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

The following combined discussion and analysis should be read in combination with the Interim Condensed Financial Statements contained in this combined Form 10-Q and the Registrants’ combined 2020 Form 10-K. When discussing CenterPoint Energy’s consolidated financial information, it includes the results of Houston Electric and CERC, which, along with CenterPoint Energy, are collectively referred to as the Registrants. Where appropriate, information relating to a specific Registrant has been segregated and labeled as such. In this combined Form 10-Q, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries. No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.

RECENT EVENTS

Net Zero Emission Goals. In September 2021, CenterPoint Energy announced new net zero emission goals for both Scope 1 and Scope 2 emissions by 2035 as well as a goal to reduce Scope 3 emissions by 20% to 30% by 2035. For more information regarding CenterPoint Energy’s new net zero emission goals and the risks associated with them, see “Risk Factors — CenterPoint Energy is subject to operational and financial risks and liabilities associated with the implementation and efforts to achieve its carbon emission reduction goals” and “Management’s Discussion and Analysis — Liquidity and Capital Resources” in this combined Form 10-Q.

Sale of Natural Gas Businesses. 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. On August 31, 2021, CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of MES to Last Mile Energy. For further information, see Note 3 to the Interim Condensed Financial Statements.

February 2021 Winter Storm Event**.** In February 2021, portions of the United States experienced an extreme and unprecedented winter weather event that resulted in corresponding electricity generation shortages, including in Texas, and natural gas shortages and increased wholesale prices of natural gas in the United States. Many customers of Houston Electric’s REPs and, to a lesser extent, of CERC were severely impacted by outages in electricity and natural gas delivery during the February 2021 Winter Storm Event. As a result of this weather event, the governors of Texas, Oklahoma and Louisiana declared states of either disaster or emergencies in their respective states. Subsequently, President Biden also approved major disaster declarations for all or parts of Texas, Oklahoma and Louisiana.

The February 2021 Winter Storm Event resulted in financial impacts to CenterPoint Energy, Houston Electric and CERC, including substantial increases in prices for natural gas, decreased revenues at Houston Electric due to ERCOT-mandated outages, additional interest expense related to external financing to pay for natural gas working capital, significant impacts to the REPs, including the REPs’ ability to pay invoices from Houston Electric, increases in bad debt expense, issues with counterparties and customers, litigation and investigations or inquiries from government or regulatory agencies and entities, and other financial impacts. However, CenterPoint Energy does not anticipate meaningful long-term financial impacts associated with the February 2021 Winter Storm Event, including changes to its credit profile, credit ratings or liquidity, given the regulatory mechanisms that are in place to recover the extraordinary expenses. For more information regarding regulatory impacts, debt transactions and litigation, see Notes 6, 12 and 14 to the Interim Condensed Financial Statements and “—Liquidity and Capital Resources —Future Sources and Uses of Cash” and “—Regulatory Matters” below.

Enable Merger Agreement**.** 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. 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. Additionally, CenterPoint Energy plans for a complete exit from its Midstream Investment reportable segment in 2022. For more information, see Notes 1, 3 and 9 to the Interim Condensed Financial Statements.

Debt Transactions. For information about debt transactions to date in 2021, see Note 12 to the Interim Condensed Financial Statements.

Table of Contents

Preferred Stock Conversions. For information regarding preferred stock conversions to date in 2021, see Note 19 to the Interim Condensed Financial Statements.

Regulatory Proceedings. For information related to our pending and completed regulatory proceedings to date in 2021, see “—Liquidity and Capital Resources —Regulatory Matters” below.

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. For further information, see Note 5 to the Interim Condensed Financial Statements.

CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS

For information regarding factors that may affect the future results of our consolidated operations, please read “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

Income (loss) available to common shareholders for the three and nine months ended September 30, 2021 and 2020 was as follows:

						Three Months Ended September 30,																		Nine Months Ended September 30,
						2021						2020						Favorable (Unfavorable)						2021						2020						Favorable (Unfavorable)
						(in millions)
Electric						$	185					$	188					$	(3)					$	385					$	160					$	225
Natural Gas						5						(2)						7						308						229						79
Total Utility Operations						190						186						4						693						389						304
Corporate & Other (1)						(63)						(39)						(24)						(145)						(169)						24
Discontinued Operations						68						(78)						146						202						(1,320)						1,522
Total CenterPoint Energy						$	195					$	69					$	126					$	750					$	(1,100)					$	1,850

(1)Includes energy performance contracting and sustainable infrastructure services through ESG, unallocated corporate costs, interest income and interest expense, intercompany eliminations and the reduction of income allocated to preferred shareholders.

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Income available to common shareholders increased $126 million primarily due to the following items:

• an increase in earnings from discontinued operations; and

• the dividend requirement and amortization of beneficial conversion feature associated with Series C Preferred Stock in 2020.

These increases were partially offset by:

• the impact of the governance changes announced in July 2021; and

• the CARES Act in 2020.

Excluding those items, income available to common shareholders increased $1 million primarily due to the following key factors:

• rate relief, net of increases in depreciation and amortization and taxes other than income taxes;

• reduced impact of COVID-19;

• continued customer growth; and

• reduced interest expense.

Table of Contents

These increases were partially offset by lower usage in part due to less favorable weather.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

Income available to common shareholders increased $1,850 million primarily due to the following items:

• an increase in earnings from discontinued operations;

• goodwill impairment at Indiana Electric in 2020;

• the dividend requirement and amortization of beneficial conversion feature associated with Series C Preferred Stock in 2020; and

• favorable income tax impacts in 2021, partially offset by the CARES Act in 2020.

These increases were also partially offset by the impact of the board-implemented governance changes announced in July 2021

Excluding those items, income available to common shareholders increased $121 million primarily due to the following key factors:

• rate relief, net of increases in depreciation and amortization and taxes other than income taxes;

• reduced impact of COVID-19;

• continued customer growth; and

• reduced interest expense.

Income Tax Expense. For a discussion of effective tax rate per period, see Note 13 to the Interim Condensed Financial Statements.

CENTERPOINT ENERGY’S RESULTS OF OPERATIONS BY REPORTABLE SEGMENT

CenterPoint Energy’s CODM views net income as the measure of profit or loss for the reportable segments. Segment results include inter-segment interest income and expense, which may result in inter-segment profit and loss. Certain prior year amounts have been reclassified to conform to the current year presentation described in the Registrants’ combined 2020 Form 10-K.

The following discussion of results of operations by reportable segment concentrates on CenterPoint Energy’s Utility Operations, conducted through two reportable segments, Electric and Natural Gas. CenterPoint Energy’s formerly reported Midstream Investments reportable segment results are now included in discontinued operations. For additional information regarding the Midstream Investments reportable segment, see Notes 3, 9 and 16 to the Interim Condensed Financial Statements.

Table of Contents

Electric (CenterPoint Energy)

For information regarding factors that may affect the future results of operations of the Electric reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Electric Generation, Transmission and Distribution Businesses,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses and/or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

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

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2021						2020						Favorable (Unfavorable)						2021						2020						Favorable (Unfavorable)
			(in millions, except operating statistics)
Revenues			$	1,056					$	985					$	71					$	2,823					$	2,600					$	223
Cost of revenues (1)			53						41						(12)						142						108						(34)
Revenues less Cost of revenues			1,003						944						59						2,681						2,492						189
Expenses:
Operation and maintenance			445						427						(18)						1,295						1,232						(63)
Depreciation and amortization			211						177						(34)						569						497						(72)
Taxes other than income taxes			69						68						(1)						205						204						(1)
Goodwill impairment			—						—						—						—						185						185
Total expenses			725						672						(53)						2,069						2,118						49
Operating Income			278						272						6						612						374						238
Other Income (Expense)
Interest expense and other finance charges			(57)						(55)						(2)						(171)						(165)						(6)
Other income, net			7						4						3						19						13						6
Income from Continuing Operations Before Income Taxes			228						221						7						460						222						238
Income tax expense			43						33						(10)						75						62						(13)
Net Income			$	185					$	188					$	(3)					$	385					$	160					$	225
Throughput (in GWh):
Residential			11,174						11,675						(4)		%				25,567						26,113						(2)		%
Total			31,178						29,452						6		%				79,305						74,923						6		%
Weather (percentage of 10-year average for service area):
Cooling degree days			101		%				105		%				(4)		%				102		%				108		%				(6)		%
Heating degree days			100		%				200		%				(100)		%				105		%				73		%				32		%
Number of metered customers at end of period:
Residential			2,480,292						2,420,855						2		%				2,480,292						2,420,855						2		%
Total			2,800,548						2,735,018						2		%				2,800,548						2,735,018						2		%

(1)Includes Utility natural gas, fuel and purchased power.

Table of Contents

The following table provides variance explanations by major income statement caption for the Electric reportable segment:

						Favorable (Unfavorable)
						Three Months Ended September 30, 2021 vs 2020						Nine Months Ended September 30, 2021 vs 2020
						(in millions)
Revenues less Cost of revenues
Transmission Revenues, including TCOS and TCRF and impact of the change in rate design, inclusive of costs billed by transmission providers, partially offset in operation and maintenance						$	29					$	224
Bond Companies, offset in other line items						22						41
Impacts on usage from COVID-19						20						30
Customer growth						9						25
Bond Companies equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods						3						7
Miscellaneous revenues, primarily related right-of-way revenue, service connections, and off-system sales						7						6
Impacts from increased peak demand in 2020, collected in rates in 2021						—						6
Energy efficiency and pass-through offset in operation and maintenance						(3)						—
Refund of protected and unprotected EDIT, offset in income tax expense						—						(12)
Weather, efficiency improvements and other usage impacts, excluding impacts of COVID-19						(33)						(52)
Customer rates and impact of the change in rate design						5						(86)
Total						$	59					$	189
Operation and maintenance
Support services						$	6					$	11
Labor and benefits						7						6
Energy efficiency and pass-through offset in revenues						2						(1)
Bond Companies, offset in other line items						(1)						(1)
Contract services						(1)						(2)
All other operation and maintenance expense, including materials and supplies and insurance						(8)						(8)
Transmission costs billed by transmission providers, offset in revenues less cost of revenues						(23)						(68)
Total						$	(18)					$	(63)
Depreciation and amortization
Bond Companies, offset in other line items						$	(23)					$	(45)
Ongoing additions to plant-in-service						(11)						(27)
Total						$	(34)					$	(72)
Taxes other than income taxes
Franchise fees and other taxes						$	(2)					$	—
Incremental capital projects placed in service						1						(1)
Total						$	(1)					$	(1)
Goodwill Impairment
Indiana Electric goodwill impairment charge in 2020						$	—					$	185
Total						$	—					$	185
Interest expense and other finance charges
Bond Companies, offset in other line items						$	2					$	6
Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures						(4)						(12)
Total						$	(2)					$	(6)
Other income (expense), net
Reduction to non-service benefit cost						$	3					$	8
Investments in CenterPoint Energy Money Pool interest income						—						(1)
Bond Companies interest income, offset in other line items						—						(1)
Total						$	3					$	6

Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 13 to the Interim Condensed Financial Statements.

Table of Contents

Natural Gas (CenterPoint Energy)

For information regarding factors that may affect the future results of operations of CenterPoint Energy’s Natural Gas reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas' Business,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses and/or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

The following table provides summary data of CenterPoint Energy’s Natural Gas reportable segment:

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2021						2020						Favorable (Unfavorable)						2021						2020						Favorable (Unfavorable)
			(in millions, except operating statistics)
Revenues			$	619					$	564					$	55					$	3,022					$	2,529					$	493
Cost of revenues (1)			173						131						(42)						1,289						888						(401)
Revenues less Cost of revenues			446						433						13						1,733						1,641						92
Expenses:
Operation and maintenance			231						240						9						733						744						11
Depreciation and amortization			129						115						(14)						374						339						(35)
Taxes other than income taxes			53						53						—						184						176						(8)
Total expenses			413						408						(5)						1,291						1,259						(32)
Operating Income			33						25						8						442						382						60
Other Income (Expense)
Gain on sale			8						—						8						8						—						8
Interest expense and other finance charges			(34)						(36)						2						(101)						(115)						14
Other income (expense), net			(1)						1						(2)						1						(1)						2
Income (Loss) From Continuing Operations Before Income Taxes			6						(10)						16						350						266						84
Income tax expense (benefit)			1						(8)						(9)						42						37						(5)
Net Income (Loss)			$	5					$	(2)					$	7					$	308					$	229					$	79
Throughput (in Bcf):
Residential			17						18						(6)		%				175						157						11		%
Commercial and Industrial			79						84						(6)		%				312						317						(2)		%
Total			96						102						(6)		%				487						474						3		%
Weather (percentage of 10-year average for service area):
Heating degree days			39		%				100		%				(61)		%				99		%				90		%				9		%
Number of metered customers at end of period:
Residential			4,332,079						4,295,169						1		%				4,332,079						4,295,169						1		%
Commercial and Industrial			348,443						346,641						1		%				348,443						346,641						1		%
Total			4,680.522						4,641,810						1		%				4,680,522						4,641,810						1		%

(1)Includes Utility natural gas, fuel and purchased power and Non-utility cost of revenues, including natural gas.

Table of Contents

The following table provides variance explanations by major income statement caption for the Natural Gas reportable segment:

						Favorable (Unfavorable)
						Three Months Ended September 30, 2021 vs 2020						Nine Months Ended September 30, 2021 vs 2020
						(in millions)
Revenues less Cost of revenues
Customer rates and impact of the change in rate design, exclusive of the TCJA impact						$	9					$	36
Non-volumetric and miscellaneous revenue, excluding impacts from COVID-19						1						21
Weather and usage, excluding impacts from COVID-19						—						16
Customer growth						1						11
Gross receipts tax, offset in taxes other than income taxes						1						9
Impacts of COVID-19, including usage and other miscellaneous charges						5						8
Energy efficiency, offset in operation and maintenance						(2)						(1)
Refund of protected and unprotected EDIT, offset in income tax expense						(2)						(8)
Total						$	13					$	92
Operation and maintenance
Support services and miscellaneous operations and maintenance expenses						$	12					$	17
Contract services						—						3
Merger related expenses, primarily severance and technology						—						2
Energy efficiency, offset in revenues less cost of revenues						2						1
Labor and benefits						(5)						(12)
Total						$	9					$	11
Depreciation and amortization
Incremental capital projects placed in service						$	(14)					$	(35)
Total						$	(14)					$	(35)
Taxes other than income taxes
Gross receipts tax, offset in revenues less cost of revenues						$	(1)					$	(9)
Incremental capital projects placed in service						1						1
Total						$	—					$	(8)
Gain on Sale
Net gain on sale of MES						$	8					$	8
Total						$	8					$	8
Interest expense and other finance charges
Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures						$	2					$	14
Total						$	2					$	14
Other income (expense), net
Money pool investments with CenterPoint Energy interest income						$	1					$	4
Increase to non-service benefit cost						(3)						(2)
Total						$	(2)					$	2

Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 13 to the Interim Condensed Financial Statements.

Table of Contents

HOUSTON ELECTRIC’S MANAGEMENT’S NARRATIVE ANALYSIS

OF CONSOLIDATED RESULTS OF OPERATIONS

Houston Electric’s CODM views net income as the measure of profit or loss for its reportable segment. Houston Electric consists of a single reportable segment. Houston Electric’s results of operations are affected by seasonal fluctuations in the demand for electricity. Houston Electric’s results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates Houston Electric charges, debt service costs, income tax expense, Houston Electric’s ability to collect receivables from REPs and Houston Electric’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations of Houston Electric’s business, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Electric Generation, Transmission and Distribution Businesses,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses and/or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2021						2020						Favorable (Unfavorable)						2021						2020						Favorable (Unfavorable)
			(in millions, except operating statistics)
Revenues:
TDU			$	794					$	770					$	24					$	2,159					$	2,038					$	121
Bond Companies			80						58						22						185						144						41
Total revenues			874						828						46						2,344						2,182						162
Expenses:
Operation and maintenance, excluding Bond Companies			394						380						(14)						1,154						1,100						(54)
Depreciation and amortization, excluding Bond Companies			108						100						(8)						320						300						(20)
Taxes other than income taxes			64						64						—						192						192						—
Bond Companies			76						52						(24)						169						124						(45)
Total expenses			642						596						(46)						1,835						1,716						(119)
Operating Income			232						232						—						509						466						43
Other Income (Expense)
Interest expense and other finance charges			(46)						(43)						(3)						(138)						(127)						(11)
Interest expense on Securitization Bonds			(5)						(7)						2						(16)						(22)						6
Other income, net			4						1						3						12						7						5
Income from Continuing Operations Before Income Taxes			185						183						2						367						324						43
Income tax expense			34						26						(8)						60						47						(13)
Net Income			$	151					$	157					$	(6)					$	307					$	277					$	30
Throughput (in GWh):
Residential			10,723						11,237						(5)		%				24,448						25,028						(2)		%
Total			29,318						28,031						5		%				74,453						71,293						4		%
Weather (percentage of 10-year average for service area):
Cooling degree days			101		%				106		%				(5)		%				103		%				109		%				(6)		%
Heating degree days			—		%				—		%				—		%				105		%				68		%				37		%
Number of metered customers at end of period:
Residential			2,345,920						2,291,038						2		%				2,345,920						2,291,038						2		%
Total			2,646,955						2,586,093						2		%				2,646,955						2,586,093						2		%

The following table provides variance explanations by major income statement caption for Houston Electric:

						Favorable (Unfavorable)
						Three Months Ended September 30, 2021 vs 2020						Nine Months Ended September 30, 2021 vs 2020
						(in millions)
Revenues
Transmission Revenues, including TCOS and TCRF and impact of the change in rate design, inclusive of costs billed by transmission providers						$	29					$	224
Bond Companies, offset in other line items						22						41
Customer growth						9						25
Impacts on usage from COVID-19						15						20
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods						3						7
Impacts from increased peak demand in 2020, collected in rates in 2021						—						6
Energy efficiency, offset in operation and maintenance						(2)						—
Miscellaneous revenues, primarily related to right-of-way revenues, and service connections						1						(2)
Refund of protected and unprotected EDIT, offset in income tax expense						—						(12)
Weather impacts and other usage						(31)						(47)
Customer rates and impact of the change in rate design						—						(100)
Total						$	46					$	162
Operation and maintenance, excluding Bond Companies
Support services						$	3					$	8
Labor and benefits						9						8
Contract services						1						2
Energy efficiency, offset in revenues						2						—
Other operation and maintenance expense						(6)						(4)
Transmission costs billed by transmission providers, offset in revenues						(23)						(68)
Total						$	(14)					$	(54)
Depreciation and amortization, excluding Bond Companies
Ongoing additions to plant-in-service						$	(8)					$	(20)
Total						$	(8)					$	(20)
Taxes other than income taxes
Franchise fees and other taxes						$	2					$	4
Incremental capital projects placed in service						(2)						(4)
Total						$	—					$	—
Bond Companies expense
Operations and maintenance and depreciation expense, offset in other line items						$	(24)					$	(45)
						$	(24)					$	(45)
Interest expense and other finance charges
Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures						$	(3)					$	(11)
Total						$	(3)					$	(11)
Interest expense on Securitization Bonds
Lower outstanding principal balance, offset in other line items						$	2					$	6
Total						$	2					$	6
Other income (expense), net
Reduction to non-service benefit cost						$	3					$	7
Investments in CenterPoint Energy Money Pool interest income						—						(1)
Bond Companies interest income, offset in other line items						—						(1)
Total						$	3					$	5

Income Tax Expense. For a discussion of effective tax rate per period, see Note 13 to the Interim Condensed Financial Statements.

Table of Contents

CERC’S MANAGEMENT’S NARRATIVE ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS

CERC’s CODM views net income as the measure of profit or loss for its reportable segment. CERC’s results of operations are affected by seasonal fluctuations in the demand for natural gas. CERC’s results of operations are also affected by, among other things, the actions of various federal, state and local governmental authorities having jurisdiction over rates CERC charges, debt service costs and income tax expense, CERC’s ability to collect receivables from customers and CERC’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations for CERC’s business, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas’ Business,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses and/or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2021						2020						Favorable (Unfavorable)						2021						2020						Favorable (Unfavorable)
			(in millions, except operating statistics)
Revenues			$	487					$	426					$	61					$	2,238					$	1,920					$	318
Cost of revenues (1)			161						108						(53)						978						730						(248)
Revenues less Cost of revenues			326						318						8						1,260						1,190						70
Expenses:
Operation and maintenance			187						186						(1)						579						574						(5)
Depreciation and amortization			82						78						(4)						242						226						(16)
Taxes other than income taxes			41						40						(1)						141						134						(7)
Total expenses			310						304						(6)						962						934						(28)
Operating Income			16						14						2						298						256						42
Other Income (Expense)
Gain on sale			11						—						11						11						—						11
Interest expense and other finance charges			(24)						(28)						4						(73)						(87)						14
Other income (expense), net			(3)						(1)						(2)						(3)						(5)						2
Income (Loss) From Continuing Operations Before Income Taxes			—						(15)						15						233						164						69
Income tax expense (benefit)			1						(9)						(10)						25						22						(3)
Income (Loss) From Continuing Operations			(1)						(6)						5						208						142						66
Income (Loss) From Discontinued Operations (net of tax expense (benefit) of $1 and ($2), respectively)			—						2						(2)						—						(66)						66
Net Income (Loss)			$	(1)					$	(4)					$	3					$	208					$	76					$	132
Throughput (in Bcf):
Residential			13						14						(7)		%				127						110						15		%
Commercial and Industrial			51						48						6		%				192						189						2		%
Total			64						62						3		%				319						299						7		%
Weather (percentage of 10-year average for service area):
Heating degree days			40		%				100		%				(60)		%				101		%				90		%				11		%
Number of metered customers at end of period:
Residential			3,359,891						3,329,032						1		%				3,359,891						3,329,032						1		%
Commercial and Industrial			260,145						258,660						1		%				260,145						258,660						1		%
Total			3,620,036						3,587,692						1		%				3,620,036						3,587,692						1		%

(1)Includes Utility natural gas and Non-utility cost of revenues, including natural gas.

Table of Contents

The following table provides variance explanations by major income statement caption for CERC:

						Favorable (Unfavorable)
						Three Months Ended September 30, 2021 vs 2020						Nine Months Ended September 30, 2021 vs 2020
						(in millions)
Revenues less Cost of revenues
Customer rates and impact of the change in rate design, exclusive of the TCJA impact						$	4					$	19
Non-volumetric and miscellaneous revenue, excluding impacts from COVID-19						(1)						16
Weather and usage, excluding impacts from COVID-19						(1)						15
Gross receipts tax, offset in taxes other than income taxes						2						10
Customer growth						1						8
Impacts on usage from COVID-19						6						7
Energy efficiency, offset in operation and maintenance						(2)						2
Refund of protected and unprotected EDIT, offset in income tax expense						(1)						(7)
Total						$	8					$	70
Operation and maintenance
Contract services						$	2					$	6
Merger related expenses, primarily severance and technology						—						4
Energy efficiency, offset in revenues less cost of revenues						2						(2)
Labor and benefits						—						(5)
Support services and miscellaneous operations and maintenance expenses						(5)						(8)
Total						$	(1)					$	(5)
Depreciation and amortization
Incremental capital projects placed in service						$	(4)					$	(16)
Total						$	(4)					$	(16)
Taxes other than income taxes
Gross receipts tax, offset in revenues less cost of revenues						$	(2)					$	(10)
Incremental capital projects placed in service						1						3
Total						$	(1)					$	(7)
Gain on Sale
Net gain on sale of MES						$	11					$	11
Total						$	11					$	11
Interest expense and other finance charges
Reduced interest rates on outstanding borrowings, partially offset by incremental borrowings for capital expenditures						$	4					$	14
Total						$	4					$	14
Other income (expense), net
Money pool investments with CenterPoint Energy interest income						$	2					$	5
Increase to non-service benefit cost						(4)						(3)
Total						$	(2)					$	2

Income Tax Expense. For a discussion of effective tax rate per period, see Note 13 to the Interim Condensed Financial Statements.

CERTAIN FACTORS AFFECTING FUTURE EARNINGS

For information on other developments, factors and trends that may have an impact on the Registrants’ future earnings, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Future Earnings” in Item 7 of Part II and “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K, in Item 1A of Part II of this combined Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this combined Form 10-Q.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

The following table summarizes the net cash provided by (used in) operating, investing and financing activities during the nine months ended September 30, 2021 and 2020:

			Nine Months Ended September 30,
			2021																		2020
			CenterPoint Energy						Houston Electric						CERC						CenterPoint Energy						Houston Electric						CERC
			(in millions)
Cash provided by (used in):
Operating activities			$	(551)					$	497					$	(1,466)					$	1,439					$	552					$	646
Investing activities			(2,104)						(1,104)						(534)						(683)						(283)						(339)
Financing activities			2,644						576						1,999						(819)						(316)						(307)

Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

			CenterPoint Energy						Houston Electric						CERC
			(in millions)
Changes in net income after adjusting for non-cash items			$	2,044					$	138					$	52
Changes in working capital			3						(7)						(107)
Increase in regulatory assets (1)			(2,228)						(195)						(1,999)
Change in equity in earnings of unconsolidated affiliates (2)			(1,757)						—						—
Change in distributions from unconsolidated affiliates (2) (3)			7						—						—
Higher pension contribution			25						—						—
Other			(84)						9						(58)
			$	(1,990)					$	(55)					$	(2,112)

(1)The increase in regulatory assets is primarily due to the incurred natural gas costs associated with the February 2021 Winter Storm Event. See Note 6 to the Interim Condensed Financial Statements for more information on the February 2021 Winter Storm Event.

(2)In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria and is reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Notes 3 and 9 to the Interim Condensed Financial Statements.

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

Investing Activities. The following items contributed to (increased) decreased net cash used in investing activities for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

			CenterPoint Energy						Houston Electric						CERC
			(in millions)
Capital expenditures			$	(259)					$	(358)					$	53
Net change in notes receivable from affiliated companies			—						(456)						9
Change in distributions from Enable in excess of cumulative earnings (1)			(46)						—						—
Proceeds from divestitures			(1,114)						—						(264)
Other			(2)						(7)						7
			$	(1,421)					$	(821)					$	(195)

Table of Contents

(1)In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria and is reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Notes 3 and 9 to the Interim Condensed Financial Statements.

Financing Activities. The following items contributed to (increased) decreased net cash used in financing activities for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

			CenterPoint Energy						Houston Electric						CERC
			(in millions)
Net changes in commercial paper outstanding			$	1,653					$	—					$	308
Decreased proceeds from issuances of preferred stock			(723)						—						—
Decreased proceeds from issuances of common stock			(672)						—						—
Net changes in long-term debt outstanding, excluding commercial paper			3,264						417						1,699
Net changes in debt issuance costs			(34)						(9)						(10)
Net changes in short-term borrowings			(64)						(5)						(58)
Decreased payment of Common Stock dividends			31						—						—
Decreased payment of preferred stock dividends			8						—						—
Net change in notes payable from affiliated companies			—						32						—
Dividend to parent			—						457						80
Capital contribution to parent associated with the sale of CES			—						—						286
Other			—						—						1
			$	3,463					$	892					$	2,306

Future Sources and Uses of Cash

The liquidity and capital requirements of the Registrants are affected primarily by results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Capital expenditures are expected to be used for investment in infrastructure. These capital expenditures are anticipated to maintain reliability and safety, increase resiliency and expand our systems through value-added projects. In addition to dividend payments on CenterPoint Energy’s Series A Preferred Stock and Common Stock, interest payments on debt, cash payment to OGE associated with the Enable Merger Agreement further discussed in Note 9 to the Interim Condensed Financial Statements, and cash payment expected to be made at the closing of the sale of the Arkansas and Oklahoma Natural Gas businesses that will be passed through to the Arkansas customers as further discussed in Note 3 of the Interim Condensed Financial Statements, the Registrants’ principal anticipated cash requirements for the remaining three months of 2021 include the following:

						CenterPoint Energy						Houston Electric						CERC
						(in millions)
Estimated capital expenditures						$	1,087					$	493					$	369
Scheduled principal payments on Securitization Bonds						73						73						—
Minimum contributions to pension plans and other post-retirement plans						5						—						1

February 2021 Winter Storm Event. In February 2021, portions of the United States experienced an extreme and unprecedented winter weather event that resulted in corresponding electricity generation shortages, including in Texas, and natural gas shortages and increased wholesale prices of natural gas in the United States. As a result of this weather event, the governors of Texas, Oklahoma and Louisiana declared states of either disaster or emergencies in their respective states. Subsequently, President Biden also approved major disaster declarations for all or parts of Texas, Oklahoma and Louisiana.

As a result of the February 2021 Winter Storm Event, from February 12, 2021 to February 22, 2021, management estimates CenterPoint Energy spent approximately an incremental $2.1 billion more on natural gas supplies (inclusive of an incremental $2.0 billion more spent by CERC on natural gas supplies). These amounts are estimates as of September 30, 2021 and remain subject to final settlement. While CenterPoint Energy and CERC will seek to recover the increased costs from its customers (although timing of recovery is uncertain), in the interim, CERC has issued additional external debt financing and used internally generated cash from operations to pay for such natural gas working capital. For further details, see Note 12 to the Interim Condensed Financial Statements. The proceeds from the debt financing, along with existing sources of liquidity,

Table of Contents

provided CERC with sufficient capital to address the settlement of natural gas purchases, including the associated upstream supply charges, at the end of March 2021. Any additional external debt financing and/or partial or delayed recovery may negatively impact CenterPoint Energy’s or CERC’s credit metrics, and may lead to a downgrade of CenterPoint Energy’s or CERC’s credit rating.

Although CenterPoint Energy’s and CERC’s extraordinary costs from the increase in natural gas prices are subject to available natural gas recovery mechanisms in their jurisdictions (although timing of recovery is uncertain), until such amounts are ultimately recovered from customers, CenterPoint Energy and CERC will continue to incur increased finance-related costs, resulting in a significant use of cash. See “— Regulatory Matters — February 2021 Winter Storm Event” below.

Capital Expenditures for Climate-Related Projects. On September 23, 2021, CenterPoint Energy announced its capital expenditure plan for the next 10 years. As part of its 10-year plan to spend over $40 billion on capital expenditures, it anticipates spending over $3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable generation and electric vehicle expansion.

The Registrants expect that anticipated cash needs for the remaining three months of 2021 will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, term loans or common stock, anticipated cash flows from operations, with respect to CenterPoint Energy and CERC, proceeds from commercial paper, with respect to CenterPoint Energy, distributions from Enable until the closing of the Enable Merger which is expected in 2021, including any proceeds therefrom, distributions from Energy Transfer or proceeds from dispositions of Energy Transfer common units or Energy Transfer Series G Preferred Units after the expected closing of the Enable Merger, and, with respect to CERC, proceeds from any potential asset sales, including the announced sale of our Natural Gas businesses in Arkansas and Oklahoma, which is expected to close by the end of 2021, subject to the satisfaction of customary closing conditions, including final orders from the APSC and OCC approving the transaction. Discretionary financing or refinancing may result in the issuance of equity securities of CenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets and additional credit facilities may not, however, be available on acceptable terms. For further information about the Enable Merger and the announced sale of our Arkansas and Oklahoma Natural Gas businesses, see Notes 3 and 9, respectively, to the Interim Condensed Financial Statements.

Off-Balance Sheet Arrangements

Other than Houston Electric’s general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed in Note 12 and guarantees as discussed in Note 14(b) to the Interim Condensed Financial Statements, we have no off-balance sheet arrangements.

Regulatory Matters

COVID-19 Regulatory Matters

For information about COVID-19 regulatory matters, see Note 6 to the Interim Condensed Financial Statements.

February 2021 Winter Storm Event

For information about the February 2021 Winter Storm Event, see Note 6 to the Interim Condensed Financial Statements. The table below presents the estimated incremental natural gas costs included in regulatory assets as of September 30, 2021 by state as a result of the February 2021 Winter Storm Event and CenterPoint Energy’s and CERC’s requested recovery status as of October 2021:

State						Recovery Status						Legislative Activity						Estimated Incremental Gas Cost (in millions)
Arkansas						Filed application on April 16, 2021 to recover over a five-year period beginning May 1, 2021. On April 28, 2021, APSC approved CERC to begin recovery effective May 2021 at a customer deposit interest rate of 0.8% over a five year period, subject to a true-up after APSC determines appropriate allocation, length of recovery, and carrying charge. The September 2021 hearing was waived.						A securitization bill has been signed by the Arkansas governor that allows for an alternate recovery period longer than the proposed recovery mechanism.						$	329

Table of Contents

State						Recovery Status						Legislative Activity						Estimated Incremental Gas Cost (in millions)
Louisiana						Filed application on April 16, 2021 for North Louisiana to recover over a three-year period beginning May 1, 2021. LPSC approved on April 22, 2021.						None.						72
Minnesota						Filed application on March 15, 2021 requesting to recover over a two-year period beginning May 1, 2021. Modified request and worked with other utilities to propose common definition of extraordinary gas costs to be recovered over a 27-month period starting September 1, 2021 using volumetric, seasonally adjusted, and stepped surcharge rates. MPUC issued order approving modified cost recovery subject to a prudence review. The prudence review schedule has testimonies being filed by parties October 2021 through February 2022, a hearing scheduled in February 2022, an administrative law judge report in May 2022 and MPUC final order issued by August 2022.						None.						405
Mississippi						Recovery began in September 2021 through normal gas cost recovery.						None.						3
Oklahoma						Filed application on February 25, 2021 to defer incremental gas costs and OCC approved on July 1, 2021. Securitization application was filed on May 17, 2021. Responsive testimony was filed by Public Utility Division staff on October 18, 2021 which recommended OCC issue a financing order to securitize the extraordinary gas costs and reject CERC’s request to calculate carrying costs using the long-term cost of debt. The Attorney General filed a statement of position on October 22, 2021. The procedural schedule calls for rebuttal testimony to be filed November 15, 2021, a hearing on the merits on December 1, 2021 and order issued by February 25, 2022.						A securitization bill has passed in the Oklahoma legislature.						79
Texas						Cost currently deferred to a regulatory asset. Securitization application was filed on July 30, 2021. Intervenor and staff testimony was received in September and October and CERC filed rebuttal testimony on October 25, 2021. A joint notice of settlement was filed by the Texas utilities that are requesting securitization, intervenors, and Railroad Commission staff on October 29, 2021. The settlement resolves all contested issues and includes an agreement by all signatories that the costs incurred by the utilities to purchase natural gas volumes during February 2021 are reasonable and necessary and were prudently incurred. As part of the settlement, CERC agreed to limit the interim carrying cost rate to its actual interim financing rate of 0.7%. A merits hearing was held on November 2, 2021. The RRC is expected to make a final decision of the regulatory asset amount on November 10, 2021.						A securitization bill has been signed by the Texas governor which authorizes the Railroad Commission to use securitization financing and issuance of customer rate relief bonds for recovery of extraordinary gas costs.						1,082
												Total CERC						$	1,970
Indiana North						Recovery began September 2021 with 50% of the February 2021 variance recovered evenly over the 12‐month period September 2021 to August 2022, with the remainder of the variance recovered through a volumetric per‐therm allocation over the same 12-month period.						None.						91

Table of Contents

State						Recovery Status						Legislative Activity						Estimated Incremental Gas Cost (in millions)
Indiana South						IURC issued order July 28, 2021. Recovery began August 2021 with 50% of the February 2021 variance recovered evenly over the 12‐month period August 2021 to July 2022, with the remainder of the variance recovered through a volumetric per‐therm allocation over the same 12-month period.						None.						16
												Total CenterPoint Energy						$	2,077

Indiana Electric CPCN (CenterPoint Energy)

On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Under the agreement, 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, which is projected to be at the end of 2023, and subject to approval by the IURC, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price. On February 23, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to purchase the project. Indiana Electric is also seeking approval for a 100 MW solar PPA in Warrick County, Indiana. The request accounts for increased cost of debt related to this PPA, which provides equivalent equity return to offset imputed debt during the 25 year life of the PPA. A hearing was conducted on June 21, 2021. On October 27, 2021, the IURC issued an order approving the CPCN and authorizing Indiana Electric to enter into the PPA; however, the IURC denied the request to preemptively offset imputed debt in the PPA cost.

On June 17, 2021 Indiana Electric filed a CPCN with the IURC seeking approval to construct two natural gas combustion turbines to replace portions of its existing coal-fired generation fleet. Indiana Electric has also requested depreciation expense and post in-service carrying costs to be deferred in a regulatory asset until the date Indiana South’s base rates include a return on and recovery of depreciation expense on the facility. A hearing is currently scheduled for January 26 through 31, 2022. The estimated $323 million turbine facility would be constructed at the current site of the A.B. Brown power plant in Posey County, Indiana and would provide a combined output of 460 MW. Construction of the turbines will begin following receipt of approval by the IURC, which is anticipated in the second half of 2022. The turbines are targeted to be operational in 2024. Subject to IURC approval, recovery of the proposed natural gas combustion turbines and regulatory asset will be requested in the next Indiana Electric rate case expected in 2023.

On August 25, 2021, Indiana Electric filed with the IURC seeking approval to purchase 185 MWs of solar power, under a 15-year PPA, from Oriden, which is developing a solar project in Vermillion County, Indiana, and 150 MWs of solar power, under a 20-year PPA, from Origis Energy, which is developing a solar project in Knox County, Indiana. Subject to necessary approvals, both solar arrays are expected to be in service by 2023.

Indiana Electric Securitization of Planned Generation Retirements (CenterPoint Energy)

The State of Indiana has enacted legislation, Senate Bill 386, that would enable CenterPoint Energy to request approval from the IURC to securitize the remaining book value and removal costs associated with generating facilities to be retired in the next twenty-four months. The Governor of Indiana signed the legislation on April 19, 2021. CenterPoint Energy intends to seek securitization in the future associated with planned coal generation retirements.

Subsidiary Restructuring

In July 2021, Indiana North and SIGECO filed petitions with the IURC for the approval of a new financial services agreement and the confirmation of Indiana North’s financing authority. VEDO filed a similar application with the PUCO in September 2021. CenterPoint Energy is evaluating the transfer of Indiana North and VEDO from VUHI to CERC in order to better align its organizational structure with management and financial reporting. As a part of the restructuring, VUHI may approach certain of its debt holders with an offer to exchange existing VUHI debt for CERC debt. The applications request confirmation of approval to reissue existing debt of Indiana North and VEDO to CERC, to continue to amortize existing issuance expenses and discounts, and to treat any potential exchange fees as discounts to be amortized over the life of the debt. If CenterPoint Energy moves forward with the restructuring, including any VUHI debt exchanges, it is expected to be completed in the first half of 2022.

Table of Contents

Indiana South Base Rate Case (CenterPoint Energy)

On October 30, 2020, and as subsequently amended, Indiana South filed its base rate case with the IURC seeking approval for a revenue increase of approximately $29 million. This rate case filing is required under Indiana TDSIC statutory requirements before the completion of Indiana South’s capital expenditure program, approved in 2014 for investments starting in 2014 through 2020. The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 5.99% on total rate base of approximately $469 million. Indiana South has utilized a projected test year, reflecting its 2021 budget as the basis for the revenue increase requested and proposes to implement rates in two phases. The first phase of rate implementation will occur as of the date of an order in this proceeding, expected in October 2021, and the second phase of rate implementation will occur at the completion of the test year, as of December 31, 2021. On April 23, 2021, a Stipulation and Settlement Agreement was filed resolving all issues in the case. The settlement recommended a revenue increase of $21 million based on a 9.7% ROE and an overall after-tax rate of return of 5.78% on total rate base of approximately $469 million. A settlement hearing was held on June 24, 2021. On October 6, 2021, the IURC issued an order approving the settlement. Phase one rates, reflecting actual plant-in-service and cost of capital through June 2021, became effective in October 2021 and phase two rates, reflecting actual plant-in-service and cost of capital through December 2021 with certain adjustments, will become effective in March 2022.

Indiana North Base Rate Case (CenterPoint Energy)

On December 18, 2020, Indiana North filed its base rate case with the IURC seeking approval for a revenue increase of approximately $21 million. This rate case filing is required under Indiana TDSIC statutory requirements before the completion of Indiana North’s capital expenditure program, approved in 2014 for investments starting in 2014 through 2020. The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 6.32% on total rate base of approximately $1,611 million. Indiana North has utilized a projected test year, reflecting its 2021 budget as the basis for the revenue increase requested and proposes to implement rates in two phases. The first phase of rate implementation will occur as of the date of an order in this proceeding, expected in October 2021, and the second phase of rate implementation will occur at the completion of the test year, as of December 31, 2021. On June 25, 2021, a Stipulation and Settlement Agreement was filed resolving all issues in the case. The settlement recommended a revenue decrease of $6 million based on a 9.8% ROE and an overall after-tax rate of return of 6.16% on total rate base of approximately $1,611 million. A settlement hearing was held August 6, 2021. Under Indiana statutory requirements, the IURC has a minimum of 300 days and maximum of 360 days from the date of the filing of Indiana North’s case-in-chief to issue an order.

Space City Solar Transmission Interconnection Project (CenterPoint Energy and Houston Electric)

On December 17, 2020, Houston Electric filed a CCN application with the PUCT for approval to build a 345 kV transmission line in Wharton County, Texas connecting the Hillje substation on Houston Electric’s transmission system to the planned 610 MW Space City Solar Generation facility being developed by third-party developer EDF Renewables. Depending on the route ultimately approved by the PUCT, the estimated capital cost of the transmission line project ranges from approximately $23 million to $71 million. The actual capital costs of the project will depend on actual land acquisition costs, construction costs, and other factors in addition to route selection. In January 2021, Houston Electric executed a Standard Generation Interconnection Agreement for the Space City Solar Generation facility with EDF Renewables, which also provided security for the transmission line project in the form of a $23 million letter of credit, the amount of which is subject to change depending on the route approved. A hearing at the PUCT was held on June 28, 2021. On September 1, 2021, the administrative law judge issued a proposal for decision recommending a route that costs $25 million. The PUCT will consider the proposal for decision at the November 18, 2021 open meeting. The PUCT is required to issue its final decision on the transmission line project no later than December 2021. Subject to PUCT approval, Houston Electric expects to complete construction and energization of the transmission line by June 2022.

Table of Contents

Texas Legislation (CenterPoint Energy and Houston Electric)

In addition to the legislative activity discussed above, the Texas legislature enacted the following in 2021:

• Senate Bill 2 reforms the ERCOT board to be comprised of a total of eleven directors: three ex officio representatives, and eight members who are unaffiliated with any market participants. The three ex officio directors—the ERCOT CEO, the Public Counsel of the Office of Public Utility Counsel, and the PUCT Chair—serve on the board by virtue of their official position for as long as they hold that position. Two members are non-voting directors: the ERCOT CEO and the PUCT Chair. The other nine members are voting directors. On October 11, 2021, the PUCT announced the first two selected directors of the ERCOT board, Mr. Paul Foster and Mr. Carlos Aguilar, and simultaneously designated Mr. Foster as the Chair of the ERCOT board. As a result of these selections, the ERCOT board is now constituted in accordance with Senate Bill 2 and is authorized to serve as ERCOT’s governing body. On November 1, 2021, the PUCT announced the selection of three additional directors of the ERCOT board, Mr. William Flores, Ms. Elaine Mendoza and Mr. Zin Smati, and simultaneously designated Mr. Flores as the Vice Chair of the ERCOT board. The remaining three directors of the ERCOT board are expected to be named in the coming months.

• Senate Bill 3 establishes weatherization and other power grid requirements including the design and operation of a load management program for nonresidential customers during an energy emergency activation level 2 or higher event and the ability to recover the reasonable and necessary costs of the program.

• Senate Bill 415 allows a TDU to seek prior PUCT approval to contract with a power generation company for a PUCT assigned proportional share of electric energy storage system at the distribution level and recover certain costs and a reasonable return on contract payments if contract terms satisfy relevant accounting standards for a capital lease or finance lease.

• House Bill 2483 allows a TDU to procure, own and operate, or jointly own with another TDU, transmission and distribution facilities with a lead time of at least six months that would aid in restoring power to the utility's distribution customers following a widespread outage, excluding storage equipment or facilities. Reasonable and necessary costs can be recovered using the rate of return on investment from the most recent base rate proceeding. Recovery of incremental operation and maintenance expenses and any return not recovered in a rate proceeding can be deferred until a future ratemaking proceeding. Additionally, a TDU may lease and operate facilities that provide temporary emergency electric energy to aid in restoring power to the utility’s distribution customers during a widespread power outage. Leasing and operating costs can be recovered using the utility’s rate of return from the most recent base rate proceeding and incremental operation and maintenance expenses can be deferred. The lease must be treated as a capital lease or finance lease for ratemaking purposes.

• Senate Bill 1281 removes the requirement for an electric utility to amend its CCN to construct a transmission line that connects existing transmission facilities to a substation or metering point if certain conditions are met and adds a customer benefit test into consideration. The bill also requires ERCOT to conduct biennial assessments of grid reliability in extreme weather scenarios.

Houston Electric continues to review the effects of the legislation, and is working with the PUCT regarding proposed rulemakings and pursuing implementation of these items where applicable. For example, Houston Electric secured, on a temporary short-term basis, a lease of 135 MWs of mobile generation to address major weather events like Hurricane Nicholas and deployed some of the equipment during the restoration process. Houston Electric is further evaluating a longer-term mobile generation solution that could include the lease of incremental MWs to increase the resiliency for customers during future major weather events.

Minnesota Base Rate Cases (CenterPoint Energy and CERC)

On October 28, 2019, CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately $62 million with a projected test year ended December 31, 2020. The revenue increase is based upon a requested ROE of 10.15% and an overall after-tax rate of return of 7.41% on a total rate base of approximately $1,307 million. CERC implemented interim rates reflecting $53 million for natural gas used on and after January 1, 2020. In September 2020, a settlement that addressed all issues except the Inclusive Financing/TOB Financing proposal by the City of Minneapolis was signed by a majority of all parties and was filed with the Office of Administrative Hearings. A stipulation between the City of Minneapolis and CERC addressing the TOB proposal was filed on September 2, 2020. The settlement reflects a $39 million increase and was based on an overall after-tax rate of return of 6.86% and does not specify individual cost of capital components. On March 1, 2021, the MPUC issued a written final order approving the $39 million increase and rejected the TOB stipulation. The order also required CERC and the City of Minneapolis to submit a future filing to allow for further development of a potential TOB pilot program and additional or expanded low-income conservation improvement programs. A compliance filing was submitted on March 12, 2021 proposing a final rate implementation on June 1, 2021 and the interim

Table of Contents

refund occurring in June 2021, contingent on final MPUC approval. Pursuant to MPUC approval, final rates were implemented on June 1, 2021 and the interim rate refunds were applied to customer accounts starting on June 12, 2021.

On November 1, 2021, CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately $67 million with a projected test year ended December 31, 2022. The revenue increase is based upon a requested ROE of 10.2% and an overall rate of return of 7.06% on a total rate base of approximately $1.8 billion. CERC requested that an interim rate increase of approximately $52 million be implemented January 1, 2022 while the rate case is litigated. An alternative request was also filed on November 1, 2021. If the alternative request is approved, a final rate increase of $40 million would be implemented in the rate case on January 1, 2022. The alternative proposal includes an increase in rates for plant investment only using the overall rate of return approved in the prior rate case, an asymmetrical capital true-up, extension of the recovery of gas costs incurred to serve customers in February 2021 from the current 27 month mechanism to 63 months, an income tax rider, continuation of the existing property tax rider and continued deferral of COVID-19 incremental costs along with additional adjustments.

Minnesota Legislation (CenterPoint Energy and CERC)

The Natural Gas Innovation Act was passed by the Minnesota legislature in June 2021 with bipartisan support. This law establishes a regulatory framework to enable the state’s investor-owned natural gas utilities to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing greenhouse gas emissions and advancing the state’s clean energy future. Specifically, the Natural Gas Innovation Act allows a natural gas utility to submit an innovation plan for approval by the MPUC which could propose the use of renewable energy resources and innovative technologies such as:

• renewable natural gas (produces energy from organic materials such as wastewater, agricultural manure, food waste, agricultural or forest waste);

• renewable hydrogen gas (produces energy from water through electrolysis with renewable electricity such as solar);

• energy efficiency measures (avoids energy consumption in excess of the utility’s existing conservation programs); and

• innovative technologies (reduces or avoids greenhouse gas emissions using technologies such as carbon capture).

CERC expects to submit its first innovation plan to the MPUC in 2022. The maximum allowable cost for an innovation plan will start at 1.75% of the utility's revenue in the state and could increase to 4% by 2033, subject to review and approval by the MPUC.

Rate Change Applications

The Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. In addition, Houston Electric is periodically involved in proceedings to adjust its capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms in Texas (GRIP), its cost of service adjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC, respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR, respectively). CenterPoint Energy is periodically involved in proceedings to adjust its capital tracking mechanisms in Indiana (CSIA for gas and TDSIC for electric) and Ohio (DRR), its decoupling mechanism in Indiana (SRC for gas), and its energy efficiency cost trackers in Indiana (EEFC for gas and DSMA for electric) and Ohio (EEFR). The table below reflects significant applications pending or completed since the Registrants’ combined 2020 Form 10-K was filed with the SEC.

Mechanism						Annual Increase (Decrease) (1) (in millions)						Filing Date						Effective Date						Approval Date						Additional Information
CenterPoint Energy and Houston Electric (PUCT)
EECRF						22						June 2021						March 2022						November 2021						The requested $63 million is comprised of the following: 2022 Program and Evaluation, Measurement and Verification costs of $38 million, 2020 under-recovery of $3 million including interest, and 2020 earned bonus of $22 million. A settlement was filed in September 2021 reducing the amount requested by $315 thousand and recommending 2022 Program and Evaluation, Measurement and Verification costs of $38 million, 2020 under-recovery of $3 million including interest, and 2020 earned bonus of $22 million.
TCOS						9						March 2021						April 2021						April 2021						Based on net change in invested capital of $80 million.
TCOS						19						August 2021						October 2021						October 2021						Based on net change of invested capital of $166 million.

Table of Contents

Mechanism						Annual Increase (Decrease) (1) (in millions)						Filing Date						Effective Date						Approval Date						Additional Information
CenterPoint Energy and CERC - Arkansas (APSC)
FRP						(10)						April 2021						October 2021						September 2021						Based on ROE of 9.50% with 50 basis point (+/-) earnings band. Revenue decrease of $10.4 million based on prior test year true-up earned return on equity of 11.53%. The initial term of Rider FRP was terminated in September 2021. A petition for rehearing was filed on October 8, 2021. On October 14, 2021, as part of the settlement filed in the asset sale docket, CERC filed a motion to hold the petition for rehearing in abeyance pending closing of the asset sale. The APSC issued an order on October 15, 2021 granting the motion. Additionally, a request to extend the Rider FRP term for an additional five years was filed on May 5, 2021. On October 19, 2021, as part of the settlement filed in the asset sale docket, CERC filed a motion to hold this proceeding in abeyance and the APSC granted the motion on October 21, 2021.
CenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission)
GRIP						28						March 2021						June 2021						June 2021						Based on net change in invested capital of $197 million.
CenterPoint Energy and CERC - Louisiana (LPSC)
RSP (1)						7						September 2021						TBD						TBD						Based on authorized ROE of 9.95% with 50 basis point (+/-) earnings band. The North Louisiana decrease, with certain non-recurring true-up adjustments outside the earnings band, is a decrease of $1 million based on a test year ended June 2021 and adjusted earned ROE of 14.8%. The South Louisiana increase, with certain non-recurring true-up adjustments outside the earnings band, is an increase of $8 million based on a test year ended June 2021 and adjusted earned ROE of 1.7%. Per the 2020 RSP order, a request to extend the RSP for an additional three year term was filed in July 2021.
CenterPoint Energy and CERC - Minnesota (MPUC)
Rate Case (1)						67						November 2021						TBD						TBD						See discussion above under Minnesota Base Rate Case.
Decoupling						N/A						September 2021						September 2021						TBD						Represents under-recovery of approximately $19 million recorded for and during the period July 1, 2020 through June 30, 2021, including an approximately $5 million adjustment related to the implementation of final rates from the general rate case filed in 2019.
Decoupling						N/A						September 2020						September 2020						March 2021						Represents under-recovery of approximately $2 million recorded for and during the period July 1, 2019 through June 30, 2020, including approximately $1 million related to the period July 1, 2018 through June 30, 2019.
Rate Case						39						October 2019						June 2021						March 2021						See discussion above under Minnesota Base Rate Case.
CIP Financial Incentive						10						May 2021						December 2021						October 2021						CIP Financial Incentive based on 2020 activity.
CenterPoint Energy and CERC - Mississippi (MPSC)
RRA						3						April 2021						September 2021						September 2021						Based on ROE of 9.81% with 100 basis point (+/-) earnings band. Revenue increase of approximately $3 million based on 2020 test year adjusted earned ROE of 7.49%.
CenterPoint Energy and CERC - Oklahoma (OCC)
PBRC						(1)						March 2021						August 2021						August 2021						Based on ROE of 10% with 50 basis point (+/-) earnings band. Revenue credit of approximately $1 million based on 2020 test year adjusted earned ROE of 12.42%. A settlement was filed in June 2021 with a hearing held on July 1, 2021. OCC approved revenue credit of approximately $1 million on August 6, 2021.
CenterPoint Energy - Indiana South - Gas (IURC)
Rate Case						21						October 2020						October 2021						October 2021						See discussion above under Indiana South Base Rate Case.
CSIA						(1)						April 2021						July 2021						July 2021						Requested an increase of $11 million to rate base, which reflects a $(1 million) annual decrease in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes refunds associated with the TCJA, resulting in no change to the previous credit provided, and a change in the total (over)/under-recovery variance of less than $1 million annually.
CenterPoint Energy - Indiana North - Gas (IURC)
Rate Case (1)						21						December 2020						TBD						TBD						See discussion above under Indiana North Base Rate Case.
CSIA						5						April 2021						July 2021						July 2021						Requested an increase of $37 million to rate base, which reflects a $5 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes refunds associated with the TCJA, resulting in no change to the previous credit provided, and a change in the total (over)/under-recovery variance of $6 million annually.

Table of Contents

Mechanism						Annual Increase (Decrease) (1) (in millions)						Filing Date						Effective Date						Approval Date						Additional Information
CenterPoint Energy - Ohio (PUCO)
DRR						9						April 2021						September 2021						September 2021						Requested an increase of $71 million to rate base for investments made in 2020, which reflects a $9 million annual increase in current revenues. A change in (over)/under-recovery variance of $5 million annually is also included in rates.
CenterPoint Energy - Indiana Electric (IURC)
TDSIC						3						February 2021						May 2021						May 2021						Requested an increase of $28 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million.
CECA						8						February 2021						June 2021						May 2021						Reflects an $8 million annual increase in current revenues through a non-traditional rate making approach related to a 50 MW universal solar array placed in service in January 2021.
ECA						2						May 2021						September 2021						September 2021						Requested an increase of $39 million to rate base, which reflects a $2 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also included a change in (over)/under-recovery variance of less than $1 million annually.
TDSIC (1)						3						August 2021						TBD						TBD						Requested an increase of $35 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million.

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

Greenhouse Gas Regulation and Compliance (CenterPoint Energy)

On August 3, 2015, the EPA released its CPP rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting in the U.S. Supreme Court staying implementation of the rule. On July 8, 2019, the EPA published the ACE rule, which (i) repealed the CPP rule; (ii) replaced the CPP rule with a program that requires states to implement a program of energy efficiency improvement targets for individual coal-fired electric generating units; and (iii) amended the implementing regulations for Section 111(d) of the Clean Air Act. On January 19, 2021, the majority of the ACE rule — including the CPP repeal, CPP replacement, and the timing-related portions of the Section 111(d) implementing rule — was struck down by the U.S. Court of Appeals for the D.C. Circuit. At the EPA’s request, the D.C. Circuit withheld the portion of its mandate that would effectuate the reinstatement of the CPP rule until the EPA responds to the court’s decision with a rulemaking; this means that the CPP rule will not take effect during the pendency of the EPA’s rulemaking process. As of September 1, 2021, which is the date of the EPA’s latest court filing in the ACE rule litigation, the EPA is still in the process of developing a new rule to replace the CPP and ACE rules; however, on October 29, 2021, the U.S. Supreme Court agreed to consider four petitions filed by various coal interests and a coalition of 19 states that seek review of the lower court’s decision vacating the ACE rule.

Various states and industry parties have filed petitions for a writ of certiorari with the U.S. Supreme Court seeking review of the circuit court decision vacating the ACE rule; however, the Biden administration has indicated it will not appeal the ACE decision and does not intend to seek reinstatement of the CPP. CenterPoint Energy is currently unable to predict what a new replacement rule would require. President Biden has also signed an executive order requiring agencies to review environmental actions taken by the Trump administration, and the Biden administration has issued a memorandum to departments and agencies to refrain from proposing or issuing rules until a departmental or agency head appointed or designated by the Biden administration has reviewed and approved the rule.

The Biden administration recommitted the United States to the Paris Agreement, which can be expected to drive a renewed regulatory push to require further GHG emission reductions from the energy sector and has indicated an intent to lead negotiations at the next global climate conference in Glasgow, Scotland. Shortly after taking office in January 2021, President Biden issued a series of executive orders designed to address climate change. Reentry into the Paris Agreement, any revised climate commitments coming out of Glasgow, and President Biden’s executive orders may result in the development of additional regulations or changes to existing regulations. On April 22, 2021, President Biden announced new goals of 50% reduction of economy-wide GHG emissions, and 100% carbon-free electricity by 2035. In September 2021, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035 as well as a goal to reduce Scope

Table of Contents

3 emissions by 20% to 30% by 2035. Because Texas is an unregulated market, CenterPoint Energy’s Scope 2 estimates do not take into account Texas electric transmission and distribution assets in the line loss calculation and exclude emissions related to purchased power between 2024 and 2026 as estimated. CenterPoint Energy’s Scope 3 estimates do not take into account the emissions of transport customers and emissions related to upstream extraction. These emission goals are expected to be used to position CenterPoint Energy to comply with anticipated future regulatory requirements from the Biden administration to further reduce GHG emissions. CenterPoint Energy’s and CERC’s revenues, operating costs and capital requirements could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of their operations or would have the effect of reducing the consumption of natural gas. In addition, the EPA has indicated that it intends to implement new regulations targeting reductions in methane emissions, which are likely to increase costs related to production, transmission and storage of natural gas. Houston Electric, in contrast to some electric utilities including Indiana Electric, does not generate electricity and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity. CenterPoint Energy’s new net zero emissions goals are aligned with Indiana Electric’s generation transition plan and are expected to position Indiana Electric to comply with anticipated future regulatory requirements related to GHG emissions reductions. Nevertheless, Houston Electric’s and Indiana Electric’s revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within their respective service territories. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for the Registrants’ services. For example, Minnesota has enacted the Natural Gas Innovation Act that seeks to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions. Further, certain local government bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain specified dates. For example, Minneapolis has adopted carbon emission reduction goals in an effort to decrease reliance on fossil gas. Additionally, cities in Minnesota within CenterPoint Energy’s Natural Gas operational footprint are considering initiatives to eliminate natural gas use in buildings and focus on electrification. Also, Minnesota cities may consider seeking legislative authority for the ability to enact voluntary enhanced energy standards for all development projects. These initiatives could have a significant impact on CenterPoint Energy and its operations, and this impact could increase if other cities and jurisdictions in its service area enact similar initiatives. Further, our third party suppliers, vendors and partners may also be impacted by climate change laws and regulations, which could impact CenterPoint Energy’s business by, among other things, causing permitting and construction delays, project cancellations or increased project costs passed on to CenterPoint Energy. Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions characteristics would be expected to benefit CenterPoint Energy and CERC and their natural gas-related businesses. At this time, however, we cannot quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on the Registrants’ businesses.

Compliance costs and other effects associated with climate change, reductions in GHG emissions and obtaining renewable energy sources remain uncertain. Although the amount of compliance costs remains uncertain, any new regulation or legislation relating to climate change will likely result in an increase in compliance costs. While the requirements of a federal or state rule remain uncertain, CenterPoint Energy will continue to monitor regulatory activity regarding GHG emission standards that may affect its business. Currently, CenterPoint Energy does not purchase carbon credits. In connection with its net zero emissions goals, CenterPoint Energy is expected to purchase carbon credits in the future; however, CenterPoint Energy does not currently expect the number of credits, or cost for those credits, to be material.

Climate Change Trends and Uncertainties

As a result of increased awareness regarding climate change, coupled with adverse economic conditions, availability of alternative energy sources, including private solar, microturbines, fuel cells, energy-efficient buildings and energy storage devices, and new regulations restricting emissions, including potential regulations of methane emissions, some consumers and companies may use less energy, meet their own energy needs through alternative energy sources or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for the Registrants’ services. As these technologies become a more cost-competitive option over time, whether through cost effectiveness or government incentives and subsidies, certain customers may choose to meet their own energy needs and subsequently decrease usage of the Registrants’ systems and services, which may result in, among other things, Indiana Electric’s generating facilities becoming less competitive and economical. Further, evolving investor sentiment related to the use of fossil fuels and initiatives to restrict continued production of fossil fuels have had significant impacts on CenterPoint Energy’s electric generation and natural gas businesses. For example, because Indiana Electric’s current generating facilities substantially rely on coal for their operations, certain financial institutions choose not to participate in CenterPoint Energy’s financing arrangements. Conversely, demand for the Registrants’ services may increase as a result of customer changes in response to climate change. For example, as the utilization of electric vehicles increases, demand for electricity may increase, resulting in increased usage of CenterPoint Energy’s systems and services. Any negative opinions with respect to CenterPoint Energy’s environmental practices or its ability to meet the challenges posed by climate change formed by regulators, customers, investors or legislators could harm its reputation.

Table of Contents

To address these developments, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035. In June of 2020, Indiana Electric identified a preferred generation resource in its most recent IRP submitted to the IURC that aligns with its new net zero emission goals and includes the replacement of 730 MWs of coal-fired generation facilities with a significant portion comprised of renewables, including solar and wind, supported by dispatchable natural gas combustion turbines, including a pipeline to serve such natural gas generation, as well as storage. Additionally, as reflected in its 10-year capital plan announced in September 2021, CenterPoint Energy anticipates spending over $3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable generation and electric vehicle expansion. CenterPoint Energy believes its planned investments in renewable energy generation and corresponding planned reduction in its GHG emissions as part of its newly adopted net zero emissions goals support global efforts to reduce the impacts of climate change.

To the extent climate changes result in warmer temperatures in the Registrants’ or Enable’s service territories, financial results from the Registrants’ businesses could be adversely impacted. For example, CenterPoint Energy’s and CERC’s Natural Gas could be adversely affected through lower natural gas sales and Enable’s natural gas gathering, processing and transportation and crude oil gathering businesses could experience lower revenues. On the other hand, warmer temperatures in CenterPoint Energy’s and Houston Electric’s electric service territory may increase revenues from transmission and distribution and generation through increased demand for electricity used for cooling. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes, tornadoes and flooding, including such storms as the February 2021 Winter Storm Event. Since many of the Registrants’ facilities are located along or near the Texas Gulf Coast, increased or more severe hurricanes or tornadoes could increase costs to repair damaged facilities and restore service to customers. CenterPoint Energy’s recently announced 10-year capital plan includes capital expenditures to maintain reliability and safety and increase resiliency of its systems as climate change may result in more frequent significant weather events. Houston Electric does not own or operate any electric generation facilities other than, since September 2021, 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. To the extent adverse weather conditions affect the Registrants’ suppliers, results from their energy delivery businesses may suffer. For example, 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 and also caused a reduction in available natural gas capacity. When the Registrants cannot deliver electricity or natural gas to customers, or customers cannot receive services, the Registrants’ financial results can be impacted by lost revenues, and they generally must seek approval from regulators to recover restoration costs. To the extent the Registrants are unable to recover those costs, or if higher rates resulting from recovery of such costs result in reduced demand for services, the Registrants’ future financial results may be adversely impacted. Further, as the intensity and frequency of significant weather events continues, it may impact our ability to secure cost-efficient insurance.

Other Matters

Credit Facilities

The Registrants may draw on their respective revolving credit facilities from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop CenterPoint Energy’s and CERC’s commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to the Registrants’ revolving credit facilities, see Note 12 to the Interim Condensed Financial Statements.

Table of Contents

Based on the consolidated debt to capitalization covenant in the Registrants’ revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately $4 billion as of September 30, 2021. As of October 21, 2021, the Registrants had the following revolving credit facilities and utilization of such facilities:

												Amount Utilized as of October 21, 2021
Registrant						Size of Facility						Loans						Letters of Credit						Commercial Paper						Weighted Average Interest Rate						Termination Date
						(in millions)
CenterPoint Energy						$	2,400					$	—					$	11					$	1,164					0.18%						February 4, 2024
CenterPoint Energy (1)						400						—						—						265						0.17%						February 4, 2024
Houston Electric						300						—						—						—						—%						February 4, 2024
CERC						900						—						—						715						0.17%						February 4, 2024
Total						$	4,000					$	—					$	11					$	2,144

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

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

Long-term Debt

For detailed information about the Registrants’ debt transactions in 2021, see Note 12 to the Interim Condensed Financial Statements.

Securities Registered with the SEC

On May 29, 2020, the Registrants filed a joint shelf registration statement with the SEC registering indeterminate principal amounts of Houston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate number of shares of Common Stock, shares of preferred stock, depositary shares, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on May 29, 2023. For information related to the Registrants’ debt issuances in 2021, see Note 12 to the Interim Condensed Financial Statements.

Temporary Investments

As of October 21, 2021, the Registrants had no temporary investments.

Money Pool

The Registrants participate in a money pool through which they and certain of their subsidiaries can borrow or invest on a short-term basis. 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. The net funding requirements of the CERC money pool are expected to be met with borrowings under CERC’s revolving credit facility or the sale of CERC’s commercial paper. The money pool may not provide sufficient funds to meet the Registrants’ cash needs.

Table of Contents

The table below summarizes CenterPoint Energy money pool activity by Registrant as of October 21, 2021:

			Weighted Average Interest Rate						Houston Electric						CERC
									(in millions)
Money pool investments (borrowings)			0.18%						$	(133)					$	—

Impact on Liquidity of a Downgrade in Credit Ratings

The interest on borrowings under the credit facilities is based on each respective borrower’s credit ratings. As of October 21, 2021, Moody’s, S&P and Fitch had assigned the following credit ratings to the borrowers:

												Moody’s												S&P												Fitch
Registrant						Borrower/Instrument						Rating						Outlook (1)						Rating						Outlook (2)						Rating						Outlook (3)
CenterPoint Energy						CenterPoint Energy Senior Unsecured Debt						Baa2						Stable						BBB						Stable						BBB						Stable
CenterPoint Energy						Vectren Corp. Issuer Rating						n/a						n/a						BBB+						Stable						n/a						n/a
CenterPoint Energy						VUHI Senior Unsecured Debt						A3						Stable						BBB+						Stable						n/a						n/a
CenterPoint Energy						Indiana Gas Senior Unsecured Debt						n/a						n/a						BBB+						Stable						n/a						n/a
CenterPoint Energy						SIGECO Senior Secured Debt						A1						Stable						A						Stable						n/a						n/a
Houston Electric						Houston Electric Senior Secured Debt						A2						Stable						A						Stable						A						Stable
CERC						CERC Corp. Senior Unsecured Debt						A3						Negative						BBB+						Stable						A-						Stable

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

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

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

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

A decline in credit ratings could increase borrowing costs under the Registrants’ revolving credit facilities. If the Registrants’ credit ratings had been downgraded one notch by S&P and Moody’s from the ratings that existed as of September 30, 2021, the impact on the borrowing costs under the four revolving credit facilities would have been insignificant. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact the Registrants’ ability to complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash collateral requirements and reduce earnings of CenterPoint Energy’s and CERC’s Natural Gas reportable segments.

Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels, CERC might need to provide cash or other collateral of as much as $223 million as of September 30, 2021. The amount of collateral will depend on seasonal variations in transportation levels.

ZENS and Securities Related to ZENS (CenterPoint Energy)

If CenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought its liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of ZENS-Related Securities that CenterPoint Energy owns or from other sources. CenterPoint Energy owns shares of ZENS-Related Securities equal to

Table of Contents

approximately 100% of the reference shares used to calculate its obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and shares of ZENS-Related Securities would typically cease when ZENS are exchanged or otherwise retired and shares of ZENS-Related Securities are sold. The ultimate tax liability related to the ZENS and ZENS-Related Securities continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement or exchange of the ZENS. If all ZENS had been exchanged for cash on September 30, 2021, deferred taxes of approximately $506 million would have been payable in 2021. If all the ZENS-Related Securities had been sold on September 30, 2021, capital gains taxes of approximately $165 million would have been payable in 2021 based on 2021 tax rates in effect. For additional information about ZENS, see Note 11 to the Interim Condensed Financial Statements.

Cross Defaults

Under each of CenterPoint Energy’s (including VUHI’s), Houston Electric’s and CERC’s respective revolving credit facilities, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125 million by the borrower or any of their respective significant subsidiaries will cause a default under such borrower’s respective credit facility or term loan agreement. A default by CenterPoint Energy would not trigger a default under its subsidiaries’ debt instruments or revolving credit facilities.

Possible Acquisitions, Divestitures and Joint Ventures

From time to time, the Registrants consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. The Registrants may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to the Registrants at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions. 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. 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. For further information, see Note 3 to the Interim Condensed Financial Statements.

Additionally, CenterPoint Energy’s process of evaluating and optimizing the various businesses, assets and ownership interests currently held by it included consideration of, among other things, various plans, proposals and other strategic alternatives with respect to Enable and CenterPoint Energy’s investment in Enable, which may result in the disposition of a portion or all of its ownership interest in Enable. In February 2021, CenterPoint Energy announced its support of the Enable Merger, which is expected to close in 2021, subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance. CenterPoint Energy may not realize any or all of the anticipated strategic, financial, operational or other benefits from the Enable Merger, if completed, or from any disposition or reduction of its anticipated resulting investment in Energy Transfer. 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. Additionally, CenterPoint Energy plans for a complete exit from its Midstream Investment reportable segment in 2022. There can be no assurances that any disposal of Energy Transfer common units or Energy Transfer Series G Preferred Units will be completed. Any disposal of such securities may involve significant costs and expenses, including in connection with any public offering or private placement, a significant underwriting or other discount. For information regarding the Enable Merger and the Forward Sale Agreement, see Note 9 to the Interim Condensed Financial Statements.

On August 31, 2021, CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of MES to Last Mile Energy. For further information, see Note 3 to the Interim Condensed Financial Statements.

Table of Contents

Enable Midstream Partners (CenterPoint Energy)

CenterPoint Energy receives quarterly cash distributions from Enable on its common units and Enable Series A Preferred Units. A reduction in the cash distributions CenterPoint Energy receives from Enable could significantly impact CenterPoint Energy’s liquidity. For additional information about Enable and the transactions contemplated by the Enable Merger Agreement, see Notes 3 and 9 to the Interim Condensed Financial Statements.

Hedging of Interest Expense for Future Debt Issuances

From time to time, the Registrants may enter into interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 7(a) to the Interim Condensed Financial Statements.

Weather Hedge (CenterPoint Energy and CERC)

CenterPoint Energy and CERC have historically entered into partial weather hedges for certain Natural Gas jurisdictions and electric operations’ Texas service territory to mitigate the impact of fluctuations from normal weather. CenterPoint Energy and CERC remain exposed to some weather risk as a result of the partial hedges. The Registrants do not currently enter into weather hedges. For more information about weather hedges, see Note 7(a) to the Interim Condensed Financial Statements.

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

Houston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity Houston Electric distributes to their customers. Before conducting business, a REP must register with the PUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, the February 2021 Winter Storm Event, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for Houston Electric’s services or could cause them to delay such payments. Houston Electric depends on these REPs to remit payments on a timely basis, and any delay or default in payment by REPs could adversely affect Houston Electric’s cash flows. In the event of a REP default, Houston Electric’s tariff provides a number of remedies, including the option for Houston Electric to request that the PUCT suspend or revoke the certification of the REP. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. However, Houston Electric remains at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations and claims might be made against Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, PUCT regulations authorize utilities, such as Houston Electric, to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.

Other Factors that Could Affect Cash Requirements

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

• further reductions in the cash distributions we receive from Enable;

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

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

• increased costs related to the acquisition of natural gas, including as a result of the February 2021 Winter Storm Event (CenterPoint Energy and CERC);

• increases in interest expense in connection with debt refinancings and borrowings under credit facilities or term loans or the use of alternative sources of financings due to the effects of COVID-19 and the February 2021 Winter Storm Event on capital and other financial markets;

• the outcome of litigation, including litigation related to the February 2021 Winter Storm Event;

• the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric, including the negative impact on such ability related to COVID-19 and the February 2021 Winter Storm Event;

• various legislative or regulatory actions;

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

Table of Contents

• slower customer payments and increased write-offs of receivables due to higher natural gas prices, changing economic conditions, COVID-19 or the February 2021 Winter Storm Event (CenterPoint Energy and CERC);

• the satisfaction of any obligations pursuant to guarantees;

• contributions to pension and postretirement benefit plans;

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

• various other risks identified in “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2020 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.

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

Certain provisions in note purchase agreements relating to debt issued by VUHI have the effect of restricting the amount of additional first mortgage bonds issued by SIGECO. For information about the total debt to capitalization financial covenants in the Registrants’ and certain of CenterPoint Energy’s subsidiaries’ revolving credit facilities, see Note 12 to the Interim Condensed Financial Statements.

CRITICAL ACCOUNTING POLICIES

Assets held for sale

Generally, a long-lived asset to be sold is classified as held for sale in the period in which management, with approval from the Board of Directors, as applicable, commits to a plan to sell, and a sale is expected to be completed within one year. The Registrants record assets and liabilities held for sale, or the disposal group, at the lower of their carrying value or their estimated fair value less cost to sell. If 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. Goodwill is not allocated to a portion of a reporting unit that does not meet the definition of a business.

During the three and nine months ended September 30, 2021, as described further in Note 3 to the Interim Condensed Financial Statements, certain assets and liabilities representing a business met the held for sale criteria. As a result, goodwill attributable to the natural gas reporting unit of $398 million and $144 million at CenterPoint Energy and CERC, respectively, was deemed attributable to assets held for sale as of September 30, 2021. 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. No change to the goodwill attributable to the natural gas reporting unit as of September 30, 2021 was identified.

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

Fair value measurements require significant judgment and often unobservable inputs, including (i) projected timing and amount of future cash flows, which factor in planned growth initiatives, (ii) the regulatory environment, as applicable, and (iii) discount rates reflecting risk inherent in the future market prices. Changes in these assumptions could have a significant impact on the resulting fair value.

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. The fair value of the retained businesses within the natural gas reporting unit was estimated based on a weighted combination of income approach and market approaches, consistent with the methodology used in the 2020 and 2021 annual goodwill impairment tests. A third-party valuation specialist was utilized to determine the key assumptions used in the estimate of fair value of the retained natural gas reporting unit as of September 30, 2021. The fair value of the retained natural gas reporting unit at CenterPoint Energy and CERC significantly exceeded the carrying value of the retained businesses within that reporting unit as of September 30, 2021.

No goodwill impairment resulted from assets held for sale as of September 30, 2021, and the annual goodwill impairment test was performed in the third quarter of 2021. An interim goodwill impairment test could be triggered outside of the annual test by the following: actual earnings results that are materially lower than expected, significant adverse changes in the operating environment, an increase in the discount rate, changes in other key assumptions which require judgment and are forward looking in nature, if CenterPoint Energy’s market capitalization falls below book value for an extended period of time, or events affecting a reporting unit such as a contemplated disposal of all or part of a reporting unit. Interim goodwill

Table of Contents

impairment tests were not required to be performed for any other reporting unit during the three and nine months ended September 30, 2021.

For further information, see Note 3 to the Interim Condensed Financial Statements.