(in millions)
Indexed debt securities derivative (1)	Gain (loss) on indexed debt securities	$	11	$	(84)	$	(40)	$	(25)

(1)The indexed debt securities derivative is recorded at fair value and changes in the fair value are recorded in CenterPoint Energy’s Statements of Consolidated Income.

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(c) Credit Risk Contingent Features (CenterPoint Energy)

Certain of CenterPoint Energy’s derivative instruments contain provisions that require CenterPoint Energy’s debt to maintain an investment grade credit rating on its long-term unsecured unsubordinated debt from S&P and Moody’s. If CenterPoint Energy’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment.


	September 30, 2021		December 31, 2020
	(in millions)
Aggregate fair value of derivatives with credit-risk-related contingent features in a liability position	$	13	$	20
Fair value of collateral already posted	7		7
Additional collateral required to be posted if credit risk contingent features triggered (1)	6		3

(1)The maximum collateral required if further escalating collateral is triggered would equal the net liability position.

(8) Fair Value Measurements

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

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

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value the Registrants’ Level 2 natural gas derivative assets or liabilities. CenterPoint Energy’s Level 2 indexed debt securities derivative is valued using an option model and a discounted cash flow model, which uses projected dividends on the ZENS-Related Securities and a discount rate as observable inputs.

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect the Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Registrants develop these inputs based on the best information available, including the Registrants’ own data.

The Registrants determine the appropriate level for each financial asset and liability on a quarterly basis.

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The following tables present information about the Registrants’ assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques utilized by the Registrants to determine such fair value.

CenterPoint Energy


	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Corporate equities	$	913	$	—	$	—	$	913	$	873	$	—	$	—	$	873
Investments, including money market funds (1)	42		—		—		42		43		—		—		43

Natural gas derivatives	—		32		—		32		—		—		—		—



Total assets	$	955	$	32	$	—	$	987	$	916	$	—	$	—	$	916
Liabilities
Indexed debt securities derivative	$	—	$	993	$	—	$	993	$	—	$	953	$	—	$	953
Interest rate derivatives	—		13		—		13		—		20		—		20
Natural gas derivatives	—		—		—		—		—		10		—		10



Total liabilities	$	—	$	1,006	$	—	$	1,006	$	—	$	983	$	—	$	983

Houston Electric


	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Investments, including money market funds (1)	$	27	$	—	$	—	$	27	$	26	$	—	$	—	$	26

Total assets	$	27	$	—	$	—	$	27	$	26	$	—	$	—	$	26

CERC


	September 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Corporate equities	$	3	$	—	$	—	$	3	$	2	$	—	$	—	$	2
Investments, including money market funds (1)	11		—		—		11		11		—		—		11
Total assets	$	14	$	—	$	—	$	14	$	13	$	—	$	—	$	13

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

Items Measured at Fair Value on a Nonrecurring Basis

As a result of classifying the Arkansas and Oklahoma Natural Gas businesses as held for sale, including the allocation of goodwill, CenterPoint Energy and CERC used a market approach consisting of the contractual sales price adjusted for estimated working capital and other contractual purchase price adjustments to determine fair value of the businesses classified as held for sale, which are Level 2 inputs. Neither CenterPoint Energy nor CERC recognized any gains or losses upon classification of held for sale during the three and nine months ended September 30, 2021. See Note 3 for further information.

Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities measured at fair value and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by a combination of historical trading prices and comparable issue data. These liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.

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	September 30, 2021						December 31, 2020
	CenterPoint Energy (1)		Houston Electric (1)		CERC		CenterPoint Energy (1)		Houston Electric (1)		CERC
Long-term debt, including current maturities	(in millions)


Carrying amount	$	16,474	$	5,567	$	4,465	$	13,401	$	5,019	$	2,428
Fair value	17,890		6,315		4,811		15,226		5,957		2,855

(1)Includes Securitization Bonds debt.

(9) Unconsolidated Affiliates (CenterPoint Energy and CERC)

CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accounts for its investment in Enable’s common units using the equity method of accounting. Enable is considered to be a VIE because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CenterPoint Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable. As of September 30, 2021, CenterPoint Energy’s maximum exposure to loss related to Enable is limited to its investment in unconsolidated affiliates, its investment in Enable Series A Preferred Units and outstanding current accounts receivable from Enable.

On February 16, 2021, Enable entered into the Enable Merger Agreement. At the closing of the transactions contemplated by the Enable Merger Agreement, if and when it occurs, Energy Transfer will acquire all of Enable’s outstanding equity interests, resulting in the exchange of Enable common units owned by CenterPoint Energy at the transaction exchange ratio of 0.8595x Energy Transfer common units for each Enable common unit. CenterPoint Energy will also receive $5 million in cash in exchange for its interest in Enable GP and Energy Transfer Series G Preferred Units with an aggregate liquidation preference of approximately $385 million in exchange for all of its Enable Series A Preferred Units. Pursuant to previously disclosed support agreements, CenterPoint Energy and OGE, who collectively own approximately 79.2% of Enable’s common units, delivered written consents approving the Enable Merger Agreement and, on a non-binding, advisory basis, the compensation that will or may become payable to Enable’s named executive officers in connection with the transactions contemplated by the Enable Merger Agreement. The transactions contemplated under the Enable Merger Agreement are expected to be completed in 2021, subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance. Upon the consummation of the transaction, the agreements relating to Enable between CenterPoint Energy, OGE and Enable and certain of their affiliates will terminate, and CenterPoint Energy will pay $30 million to OGE (or other mutually agreed upon consideration).

On September 21, 2021, CNP Midstream entered into a Forward Sale Agreement with an investment banking financial institution to deliver, subject to and immediately following the closing of the Enable Merger, 50 million common units of Energy Transfer expected to be received by CNP Midstream as consideration in the pending Enable Merger in exchange for the proceeds of the forward sale transaction. The Forward Sale Agreement provides for an initial forward sale price equal to a percentage of the closing price on September 21, 2021 of Energy Transfer common units, which is subject to certain adjustments pursuant to the terms of the Forward Sale Agreement. The Forward Sale Agreement is subject to early termination under certain circumstances, including in connection with termination of the Enable Merger. CenterPoint Energy has guaranteed CNP Midstream’s obligations under the Forward Sale Agreement. Additionally, CenterPoint Energy plans for a complete exit from its Midstream Investment reportable segment in 2022.

CenterPoint Energy’s planned exit from its Midstream Investment reportable segment represents a strategic shift that will have a major effect on CenterPoint Energy’s operations or financial results, and as such, its equity investment in Enable is classified and presented as discontinued operations. Equity method investments that qualify for discontinued operations are also presented as assets held for sale. Therefore, the assets and liabilities associated with the equity investment in Enable are reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income and the December 31, 2020 Condensed Consolidated Balance Sheet was required to be recast for assets held for sale. The Enable Series A Preferred Units are not reflected in the Midstream Investments reportable segment as equity investments without a readily determinable fair value are not included in the scope of discontinued operations.

The carrying value of CenterPoint Energy’s equity method investment in Enable is reflected as held for sale on CenterPoint Energy’s Condensed Consolidated Balance Sheets and equity in earnings (losses) from Enable are reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Note 3.

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Limited Partner Interest and Units Held in Enable (CenterPoint Energy):


	September 30, 2021
	Limited Partner Interest (1)		Common Units	Enable Series A Preferred Units (2)
CenterPoint Energy (3)	53.7	%	233,856,623	14,520,000
OGE	25.5	%	110,982,805	—
Public unitholders	20.8	%	91,038,118	—

Total units outstanding	100.0	%	435,877,546	14,520,000

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

(2)The carrying amount of the Enable Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both September 30, 2021 and December 31, 2020. There were no settled transactions in the nine months ended September 30, 2021 and 2020 that would indicate a stand-alone, observable, and readily determinable fair value for securities identical or similar to Enable Series A Preferred Units. No impairment charges or adjustment due to observable price changes were required or recorded during the current or prior reporting periods.

(3)Held indirectly through CNP Midstream.

Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units CenterPoint Energy owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) by OGE of more than 5% of the aggregate of the common units it owns in Enable are subject to mutual rights of first offer and first refusal set forth in Enable’s Agreement of Limited Partnership.

Interests Held in Enable GP (CenterPoint Energy):

CenterPoint Energy and OGE held the following interests in Enable GP as of both September 30, 2021 and December 31, 2020:


	September 30, 2021
	Management Rights (1)		Incentive Distribution Rights (2)
CenterPoint Energy (3)	50	%	40	%
OGE	50	%	60	%

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

(2)If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, Enable GP will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances Enable GP will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made.

(3)Held indirectly through CNP Midstream.

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Distributions Received from Enable (CenterPoint Energy):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	Per Unit		Cash Distribution		Per Unit		Cash Distribution		Per Unit		Cash Distribution		Per Unit		Cash Distribution
	(in millions, except per unit amounts)
Enable common units	$	0.16525	$	39	$	0.16525	$	39	$	0.49575	$	116	$	0.66100	$	155
Enable Series A Preferred Units	0.54390		8		0.62500		9		1.75620		26		1.87500		27
Total CenterPoint Energy			$	47			$	48			$	142			$	182

Transactions with Enable (CenterPoint Energy and CERC):

The transactions with Enable in the following tables exclude transactions with the Energy Services Disposal Group.


	CenterPoint Energy and CERC
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Natural gas expenses, includes transportation and storage costs	$	14	$	17	$	62	$	61


	CenterPoint Energy and CERC
	September 30, 2021		December 31, 2020
	(in millions)
Accounts payable for natural gas purchases from Enable	$	5	$	9
Accounts receivable for amounts billed for services provided to Enable	1		1

Summarized Financial Information for Enable (CenterPoint Energy)

Summarized unaudited consolidated income information for Enable is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating revenues	$	956	$	596	$	2,713	$	1,759
Cost of sales, excluding depreciation and amortization	565		250		1,510		653
Depreciation and amortization	104		105		313		314
Goodwill and long-lived assets impairments	—		—		—		28
Operating income	152		100		482		326
Net income (loss) attributable to Enable common units	107		(173)		341		(35)


Reconciliation of Equity in Earnings (Losses), net:
CenterPoint Energy’s interest	$	58	$	(93)	$	183	$	(19)
Basis difference amortization (1)	25		26		75		62
Loss on dilution, net of proportional basis difference recognition	—		—		—		(1)
Impairment of CenterPoint Energy’s equity method investment in Enable	—		—		—		(1,541)
CenterPoint Energy’s equity in earnings (losses), net (2)	$	83	$	(67)	$	258	$	(1,499)

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

(2)Reported as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Note 3.

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Summarized unaudited consolidated balance sheet information for Enable is as follows:


	September 30, 2021		December 31, 2020
	(in millions)
Current assets	$	536	$	381
Non-current assets	11,244		11,348
Current liabilities	1,299		582
Non-current liabilities	3,248		4,052
Non-controlling interest	25		26
Preferred equity	362		362
Accumulated other comprehensive loss	(2)		(6)
Enable partners’ equity	6,848		6,713


Reconciliation of Investment in Enable:
CenterPoint Energy’s ownership interest in Enable partners’ equity	$	3,673	$	3,601
CenterPoint Energy’s basis difference (1)	(2,747)		(2,819)

CenterPoint Energy’s equity method investment in Enable (2)	$	926	$	782

(1)The basis difference is being amortized through the year 2048 or will cease upon sale of CenterPoint Energy’s investment in Enable.

(2)Reflected in assets held for sale in CenterPoint Energy’s Condensed Consolidated Balance Sheets. For further information, see Note 3.

(10) Goodwill and Other Intangibles (CenterPoint Energy and CERC)

Goodwill (CenterPoint Energy and CERC)

CenterPoint Energy’s goodwill by reportable segment is as follows:


	December 31, 2020		Held For Sale			Disposals			September 30, 2021
	(in millions)
Electric (1)	$	936	$	—		$	—		$	936
Natural Gas	3,323		398		(2)	5		(3)	2,920
Corporate and Other	438		—			—			438

Total	$	4,697	$	398		$	5		$	4,294

CERC’s goodwill is as follows:


	December 31, 2020		Held For Sale			Disposals			September 30, 2021
	(in millions)
Goodwill	$	757	$	144	(2)	$	2	(3)	$	611

(1)Amount presented is net of the accumulated goodwill impairment charge of $185 million recorded in 2020.

(2)Represents goodwill attributable to the Natural Gas businesses. For further information, see Note 3.

(3)Represents goodwill attributable to the MES disposal. For further information, see Note 3.

When a disposal group reflects a component of a reporting unit and meets the definition of a business, the goodwill within that reporting unit is allocated to the disposal group based on the relative fair value of the components representing a business that will be retained and disposed. As a result, goodwill attributable to the Natural Gas businesses to be disposed is classified as held for sale as of September 30, 2021, and goodwill attributable to MES was reflected in the gain on sale during the three and nine months ended September 30, 2021. Neither CenterPoint Energy nor CERC recognized any goodwill impairments within any reportable segment during the three or nine months ended September 30, 2021.

CenterPoint Energy and CERC perform goodwill impairment tests at least annually and evaluate goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by comparing the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. The reporting units approximate the reportable segments, with the exception of ESG, which is a separate reporting unit but included in the Corporate and Other reconciling category at CenterPoint Energy. The estimated fair value of the reporting unit

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is primarily determined based on an income approach or a weighted combination of income and market approaches. If the carrying amount is in excess of the estimated fair value of the reporting unit, then the excess amount is recorded as an impairment charge, not to exceed the carrying amount of goodwill.

CenterPoint Energy and CERC performed their annual goodwill impairment tests in the third quarter of 2021 and determined that no goodwill impairment charge was required for any reporting unit as a result of those tests.

Other Intangibles (CenterPoint Energy)

The tables below present information on CenterPoint Energy’s intangible assets, excluding goodwill, recorded in Other non-current assets on CenterPoint Energy’s Condensed Consolidated Balance Sheets and the related amortization expense included in Depreciation and amortization on CenterPoint Energy’s Condensed Statements of Consolidated Income, unless otherwise indicated.


	September 30, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
	(in millions)
Customer relationships	$	33	$	(11)	$	22	$	33	$	(8)	$	25

Trade names	16		(4)		12		16		(3)		13
Construction backlog (1)	5		(5)		—		5		(5)		—
Operation and maintenance agreements (1)	12		(2)		10		12		(1)		11
Other	2		(1)		1		2		(1)		1
Total	$	68	$	(23)	$	45	$	68	$	(18)	$	50

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Amortization expense of intangible assets recorded in Depreciation and amortization	$	1	$	2	$	4	$	5
Amortization expense of intangible assets recorded in Non-utility cost of revenues, including natural gas	1		—		1		1

CenterPoint Energy estimates that amortization expense of intangible assets with finite lives for the next five years will be as follows:


	Amortization Expense

	(in millions)
Remaining three months of 2021	$	2
2022	6
2023	6
2024	5
2025	5
2026	5

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(11) Indexed Debt Securities (ZENS) and Securities Related to ZENS (CenterPoint Energy)

(a) Investment in Securities Related to ZENS

A subsidiary of CenterPoint Energy holds shares of certain securities detailed in the table below, which are securities with a readily determinable fair value and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the ZENS-Related Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.


	Shares Held
	September 30, 2021	December 31, 2020
AT&T Common	10,212,945	10,212,945
Charter Common	872,503	872,503

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1.0 billion of which $828 million remained outstanding as of September 30, 2021. Each ZENS is exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.

CenterPoint Energy’s reference shares for each ZENS consisted of the following:


	September 30, 2021	December 31, 2020
	(in shares)
AT&T Common	0.7185	0.7185
Charter Common	0.061382	0.061382

CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of the ZENS is subject to increases or decreases to the extent that the annual yield from interest and cash dividends on the reference shares attributable to the ZENS is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of September 30, 2021, the ZENS, having an original principal amount of $828 million and a contingent principal amount of $42 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS.

On May 17, 2021, AT&T announced that it had entered into a definitive agreement with Discovery, Inc. to combine their media assets into a new publicly traded company to be called Warner Bros. Discovery. Pursuant to the definitive agreement, AT&T shareholders are expected to receive stock representing 71% of the new company. Upon the closing of the transaction, reference shares attributable to ZENS would consist of AT&T Common, Charter Common and common stock of Warner Bros. Discovery. AT&T announced that the transaction is expected to close in the middle of 2022.

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

Inventory Financing. Upon expiration of the AMA’s with the Energy Services Disposal Group discussed in Note 3, CenterPoint Energy’s and CERC’s Natural Gas businesses entered into new third-party AMAs beginning in April 2021 associated with their utility distribution service in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. The AMAs have varying terms, the longest of which expires in 2027. Pursuant to the provisions of the agreements, CenterPoint Energy’s and CERC’s Natural Gas either sells natural gas to the asset manager and agrees to repurchase an equivalent amount of natural gas throughout the year at the same cost, or simply purchases its full natural gas requirements at each delivery point from the asset manager. These transactions are accounted for as an inventory financing. CenterPoint Energy and CERC had $7 million and $24 million outstanding obligations related to the AMAs as of September 30, 2021 and December 31, 2020, respectively, recorded in Short-term borrowings on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Outstanding obligations related to third-party AMAs associated with utility distribution service in Arkansas and Oklahoma of $34 million as of September 30, 2021 are reflected in current liabilities held for sale on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. See Note 3 for further information.

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Debt Transactions. During the nine months ended September 30, 2021, the following debt instruments were issued or incurred:


Registrant	Issuance Date	Debt Instrument	Aggregate Principal Amount		Interest Rate	Maturity Date
	(in millions)
CERC	March 2021	Senior Notes	$	700	0.70%	2023
CERC	March 2021	Floating Rate Senior Notes	1,000		Three-month LIBOR plus 0.50%	2023
		Total CERC(1)	1,700
Houston Electric	March 2021	General Mortgage Bonds	400		2.35%	2031
Houston Electric	March 2021	General Mortgage Bonds	700		3.35%	2051
		Total Houston Electric (2)	1,100
CenterPoint Energy	May 2021	Senior Notes	500		1.45%	2026
CenterPoint Energy	May 2021	Senior Notes	500		2.65%	2031
CenterPoint Energy	May 2021	Floating Rate Senior Notes	700		SOFR plus 0.65%	2024
		Total CenterPoint Energy (3)	$	4,500

(1)In February 2021, CERC Corp. received financing commitments totaling $1.7 billion on a 364-day term loan facility to bridge any working capital needs related to the February 2021 Winter Storm Event. Total proceeds of the senior notes and floating rate senior note offerings, net of issuance expenses and fees, of approximately $1.69 billion were used for general corporate purposes, including to fund working capital. Upon the consummation of its senior notes offerings, in March 2021, CERC Corp. terminated all of the commitments for the 364-day term loan facility.

(2)Total proceeds, net of issuance expenses and fees, of approximately $1.08 billion were used for general limited liability company purposes, including capital expenditures and the repayment of outstanding debt discussed below and Houston Electric’s borrowings under the CenterPoint Energy money pool.

(3)Total proceeds, net of issuance expenses and fees, of approximately $1.69 billion, excluding amounts issued by Houston Electric and CERC, were used for general corporate purposes, including the repayment of outstanding debt discussed below and a portion of CenterPoint Energy’s outstanding commercial paper.

Debt Repayments and Redemptions. During the nine months ended September 30, 2021, the following debt instruments were repaid at maturity or redeemed:


Registrant	Repayment/Redemption Date	Debt Instrument	Aggregate Principal		Interest Rate	Maturity Date
			(in millions)
Houston Electric	March 2021	First Mortgage Bonds	$	102	9.15%	2021
Houston Electric (1)	May 2021	General Mortgage Bonds	300		1.85%	2021
		Total Houston Electric	402
CenterPoint Energy (2)	January 2021	Senior Notes	250		3.85%	2021
CenterPoint Energy (3)	May 2021	Term Loan	700		0.76%	2021
CenterPoint Energy (4)	June 2021	Senior Notes	500		3.60%	2021
		Total CenterPoint Energy	$	1,852

(1)In April 2021, Houston Electric provided notice of redemption and on May 1, 2021, Houston Electric redeemed all of the outstanding bonds of the series at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest.

(2)In December 2020, CenterPoint Energy provided notice of redemption of a portion of its outstanding $500 million aggregate principal amount of the series and on January 15, 2021, CenterPoint Energy redeemed $250 million aggregate principal amount of the series at a redemption price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest and an applicable make-whole premium of $26 million.

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(3)In April 2021, CenterPoint Energy amended its existing term loan agreement by extending its maturity from May 15, 2021 to June 14, 2021. The outstanding LIBOR rate loan balance was prepaid in full at a price equal to 100% of the principal amount, plus accrued and unpaid interest, which was calculated based on the interest rate at maturity.

(4)In May 2021, CenterPoint Energy provided notice of redemption and on June 1, 2021, CenterPoint Energy redeemed all of the outstanding senior notes of the series at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest and an applicable make-whole premium of $7 million.

Credit Facilities. In February 2021, each of CenterPoint Energy, Houston Electric, CERC Corp. and VUHI replaced their existing revolving credit facilities with new amended and restated credit facilities. The size of the CenterPoint Energy facility decreased from $3.3 billion to $2.4 billion, while the sizes of the Houston Electric, CERC Corp. and VUHI facilities remained unchanged.

The Registrants had the following revolving credit facilities as of September 30, 2021:


Execution Date	Registrant	Size of Facility		Draw Rate of LIBOR plus (1)	Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio		Debt for Borrowed Money to Capital Ratio as of September 30, 2021 (2)	Termination Date
		(in millions)
February 4, 2021	CenterPoint Energy	$	2,400	1.625%	65.0%	(3)	58.2%	February 4, 2024
February 4, 2021	CenterPoint Energy (4)	400		1.250%	65.0%		49.8%	February 4, 2024

February 4, 2021	Houston Electric	300		1.375%	67.5%	(3)	55.2%	February 4, 2024
February 4, 2021	CERC	900		1.250%	65.0%		61.7%	February 4, 2024
	Total	$	4,000

(1)Based on current credit ratings.

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

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

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

The Registrants, including the subsidiaries of CenterPoint Energy discussed above, were in compliance with all financial debt covenants as of September 30, 2021.

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The table below reflects the utilization of the Registrants’ respective revolving credit facilities:


	September 30, 2021								December 31, 2020
Registrant	Loans		Letters of Credit		Commercial Paper (1)		Weighted Average Interest Rate		Loans		Letters of Credit		Commercial Paper (1)		Weighted Average Interest Rate
	(in millions, except weighted average interest rate)
CenterPoint Energy	$	—	$	11	$	1,143	0.18	%	$	—	$	11	$	1,078	0.23	%
CenterPoint Energy (2)	—		—		285		0.17	%	—		—		92		0.22	%

Houston Electric	—		—		—		—	%	—		—		—		—	%
CERC	—		—		686		0.17	%	—		—		347		0.23	%
Total	$	—	$	11	$	2,114			$	—	$	11	$	1,517

(1)Outstanding commercial paper generally has maturities of 60 days or less and each Registrants’ commercial paper program is backstopped by such Registrants’ long-term credit facilities. Houston Electric does not have a commercial paper program.

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

Liens. As of September 30, 2021, Houston Electric’s assets were subject to liens securing approximately $5.0 billion of general mortgage bonds, including approximately $68 million held in trust to secure pollution control bonds that mature in 2028 for which CenterPoint Energy is obligated. The general mortgage bonds that are held in trust to secure pollution control bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations. Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. As of March 15, 2021, no Houston Electric first mortgage bonds remained outstanding. Houston Electric could issue approximately $4.2 billion of additional general mortgage bonds on the basis of retired bonds and 70% of property additions as of September 30, 2021.

Other. As of September 30, 2021, certain financial institutions agreed to issue, from time to time, up to $20 million of letters of credit on behalf of Vectren and certain of its subsidiaries in exchange for customary fees. These agreements to issue letters of credit expire on December 31, 2021. As of September 30, 2021, such financial institutions had issued $1 million of letters of credit on behalf of Vectren and certain of its subsidiaries.

(13) Income Taxes

The Registrants reported the following effective tax rates:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
CenterPoint Energy - Continuing operations (1)	18	%	(8)	%	9	%	9	%
CenterPoint Energy - Discontinued operations (2) (3)	18	%	(7)	%	22	%	20	%
Houston Electric (4)	18	%	14	%	16	%	15	%
CERC - Continuing operations (5) (6)	—	%	60	%	11	%	13	%
CERC - Discontinued operations (7) (8)	—	%	33	%	—	%	3	%

(1)CenterPoint Energy’s higher effective tax rate on income from continuing operations for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily driven by an increase in non-deductible executive compensation paid under Milton Carroll’s separation agreement further discussed in Note 5, a decrease in EDIT amortization of the net regulatory EDIT liability, the absence of NOL carryback tax benefit and the recognition of the tax gain on the sale of MES.

(2)CenterPoint Energy’s higher effective tax rate on income from discontinued operations for the three months ended September 30, 2021 compared to a loss from discontinued operations for the three months ended September 30, 2020 was primarily driven by the impact of higher book earnings for the three months ended September 30, 2021.

(3)CenterPoint Energy’s higher effective tax rate on income from discontinued operations for the nine months ended September 30, 2021 compared to the loss from discontinued operations for the nine months ended September 30, 2020 was primarily due to the absence of tax impacts from the sale of the Infrastructure Services Disposal Group on April 9, 2020 and the sale of the Energy Services Disposal Group on June 1, 2020.

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(4)Houston Electric’s higher effective tax rate for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was primarily driven by a decrease in the amount of amortization of the net regulatory EDIT liability.

(5)CERC’s lower effective tax rate on the loss from continuing operations for the three months ended September 30, 2021 compared to the same period ended September 30, 2020 was primarily due to lower book earnings in the three months ended September 30, 2021.

(6)CERC’s lower effective tax rate on income from continuing operations for the nine months ended September 30, 2021 compared to the same period ended September 30, 2020 was primarily driven by a $26 million deferred state tax benefit, detailed further below, that was triggered by state tax law legislation in Louisiana combined with the accounting held for sale classification for the Arkansas and Oklahoma Natural Gas sale assets and liabilities in the period ended June 30, 2021. For tax purposes, when the held for sale criteria is met, the CERC state apportionment rates must be updated to account for the sale and applied to the estimated post-sale net deferred tax liability which resulted in an $11 million net state tax benefit being recorded in the prior quarter. A state law change in the NOL carryforward period in Louisiana from 20 years to an indefinite period allowed for the release of the valuation allowance on certain Louisiana NOLs resulting in a benefit of $15 million.

(7)CERC’s higher than statutory tax rate on income from discontinued operations for the three months ended September 30, 2020 was primarily due to the tax impacts from the sale of the Energy Services Disposal Group, the effect of which was compounded by lower book earnings.

(8)CERC’s lower than statutory tax rate on the loss from discontinued operations for the nine months ended September 30, 2020 was primarily due to the tax impacts from the sale of the Energy Services Disposal Group.

On March 11, 2021, the ARPA was enacted in response to continued economic and health impacts of the COVID-19 pandemic. The ARPA expands the definition of “covered employee” under section 162(m) beginning in 2027, and extends the employee retention tax credit through December 31, 2021, among other provisions. CenterPoint Energy does not currently anticipate any material impacts from this legislation. On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act provides relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, deferring the payment of the employer share of payroll taxes for the remaining months of 2020 until 2021 and 2022, increasing the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerating refunds for minimum tax credit carryforwards, among other provisions. Based on the CARES Act NOL carryback provision, during the three and nine months ended September 30, 2020, CenterPoint Energy recorded a $18 million and $37 million benefit, respectively, resulting from carryback claims to be filed to refund taxes paid.

CenterPoint Energy reported a net uncertain tax liability, inclusive of interest and penalties, of $4 million as of September 30, 2021. Interest and penalties of $1 million were recorded on the uncertain tax liability for the nine months ended September 30, 2021. In the three months ended September 30, 2021, CenterPoint Energy released a $6 million net uncertain tax liability, including interest and penalties, upon the IRS’ acceptance of an accounting method change filed in 2020. The Registrants believe that it is reasonably possible that a decrease of up to $3 million in unrecognized tax benefits may occur in the next 12 months as a result of a lapse of statutes on older exposures, a tax settlement, and/or a resolution of open audits. For CenterPoint Energy, tax years through 2018 have been audited and settled with the IRS. For the 2019 through 2021 tax years CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. On September 30, 2021, Vectren was notified by the IRS that its pre-Merger 2014 through 2019 tax returns were selected for audit.

(14) Commitments and Contingencies

**(a)**Purchase Obligations (CenterPoint Energy and CERC)

Commitments include minimum purchase obligations related to CenterPoint Energy’s and CERC’s Natural Gas reportable segment and CenterPoint Energy’s Electric reportable segment. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the registrant and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Contracts with minimum payment provisions have various quantity requirements and durations and are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020. These contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas and coal supply commitments also include transportation contracts that do not meet the definition of a derivative.

On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Pursuant to the BTA, Capital Dynamics, with its partner Tenaska, will build a 300 MW solar array in Posey County, Indiana through a special purpose entity, Posey Solar. Upon completion of construction, currently projected to be at the end of 2023, and subject to IURC

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approval, which was received on October 27, 2021, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price.

As of September 30, 2021, undiscounted minimum purchase obligations are approximately:


	CenterPoint Energy				CERC
	Natural Gas and Coal Supply		Other (1)		Natural Gas Supply
	(in millions)
Remaining three months of 2021	$	258	$	5	$	195
2022	690		12		477
2023	586		399		397
2024	461		221		330
2025	401		30		295
2026	350		30		272
2027 and beyond	1,696		165		1,391

(1)CenterPoint Energy’s undiscounted minimum payment obligations related to PPAs with commitments ranging from 15 to 25 years and its purchase commitment under its BTA in Posey County, Indiana are included above. The remaining undiscounted payment obligations relate primarily to technology hardware and software agreements.

Excluded from the table above are estimates for cash outlays from other PPAs through Indiana Electric that do not have minimum thresholds but do require payment when energy is generated by the provider. Costs arising from certain of these commitments are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.

(b) Guarantees and Product Warranties (CenterPoint Energy)

In the normal course of business, ESG enters into contracts requiring it to timely install infrastructure, operate facilities, pay vendors and subcontractors and support warranty obligations and, at times, issue payment and performance bonds and other forms of assurance in connection with these contracts.

Specific to ESG’s role as a general contractor in the performance contracting industry, as of September 30, 2021, there were 50 open surety bonds supporting future performance with an aggregate face amount of approximately $558 million. ESG’s exposure is less than the face amount of the surety bonds and is limited to the level of uncompleted work under the contracts. As of September 30, 2021, approximately 35% of the work was yet to be completed on projects with open surety bonds. Further, various subcontractors issue surety bonds to ESG. In addition to these performance obligations, ESG also warrants the functionality of certain installed infrastructure generally for one year and the associated energy savings over a specified number of years. As of September 30, 2021, there were 35 warranties totaling $549 million and an additional $1.2 billion in energy savings commitments not guaranteed by Vectren. Since ESG’s inception in 1994, CenterPoint Energy believes ESG has had a history of generally meeting its performance obligations and energy savings guarantees and its installed products have operated effectively. CenterPoint Energy assessed the fair value of its obligation for such guarantees as of September 30, 2021 and no amounts were recorded on CenterPoint Energy’s Condensed Consolidated Balance Sheets.

CenterPoint Energy issues parent company level guarantees to certain vendors, customers and other commercial counterparties of ESG. These guarantees do not represent incremental consolidated obligations, but rather, represent guarantees of subsidiary obligations to allow those subsidiaries to conduct business without posting other forms of assurance. As of September 30, 2021, CenterPoint Energy, primarily through Vectren, has issued parent company level guarantees supporting ESG’s obligations. For those obligations where potential exposure can be estimated, management estimates the maximum exposure under these guarantees to be approximately $513 million as of September 30, 2021. This exposure primarily relates to energy savings guarantees on federal energy savings performance contracts. Other parent company level guarantees, certain of which do not contain a cap on potential liability, have been issued in support of federal operations and maintenance projects for which a maximum exposure cannot be estimated based on the nature of the projects. While there can be no assurance that performance under any of these parent company guarantees will not be required in the future, CenterPoint Energy considers the likelihood of a material amount being incurred as remote.

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

On February 24, 2020, CenterPoint Energy, through its subsidiary CERC Corp., entered into the Equity Purchase Agreement to sell the Energy Services Disposal Group. The transaction closed on June 1, 2020. In the normal course of business prior to June 1, 2020, the Energy Services Disposal Group through CES, traded natural gas under supply contracts and entered into natural gas related transactions under transportation, storage and other contracts. In connection with the Energy Services Disposal Group’s business activities prior to the closing of the sale of the Energy Services Disposal Group on June 1, 2020, CERC Corp. issued guarantees to certain of CES’s counterparties to guarantee the payment of CES’s obligations. When CES remained wholly owned by CERC Corp., these guarantees did not represent incremental consolidated obligations, but rather, these guarantees represented guarantees of CES’s obligations to allow it to conduct business without posting other forms of assurance.

A CERC Corp. guarantee primarily had a one- or two-year term, although CERC Corp. would generally not be released from obligations incurred by CES prior to the termination of such guarantee unless the beneficiary of the guarantee affirmatively released CERC Corp. from its obligations under the guarantee. Throughout CERC Corp.’s ownership of CES and subsequent to the sale of the Energy Services Disposal Group through September 30, 2021, CERC Corp. did not pay any amounts under guarantees of CES’s obligations.

Under the terms of the Equity Purchase Agreement, Symmetry Energy Solutions Acquisition must generally use reasonable best efforts to replace existing CERC Corp. guarantees with credit support provided by a party other than CERC Corp. as of and after the closing of the transaction. Additionally, to the extent that CERC Corp. retains any exposure relating to certain guarantees of CES’s obligations 90 days after closing of the transaction, Symmetry Energy Solutions Acquisition will pay a 3% annualized fee on such exposure, increasing by 1% on an annualized basis every three months. As of September 30, 2021, management estimates approximately $29 million of exposure remained outstanding under CERC Corp. guarantees issued prior to the closing of the transaction on June 1, 2020. CES has provided replacement credit support to counterparties to whom CERC Corp. had issued guarantees prior to closing representing the full amount of CERC’s remaining exposure under the guarantees. CERC believes that counterparties to whom replacement credit support has been provided would seek payment if needed under such replacement credit support instead of a CERC Corp. guarantee. No additional guarantees were provided by CERC Corp. to CES subsequent to the closing of the transaction on June 1, 2020.

If CERC Corp. is required to pay a counterparty under a guarantee in respect of obligations of CES, Symmetry Energy Solutions Acquisition is required to promptly reimburse CERC Corp. for all amounts paid. If Symmetry Energy Solutions Acquisition fails to reimburse CERC Corp., CERC Corp. has the contractual right to seek payment from Shell Energy North America (US), L.P. in an amount up to $40 million in the aggregate. While there can be no assurance that payment under any of these guarantees will not be required in the future, CenterPoint Energy and CERC consider the likelihood of a material amount being incurred as remote.

CenterPoint Energy and CERC recorded no amounts on their respective Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 related to the performance of these guarantees.

(d) Legal, Environmental and Other Matters

Legal Matters

Minnehaha Academy (CenterPoint Energy and CERC). On August 2, 2017, a natural gas explosion occurred at the Minnehaha Academy in Minneapolis, Minnesota, resulting in the deaths of two school employees, serious injuries to others and significant property damage to the school. CenterPoint Energy, certain of its subsidiaries, including CERC, and the contractor company working in the school were named in wrongful death, property damage and personal injury litigation arising out of the incident and have now reached confidential settlement agreements in all litigation, and all related governmental matters were previously concluded. CenterPoint Energy’s and CERC’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims.

Litigation Related to the Merger (CenterPoint Energy). With respect to the Merger, in July 2018, seven separate lawsuits were filed against Vectren and the individual directors of Vectren’s Board of Directors in the U.S. District Court for the Southern District of Indiana. These lawsuits alleged violations of Sections 14(a) of the Exchange Act and SEC Rule 14a-9 on the grounds that the Vectren Proxy Statement filed on June 18, 2018 was materially incomplete because it omitted material information concerning the Merger. The District Court consolidated and subsequently dismissed the lawsuits with prejudice, and the plaintiffs appealed. On September 13, 2021, the U.S. Court of Appeals for the Seventh Circuit affirmed the District Court’s order of dismissal. The plaintiffs could seek review by the Supreme Court of the United States; however, the defendants believe that the allegations asserted are without merit and intend to continue to vigorously defend themselves against the claims

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raised. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows.

Litigation Related to the February 2021 Winter Storm Event. With respect to the February 2021 Winter Storm Event, CenterPoint Energy, CERC and Houston Electric, along with ERCOT, have received claims and lawsuits filed by plaintiffs alleging personal injury, property damage and other injuries and damages. Additionally, various regulatory and governmental entities have announced that they intend to conduct or are conducting inquiries, investigations and other reviews of the February 2021 Winter Storm Event and the efforts made by various entities to prepare for, and respond to, this event, including the electric generation shortfall issues. Entities that have announced that they plan to conduct or are conducting such inquiries, investigations and other reviews include the United States Congress, FERC, NERC, Texas RE, ERCOT, Texas government entities and officials such as the Texas Governor’s office, the Texas Legislature, the Texas Attorney General, the PUCT, the City of Houston and other municipal and county entities in Houston Electric’s service territory, among other entities.

Like other Texas TDUs, Houston Electric has become involved in certain of the above-referenced investigations, litigation or other regulatory and legal proceedings regarding their efforts to restore power and their compliance with NERC, ERCOT and PUCT rules and directives. CenterPoint Energy and Houston Electric are responding to inquiries from the Texas Attorney General and the Galveston County District Attorney’s Office, and CenterPoint Energy and CERC are responding to inquiries from the Arkansas, Minnesota and Oklahoma Attorneys General. CenterPoint Energy, Houston Electric and CERC are subject to, and may be further subject to, litigation and claims. Such claims include, or in the future could include, wrongful death, personal injury and property damage claims, lawsuits for impacts on businesses and other organizations and entities and shareholder claims, among other claims or litigation matters. CenterPoint Energy and Houston Electric, along with numerous other entities, have been named as defendants in such litigation, all of which is now pending in state court as part of a multi-district litigation proceeding. CenterPoint Energy and Houston Electric intend to vigorously defend themselves against the claims raised. CenterPoint Energy, Houston Electric and CERC are unable to predict the consequences of any such matters or to estimate a range of potential losses.

Litigation Related to the Enable Merger. In March and April 2021, several lawsuits were filed by persons claiming to be Enable unitholders against various defendants, including Enable, the members of Enable GP’s Board of Directors, Energy Transfer, and other parties to the Enable Merger Agreement, challenging the Enable Merger and the disclosures made in connection therewith. CenterPoint Energy was named in one such lawsuit filed in the United States District Court for the Southern District of New York. The lawsuits alleged violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 on the grounds that the Registration Statement on Form S-4 filed by Energy Transfer on March 19, 2021, was materially incomplete because it omitted material information about, among other things, Enable's and Energy Transfer's financial projections and the analyses conducted by Enable's financial advisors. The lawsuits further alleged that the individual defendants, including, among others, Energy Transfer and CenterPoint Energy, violated Section 20(a) of the Exchange Act as controlling persons of Enable. Plaintiffs sought to have the court enjoin the Enable Merger, require defendants to disseminate a new registration statement disclosing the allegedly omitted information, declare that defendants violated the Exchange Act, rescind the Enable Merger or award rescissory damages in the event the Enable Merger is consummated, along with attorneys’ fees, costs, and other relief. All of the cases, including the only one against CenterPoint Energy, have now been dismissed, and no plaintiffs have sought to refile or appeal. This matter is now concluded.

Environmental Matters

MGP Sites. CenterPoint Energy, CERC and their predecessors, including predecessors of Vectren, operated MGPs in the past. The costs CenterPoint Energy or CERC, as applicable, expect to incur to fulfill their respective obligations are estimated by management using assumptions based on actual costs incurred, the timing of expected future payments and inflation factors, among others. While CenterPoint Energy and CERC have recorded obligations for all costs which are probable and estimable, including amounts they are presently obligated to incur in connection with activities at these sites, it is possible that future events may require remedial activities which are not presently foreseen, and those costs may not be subject to PRP or insurance recovery.

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

(ii)Indiana MGPs (CenterPoint Energy). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an

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agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in 5 manufactured gas plant sites in SIGECO’s service territory, all of which are currently enrolled in the IDEM’s VRP. CenterPoint Energy is currently conducting some level of remedial activities, including groundwater monitoring at certain sites.

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

Total costs that may be incurred in connection with addressing these sites cannot be determined at this time. The estimated accrued costs are limited to CenterPoint Energy’s and CERC’s share of the remediation efforts and are therefore net of exposures of other PRPs. The estimated range of possible remediation costs for the sites for which CenterPoint Energy and CERC believe they may have responsibility was based on remediation continuing for the minimum time frame given in the table below.


	September 30, 2021
	CenterPoint Energy		CERC
	(in millions, except years)
Amount accrued for remediation	$	12	$	7
Minimum estimated remediation costs	8		5
Maximum estimated remediation costs	54		32
Minimum years of remediation	5		30
Maximum years of remediation	50		50

The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used.

CenterPoint Energy and CERC do not expect the ultimate outcome of these matters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos. Some facilities owned by the Registrants or their predecessors contain or have contained asbestos insulation and other asbestos-containing materials. The Registrants are from time to time named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and the Registrants anticipate that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, the Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on their financial condition, results of operations or cash flows.

CCR Rule (CenterPoint Energy). In April 2015, the EPA finalized its CCR Rule, which regulates ash as non-hazardous material under the RCRA. The final rule allows beneficial reuse of ash, and the majority of the ash generated by Indiana Electric’s generating plants will continue to be reused. In July 2018, the EPA released its final CCR Rule Phase I Reconsideration which extended the deadline to October 31, 2020 for ceasing placement of ash in ponds that exceed groundwater protections standards or that fail to meet location restrictions. In August 2019, the EPA proposed additional “Part A” amendments to its CCR Rule with respect to beneficial reuse of ash and other materials. Further “Part B” amendments, which related to alternate liners for CCR surface impoundments and the surface impoundment closure process, were published in March 2020. The Part A amendments were finalized in August 2020 and extended the deadline to cease placement of ash in ponds to April 11, 2021, discussed further below. The EPA published the final Part B amendments in November 2020. The Part A amendments do not restrict Indiana Electric’s current beneficial reuse of its fly ash. CenterPoint Energy evaluated the Part B amendments to determine potential impacts and determined that the Part B amendments did not have an impact on its current plans. Shortly after taking office in January 2021, President Biden signed an executive order requiring agencies to review environmental actions taken by the Trump administration, including the CCR Rule Phase I Reconsideration, the Part A amendments, and the Part B amendments; the EPA has completed its review of the Phase I Reconsideration, Part A amendments, and Part B amendments and determined that the most environmentally protective course is to implement the rules.

Indiana Electric has three ash ponds, two at the F.B. Culley facility (Culley East and Culley West) and one at the A.B. Brown facility. Under the existing CCR Rule, Indiana Electric is required to perform integrity assessments, including ground water monitoring, at its F.B. Culley and A.B. Brown generating stations. The ground water studies are necessary to determine

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the remaining service life of the ponds and whether a pond must be retrofitted with liners or closed in place. Indiana Electric’s Warrick generating unit is not included in the scope of the CCR Rule as this unit has historically been part of a larger generating station that predominantly serves an adjacent industrial facility. Preliminary groundwater monitoring indicates potential groundwater impacts very close to Indiana Electric’s ash impoundments, and further analysis is ongoing. The CCR Rule required companies to complete location restriction determinations by October 18, 2018. Indiana Electric completed its evaluation and determined that one F.B. Culley pond (Culley East) and the A.B. Brown pond fail the aquifer placement location restriction. As a result of this failure, Indiana Electric was required to cease disposal of new ash in the ponds and commence closure of the ponds by April 11, 2021, unless approved for an extension. CenterPoint Energy has applied for the extensions available under the CCR Rule that would allow Indiana Electric to continue to use the ponds through October 15, 2023. The EPA is still reviewing industry extension requests, including CenterPoint Energy’s extension request. Companies can continue to operate ponds pending completion of the EPA’s evaluation of the requests for extension. If the EPA denies a full extension request, that denial may result in increased and potentially significant operational costs in connection with the accelerated implementation of an alternative ash disposal system or may adversely impact Indiana Electric’s future operations. Failure to comply with a cease waste receipt could also result in an enforcement proceeding, resulting in the imposition of fines and penalties. On April 24, 2019, Indiana Electric received an order from the IURC approving recovery in rates of costs associated with the closure of the Culley West pond, which has already completed closure activities. On August 14, 2019, Indiana Electric filed its petition with the IURC for recovery of costs associated with the closure of the A.B. Brown ash pond, which would include costs associated with the excavation and recycling of ponded ash. This petition was subsequently approved by the IURC on May 13, 2020. On October 28, 2020, the IURC approved Indiana Electric’s ECA proceeding, which included the initiation of recovery of the federally mandated project costs.

Indiana Electric continues to refine site specific estimates of closure costs for its 10-acre Culley East pond. In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule, and has since reached confidential settlement agreements with its insurers. The proceeds of these settlements will offset costs that have been and will be incurred to close the ponds.

As of September 30, 2021, CenterPoint Energy has recorded an approximate $89 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B. Culley. This estimate is subject to change due to the contractual arrangements; continued assessments of the ash, closure methods, and the timing of closure; implications of Indiana Electric’s generation transition plan; changing environmental regulations; and proceeds received from the settlements in the aforementioned insurance proceeding. In addition to these AROs, Indiana Electric also anticipates equipment purchases of between $60 million and $80 million to complete the A.B. Brown closure project.

Clean Water Act Permitting of Groundwater Discharges. In April 2021, the U.S. Supreme Court issued an opinion providing that indirect discharges via groundwater or other non-point sources are subject to permitting and liability under the Clean Water Act when they are the functional equivalent of a direct discharge. The Registrants are evaluating the extent to which this decision will affect Clean Water Act permitting requirements and/or liability for their operations.

Other Environmental. From time to time, the Registrants identify the presence of environmental contaminants during operations or on property where their predecessors have conducted operations. Other such sites involving contaminants may be identified in the future. The Registrants have and expect to continue to remediate any identified sites consistent with state and federal legal obligations. From time to time, the Registrants have received notices, and may receive notices in the future, from regulatory authorities or others regarding status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, the Registrants have been, or may be, named from time to time as defendants in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, the Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on their financial condition, results of operations or cash flows.

Other Proceedings

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

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(15) Earnings Per Share (CenterPoint Energy)

The Series C Preferred Stock issued in May 2020 were considered participating securities since these shares participated in dividends on Common Stock on a pari passu, pro rata, as-converted basis. As a result, beginning June 30, 2020, earnings per share on Common Stock was computed using the two-class method required for participating securities during the periods the Series C Preferred Stock was outstanding. As of May 7, 2021, all of the outstanding Series C Preferred Stock were converted into shares of Common Stock and earnings per share on Common Stock and, as such, the two-class method was no longer applicable beginning June 30, 2021.

The two-class method uses an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available only to common shareholders. Under the two-class method, income (loss) available to common shareholders from continuing operations is derived by subtracting the following from income (loss) from continuing operations:

preferred share dividend requirement;
deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the Series C Preferred Stock; and
an allocation of undistributed earnings to preferred shareholders of participating securities (Series C Preferred Stock) based on the securities’ right to receive dividends.

Undistributed earnings are calculated by subtracting dividends declared on Common Stock, the preferred share dividend requirement and deemed dividends for the amortization of the beneficial conversion feature from net income. Net losses are not allocated to the Series C Preferred Stock as it does not have a contractual obligation to share in the losses of CenterPoint Energy.

The Series C Preferred Stock included conversion features at a price that was below the fair value of the Common Stock on the commitment date. This beneficial conversion feature, which was approximately $32 million at issuance, represented the difference between the fair value per share of the Common Stock as of the commitment date and the conversion price, multiplied by the number of common shares issuable upon conversion. The beneficial conversion feature was recognized as a discount to Series C Preferred Stock and was amortized as a deemed dividend over the period from the issue date to the first allowable conversion date, which was November 6, 2020.

Basic earnings per common share is computed by dividing income available to common shareholders from continuing operations by the basic weighted average number of common shares outstanding during the period. Participating securities are excluded from basic weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing income available to common shareholders from continuing operations by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.

Diluted earnings per share reflects the dilutive effect of potential common shares from share-based awards and convertible preferred shares. The dilutive effect of Series B Preferred Stock and Series C Preferred Stock is computed using the if-converted method, as applicable, which assumes conversion of the restricted stock, Series B Preferred Stock and Series C Preferred Stock at the beginning of the period, giving income recognition for the add-back of the preferred share dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred shareholders. The dilutive effect of restricted stock is computed using the treasury stock method, as applicable, which includes the incremental shares that would be hypothetically vested in excess of the number of shares assumed to be hypothetically repurchased with the assumed proceeds.

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The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per common share.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions, except per share and share amounts)
Numerator:
Income from continuing operations	$	150	$	199	$	630	$	347
Less: Preferred stock dividend requirement (Note 19)	23		36		82		102
Less: Amortization of beneficial conversion feature (Note 19)	—		16		—		25
Less: Undistributed earnings allocated to preferred shareholders (1)	—		—		—		—
Income available to common shareholders from continuing operations - basic	127		147		548		220
Add back: Series B Preferred Stock dividend	—		—		—		—
Add back: Undistributed earnings allocated to preferred shareholders (1)	—		—		—		—
Income available to common shareholders from continuing operations - diluted	127		147		548		220
Income (loss) available to common shareholders from discontinued operations - basic and diluted	68		(78)		202		(1,320)
Income (loss) available to common shareholders - basic and diluted	$	195	$	69	$	750	$	(1,100)
Denominator:
Weighted average common shares outstanding - basic	604,607,000		544,811,000		580,819,000		525,160,000
Plus: Incremental shares from assumed conversions:
Restricted stock (2)	4,775,000		3,377,000		4,775,000		—
Series B Preferred Stock (3)	—		—		—		—
Series C Preferred Stock (4)	—		—		15,809,000		—
Weighted average common shares outstanding - diluted	609,382,000		548,188,000		601,403,000		525,160,000

Earnings (Loss) Per Common Share:
Basic earnings per common share - continuing operations	$	0.21	$	0.27	$	0.94	$	0.42
Basic earnings (loss) per common share - discontinued operations	0.11		(0.14)		0.35		(2.52)
Basic Earnings (Loss) Per Common Share	$	0.32	$	0.13	$	1.29	$	(2.10)
Diluted earnings per common share - continuing operations	$	0.21	$	0.27	$	0.91	$	0.42
Diluted earnings (loss) per common share - discontinued operations	0.11		(0.14)		0.34		(2.52)
Diluted Earnings (Loss) Per Common Share	$	0.32	$	0.13	$	1.25	$	(2.10)

(1)There were no undistributed earnings to be allocated to participating securities for the three and nine months ended September 30, 2020.

(2)3,377,000 incremental common shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the nine months ended September 30, 2020, as their inclusion would be anti-dilutive.

(3)The computation of diluted earnings per common share outstanding for the three and nine months ended September 30, 2020 excludes 35,940,000 and 35,923,000 potentially dilutive shares of Series B Preferred Stock from the denominator, respectively, because the shares would be anti-dilutive. The computation of diluted earnings per common share outstanding for the three and nine months ended September 30, 2021 excludes 24,179,000 and 31,962,000 potentially dilutive shares of Series B Preferred Stock from the denominator, respectively, because the shares would be anti-dilutive. As of September 30, 2021, all of the outstanding Series B Preferred Stock have been converted into Common Stock. For further information, see Note 19.

(4)The computation of diluted earnings (loss) per common share outstanding for the three and nine months ended September 30, 2020 excludes 47,355,000 and 25,578,000 potentially dilutive shares of Series C Preferred Stock from the denominator, respectively, because the shares would be anti-dilutive. As of September 30, 2021, all of the outstanding Series C Preferred Stock have been converted into Common Stock. For further information, see Note 19.

(16) Reportable Segments

The Registrants’ determination of reportable segments considers the strategic operating units under which its CODM manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. Each Registrant’s CODM views net income as the measure of profit or loss for the reportable segments. Certain prior year amounts have been reclassified to conform to the current year reportable segment

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presentation described in the Registrants’ combined 2020 Form 10-K and for changes described below.On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses. The Arkansas and Oklahoma Natural Gas businesses are reflected in CenterPoint Energy’s Natural Gas reportable segment and CERC’s single reportable segment, as applicable, and are classified as held for sale as of September 30, 2021. On August 31, 2021, CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of MES to Last Mile Energy. See Note 3 for further details.

CenterPoint Energy’s Midstream Investments reportable segment presented in the Registrants’ combined 2020 Form 10-K consisted of the equity investment in Enable (excluding the Enable Series A Preferred Units). In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria and is reflected as discontinued operations, and as a result this reportable segment is not reflected in the financial data for reportable segments. See Notes 3 and 9 for further information regarding CenterPoint Energy’s equity investment in Enable as held for sale and discontinued operations and the pending Enable Merger.

As of September 30, 2021, reportable segments by Registrant were as follows:

CenterPoint Energy

CenterPoint Energy’s Electric reportable segment consists of (i) electric transmission services to transmission service customers in the ERCOT region and distribution services to REPs serving the Texas Gulf Coast area and (ii) electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations.
CenterPoint Energy’s Natural Gas reportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Ohio, Oklahoma and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.

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

Houston Electric

Houston Electric’s single reportable segment consists of electric transmission services to transmission service customers in the ERCOT region and distribution services to REPs serving the Texas Gulf Coast area.

CERC

CERC’s single reportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.

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Financial data for reportable segments is as follows, including Corporate and Other and Discontinued Operations for reconciliation purposes:

CenterPoint Energy


	Three Months Ended September 30,
	2021			2020
	Revenues from External Customers			Net Income (Loss)		Revenues from External Customers			Net Income (Loss)
	(in millions)
Electric	$	1,056	(1)	$	185	$	985	(1)	$	188
Natural Gas	619			5		564			(2)

Corporate and Other	74			(40)		73			13
Continuing Operations	$	1,749		150		$	1,622		199
Discontinued Operations, net				68					(78)
Consolidated				$	218				$	121

	Nine Months Ended September 30,
	2021			2020
	Revenues from External Customers			Net Income (Loss)		Revenues from External Customers			Net Income (Loss)
	(in millions)
Electric	$	2,823	(1)	$	385	$	2,600	(1)	$	160
Natural Gas	3,022			308		2,529			229

Corporate and Other	193			(63)		235			(42)

Continuing Operations	$	6,038		630		$	5,364		347
Discontinued Operations, net				202					(1,320)
Consolidated				$	832				$	(973)

(1)Houston Electric revenues from major external customers are as follows (CenterPoint Energy and Houston Electric):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Affiliates of NRG	$	285	$	243	$	672	$	573
Affiliates of Vistra Energy Corp.	128		128		303		301


	Total Assets
	September 30, 2021		December 31, 2020
	(in millions)
Electric	$	15,612	$	14,493
Natural Gas	15,470		14,976

Corporate and Other, net of eliminations (1)	2,928		3,220

Continuing Operations	34,010		32,689
Assets Held for Sale	3,150		782
Consolidated	$	37,160	$	33,471

(1)Total assets included pension and other postemployment-related regulatory assets of $453 million and $540 million as of September 30, 2021 and December 31, 2020, respectively.

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Houston Electric

Houston Electric consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.

CERC

CERC consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.

(17) Supplemental Disclosure of Cash Flow Information

CenterPoint Energy and CERC elected not to separately disclose discontinued operations on their respective Condensed Statements of Consolidated Cash Flows. The table below provides supplemental disclosure of cash flow information and does not exclude the Infrastructure Services and Energy Services Disposal Groups prior to the closing of the respective transactions.


	Nine Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Cash Payments/Receipts:
Interest, net of capitalized interest	$	427	$	172	$	71	$	324	$	176	$	88
Income tax payments (refunds), net	(47)		—		—		117		33		4
Non-cash transactions:
Accounts payable related to capital expenditures	290		208		113		220		121		72
ROU assets obtained in exchange for lease liabilities	2		—		—		14		—		5
Beneficial conversion feature	—		—		—		32		—		—
Amortization of beneficial conversion feature	—		—		—		(25)		—		—

The table below provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the amount reported in the Condensed Statements of Consolidated Cash Flows.


	September 30, 2021						December 31, 2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Cash and cash equivalents (1)	$	133	$	105	$	—	$	147	$	139	$	1
Restricted cash included in Prepaid expenses and other current assets	23		18		—		20		15		—

Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows	$	156	$	123	$	—	$	167	$	154	$	1

(1)Houston Electric’s Cash and cash equivalents as of September 30, 2021 and December 31, 2020 included $105 million and $139 million, respectively, of cash related to the Bond Companies.

(18) Related Party Transactions (Houston Electric and CERC)

Houston Electric and CERC participate in CenterPoint Energy’s money pool through which they can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the CenterPoint Energy 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.

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The table below summarizes CenterPoint Energy money pool activity:


	September 30, 2021						December 31, 2020
	Houston Electric			CERC			Houston Electric			CERC
	(in millions, except interest rates)
Money pool investments (borrowings) (1)	$	(40)		$	—		$	(8)		$	—
Weighted average interest rate	0.18		%	0.18		%	0.24		%	0.24		%

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

CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. Houston Electric provides certain services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had Houston Electric and CERC not been affiliates.

Amounts charged for these services were as follows and are included primarily in operation and maintenance expenses:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	Houston Electric		CERC		Houston Electric		CERC		Houston Electric		CERC		Houston Electric		CERC
	(in millions)
Corporate service charges	$	46	$	51	$	48	$	52	$	136	$	153	$	142	$	156
Net affiliate service charges (billings)	(4)		4		(4)		4		(6)		6		(14)		14

The table below presents transactions among Houston Electric, CERC and their parent, CenterPoint Energy.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	Houston Electric		CERC		Houston Electric		CERC		Houston Electric		CERC		Houston Electric		CERC
	(in millions)
Cash dividends paid to parent	$	—	$	—	$	52	$	8	$	—	$	—	$	457	$	80

Capital distribution to parent associated with the sale of CES	—		—		—		—		—		—		—		286
Property, plant and equipment from parent (1)	—		—		35		23		—		—		35		23

(1) Property, plant and equipment purchased from CenterPoint Energy at its net carrying value on the date of purchase.

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(19) Equity

Dividends Declared and Paid (CenterPoint Energy)


	Dividends Declared Per Share								Dividends Paid Per Share
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Common Stock	$	0.330	$	0.150	$	0.490	$	0.590	$	0.160	$	0.150	$	0.320	$	0.590
Series A Preferred Stock	30.625		30.625		30.625		61.250		30.625		30.625		30.625		61.250
Series B Preferred Stock	17.500		17.500		35.000		52.500		17.500		17.500		35.000		52.500
Series C Preferred Stock (1)	—		0.150		—		0.300		—		0.150		—		0.300

(1)The Series C Preferred Stock was entitled to participate in any dividend or distribution (excluding those payable in Common Stock) with the Common Stock on a pari passu, pro rata, as-converted basis. The per share amount reflects the dividend per share of Common Stock as if the Series C Preferred Stock were converted into Common Stock. All of the outstanding Series C Preferred Stock was converted to Common Stock during April and May 2021 as described below.

Preferred Stock (CenterPoint Energy)


	Liquidation Preference Per Share			Shares Outstanding as of				Outstanding Value as of
			September 30, 2021		December 31, 2020		September 30, 2021			December 31, 2020
	(in millions, except shares and per share amounts)
Series A Preferred Stock	$	1,000		800,000		800,000		$	790		$	790
Series B Preferred Stock	1,000			—		977,400		—			950
Series C Preferred Stock	1,000			—		625,000		—			623
				800,000		2,402,400		$	790		$	2,363

Conversion of Series B Preferred Stock. During the three and nine months ended September 30, 2021, 975,903 shares and 977,400 shares of Series B Preferred Stock, respectively, were converted into 35,875,574 shares and 35,921,441 shares of Common Stock. As of September 30, 2021, all shares of Series B Preferred Stock have been converted into shares of Common Stock.

Conversion of Series C Preferred Stock. No shares of Series C Preferred Stock were converted to Common Stock during the three months ended September 30, 2021. During the nine months ended September 30, 2021, 625,000 shares of Series C Preferred Stock were converted into 40,822,990 shares of Common Stock. As of September 30, 2021, all shares of Series C Preferred Stock have been converted into shares of Common Stock.

Income Allocated to Preferred Shareholders (CenterPoint Energy)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Series A Preferred Stock	$	12	$	12	$	37	$	37
Series B Preferred Stock	11		17		45		51
Series C Preferred Stock	—		7		—		14
Preferred dividend requirement	23		36		82		102
Amortization of beneficial conversion feature	—		16		—		25
Total income allocated to preferred shareholders	$	23	$	52	$	82	$	127

Temporary Equity (CenterPoint Energy)

On the approval and recommendation of the Compensation Committee and approval of the Board (acting solely through its independent directors), CenterPoint Energy entered into a retention incentive agreement with David J. Lesar, President and Chief Executive Officer of CenterPoint Energy, dated July 20, 2021. Under the terms of the retention incentive agreement, Mr. Lesar will receive equity-based awards under CenterPoint Energy’s LTIP covering a total of 1 million shares of Common Stock

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(Total Stock Award) to be granted in multiple annual awards. In July 2021, 400 thousand restricted stock unit awards were awarded to Mr. Lesar that will vest in December 2022. Restricted stock unit awards covering the remaining 600 thousand shares will be awarded to Mr. Lesar in February 2022 and February 2023, in each case covering the remainder of the Total Stock Award not previously awarded or such lesser number of restricted stock units as may be required pursuant to the annual individual award limitations under the CenterPoint Energy’s LTIP and vesting in December 2023. In the event any shares under the Total Stock Award remain unawarded, in February 2024, a fully vested stock bonus award of the remaining shares will be granted. For accounting purposes, the 1 million shares under the Total Stock Award, consisting of both the awarded and unawarded equity-based awards described above, were considered granted in July 2021. In the event of death, disability, termination without cause or resignation for good reason, as defined in the retention incentive agreement, that occurs prior to the full Total Stock Award being awarded, CenterPoint Energy will pay a lump sum cash payment equal to the value of the unawarded equity-based awards, based on the closing trading price of Common Stock on the date of the event’s occurrence. Because the unawarded equity-based awards are redeemable for cash upon events that are not probable at the grant date, the equity associated with the unawarded equity-based awards will be classified as Temporary Equity on CenterPoint Energy’s Condensed Consolidated Balance Sheets.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated comprehensive income (loss) are as follows:


	Three Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Beginning Balance	$	(85)	$	—	$	10	$	(84)	$	—	$	10
Other comprehensive loss before reclassifications:


Other comprehensive income from unconsolidated affiliates	—		—		—		1		—		—
Amounts reclassified from accumulated other comprehensive income (loss):
Prior service cost (1)	1		—		—		—		—		—
Actuarial losses (1)	1		—		—		2		—		—
Settlement (2)	3		—		—		—		—		—
Reclassification of deferred loss from cash flow hedges realized in net income	1		—		—		—		—		—
Tax expense	(1)		—		—		(1)		—		—
Net current period other comprehensive income	5		—		—		2		—		—
Ending Balance	$	(80)	$	—	$	10	$	(82)	$	—	$	10

	Nine Months Ended September 30,
	2021						2020
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Beginning Balance	$	(90)	$	—	$	10	$	(98)	$	(15)	$	10
Other comprehensive loss before reclassifications:


Other comprehensive income (loss) from unconsolidated affiliates	2		—		—		(2)		—		—
Amounts reclassified from accumulated other comprehensive income (loss):
Prior service cost (1)	1		—		—		1		—		—
Actuarial losses (1)	5		—		—		5		—		—
Settlement (2)	3		—		—		—		—		—
Reclassification of deferred loss from cash flow hedges realized in net income	1		—		—		—		—		—
Reclassification of deferred loss from cash flow hedges to regulatory assets (3)	—		—		—		19		19		—
Tax expense	(2)		—		—		(7)		(4)		—
Net current period other comprehensive income	10		—		—		16		15		—
Ending Balance	$	(80)	$	—	$	10	$	(82)	$	—	$	10

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

(2)Amounts presented represent a one-time, non-cash settlement cost (benefit), prior to regulatory deferrals, which are required when the total lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of the net periodic cost for that year. Amounts presented in the table above are included in Other income (expense), net in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of regulatory deferrals.

(3)The cost of debt approved by the PUCT as part of Houston Electric’s Stipulation and Settlement Agreement included unrealized gains and losses on interest rate hedges. Accordingly, deferred gains and losses on interest rate hedges were reclassified to regulatory assets or liabilities, as appropriate.

(20) Subsequent Events (CenterPoint Energy)

Enable Distributions Declarations (CenterPoint Energy)


Equity Instrument	Declaration Date	Record Date	Payment Date	Per Unit Distribution		Expected Cash Distribution (in millions)
Enable common units	October 26, 2021	November 8, 2021	November 17, 2021	$	0.16525	$	39
Enable Series A Preferred Units	October 26, 2021	October 26, 2021	November 12, 2021	0.54030		8

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Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES