Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements [Text Block]

Fair Value Measurements

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

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.

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

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect the Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Registrants develop these inputs based on the best information available, including the Registrants’ own data. A market approach is utilized to value the Registrants’ Level 3 assets or liabilities. As of March 31, 2020, CenterPoint Energy’s and CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options. Level 3 physical natural gas forward contracts and options are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.15 to $4.83 per MMBtu for CenterPoint Energy, with a volumetrically weighted average of $2.22 per MMBtu, and from $1.15 to $4.83 per MMBtu for CERC, with a volumetrically weighted average of $2.22 per MMBtu) as an unobservable input. CenterPoint Energy’s and CERC’s Level 3 physical natural gas forward contracts and options derivative assets and liabilities consist of both long and short positions (forwards and options). Forward price decreases (increases) as of March 31, 2020 would have resulted in lower (higher) values, respectively, for long forwards and options and higher (lower) values, respectively, for short forwards and options.

The Registrants determine the appropriate level for each financial asset and liability on a quarterly basis. The Registrants also recognize purchases of Level 3 financial assets and liabilities at their fair value at the end of the reporting period.

The following tables present information about the Registrants’ assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 and indicate the fair value hierarchy of the valuation techniques utilized by the Registrants to determine such fair value.

CenterPoint Energy

	March 31, 2020											December 31, 2019
	Level 1		Level 2		Level 3		Netting (1)			Total		Level 1		Level 2		Level 3		Netting (1)			Total
Assets	(in millions)
Corporate equities	$	680	$	—	$	—	$	—		$	680	$	825	$	—	$	—	$	—		$	825
Investments, including money market funds (2)	48		—		—		—			48		49		—		—		—			49
Natural gas derivatives (3)(4)(5)	—		305		41		(133		)	213		—		250		42		(98		)	194
Hedged portion of gas imbalance payable	1		—		—		—			1		—		—		—		—			—
Total assets	$	729	$	305	$	41	$	(133	)	$	942	$	874	$	250	$	42	$	(98	)	$	1,068
Liabilities
Indexed debt securities derivative	$	—	$	758	$	—	$	—		$	758	$	—	$	893	$	—	$	—		$	893
Interest rate derivatives	—		26		—		—			26		—		10		—		—			10
Natural gas derivatives	—		23		—		—			23		—		22		—		—			22
Natural gas derivatives (3)(4)(5)	—		201		18		(183		)	36		—		195		24		(161		)	58
Hedged portion of natural gas inventory (5)	19		—		—		—			19		13		—		—		—			13
Hedged portion of gas imbalance receivable	2		—		—		—			2		—		—		—		—			—
Total liabilities	$	21	$	1,008	$	18	$	(183	)	$	864	$	13	$	1,120	$	24	$	(161	)	$	996

Houston Electric

	March 31, 2020										December 31, 2019
	Level 1		Level 2		Level 3		Netting		Total		Level 1		Level 2		Level 3		Netting		Total
Assets	(in millions)
Investments, including money market funds (2)	$	31	$	—	$	—	$	—	$	31	$	32	$	—	$	—	$	—	$	32
Total assets	$	31	$	—	$	—	$	—	$	31	$	32	$	—	$	—	$	—	$	32

CERC

	March 31, 2020											December 31, 2019
	Level 1		Level 2		Level 3		Netting (1)			Total		Level 1		Level 2		Level 3		Netting (1)			Total
Assets	(in millions)
Corporate equities	$	1	$	—	$	—	$	—		$	1	$	2	$	—	$	—	$	—		$	2
Investments, including money market funds (2)	11		—		—		—			11		11		—		—		—			11
Natural gas derivatives (3)(4)(5)	—		305		41		(133		)	213		—		250		42		(98		)	194
Hedged portion of gas imbalance payable	1		—		—		—			1		—		—		—		—			—
Total assets	$	13	$	305	$	41	$	(133	)	$	226	$	13	$	250	$	42	$	(98	)	$	207
Liabilities
Natural gas derivatives (3)(4)(5)	$	—	$	201	$	18	$	(183	)	$	36	$	—	$	195	$	24	$	(161	)	$	58
Hedged portion of natural gas inventory (5)	19		—		—		—			19		13		—		—		—			13
Hedged portion of gas imbalance receivable	2		—		—		—			2		—		—		—		—			—
Total liabilities	$	21	$	201	$	18	$	(183	)	$	57	$	13	$	195	$	24	$	(161	)	$	71

(1) Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy and CERC to settle positive and negative positions and also include cash collateral posted with the same counterparties as follows:

	March 31, 2020				December 31, 2019
	CenterPoint Energy		CERC		CenterPoint Energy		CERC
	(in millions)
Cash collateral posted with the same counterparties	$	50	$	50	$	63	$	63

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

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

(4) Level 1 natural gas derivatives include exchange-traded derivatives cleared by the CME, which deems that financial instruments cleared by the CME are settled daily in connection with posted cash payments. As a result of this exchange rule, CME-related derivatives are considered to have no fair value at the balance sheet date for financial reporting purposes and are presented in Level 1 net of posted cash; however, the derivatives remain outstanding and subject to future commodity price fluctuations until they are settled in accordance with their contractual terms. Derivative transactions cleared on exchanges other than the CME (e.g., the Intercontinental Exchange or ICE) continue to be reported on a gross basis.

(5) Amounts are classified as held for sale in the Registrants’ respective Condensed Consolidated Balance Sheets.

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

		Three Months Ended March 31,
		2020						2019
		CenterPoint Energy			CERC			CenterPoint Energy			CERC
	(in millions)
Beginning balance		$	18		$	18		$	30		$	30
Total gains (losses)		15			15			(1		)	(1		)
Total settlements		(10		)	(10		)	(15		)	(15		)
Transfers into Level 3		—			—			1			1
Transfers out of Level 3		—			—			(2		)	(2		)
Ending balance (1)		$	23		$	23		$	13		$	13
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date:
		$	14		$	14		$	(2	)	$	(2	)

(1) CenterPoint Energy and CERC did not have significant Level 3 purchases or sales during the three months ended March 31, 2020 or 2019. The Level 3 assets and liabilities as of March 31, 2020 and 2019 are classified in the CenterPoint Energy’s and CERC’s respective Condensed Consolidated Balance Sheets as held for sale.

Items Measured at Fair Value on a Nonrecurring Basis

Based on the severity of the decline in Enable’s common unit price during the three months ended March 31, 2020 primarily due to the macroeconomic conditions related in part to the COVID-19 pandemic, combined with Enable’s announcement on April 1, 2020 to reduce its quarterly distributions per common unit by 50%, and the market outlook indicating excess supply and continued depressed crude oil and natural gas prices impacting the midstream oil and gas industry, CenterPoint Energy determined, in connection with its preparation of the financial statements, that an other than temporary decrease in the value of its investment in Enable had occurred. The impairment analysis compared the estimated fair value of CenterPoint Energy’s investment in Enable to its carrying value. The fair value of the investment was determined using multiple valuation methodologies under both the market and income approaches. Both of these approaches incorporate significant estimates and assumptions, including:

Market Approach

• quoted price of Enable’s common units;

• recent market transactions of comparable companies; and

• EBITDA to total enterprise multiples for comparable companies.

Income Approach

• Enable’s forecasted cash distributions;

• projected cash flows of incentive distribution rights;

• forecasted growth rate of Enable’s cash distributions; and

• determination of the cost of equity, including market risk premiums.

Weighting of the Different Approaches

Significant unobservable inputs used include the growth rate applied to the projected cash distributions beyond 2020 and the discount rate used to determine the present value of the estimated future cash flows. Based on the significant unobservable estimates and assumptions required, CenterPoint Energy concluded that the fair value estimate should be classified as a Level 3 measurement within the fair value hierarchy. As a result of this analysis, CenterPoint Energy recorded an other than temporary impairment on its investment in Enable of $1,541 million, reducing the fair value of the investment to $848 million. See Note 9 for further discussion of the impairment.

As of March 31, 2020, CenterPoint Energy recorded a goodwill impairment charge of $185 million in the Indiana Electric Integrated reporting unit. See Note 10 for further information.

CenterPoint Energy recognized a goodwill impairment charge of $82 million upon classifying the Infrastructure Services Disposal Group as held for sale and CenterPoint Energy and CERC recognized a goodwill impairment charge of approximately $62 million and a loss on assets held for sale of approximately $70 million upon classifying the Energy Services Disposal Group as held for sale. Using a market approach, the fair value of the Infrastructure Services Disposal Group as of March 31, 2020 is determined to be approximately $864 million and the fair value of the Energy Services Disposal Group as of March 31, 2020 is determined to be approximately $402 million. For both Disposal Groups, CenterPoint Energy and CERC, as applicable, used the contractual sales price adjusted for estimated working capital, and other contractual purchase price adjustments, which are Level 2 inputs. See Note 3 for further information.

Estimated Fair Value of Financial Instruments

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

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
CenterPoint Energy
Long-term debt, including current maturities (1)	$	15,238	$	16,047	$	15,093	$	16,067
Houston Electric
Long-term debt, including current maturities (1)	$	4,888	$	5,368	$	4,950	$	5,457
CERC
Long-term debt, including current maturities	$	2,377	$	2,637	$	2,546	$	2,803

(1)

Includes Securitization Bonds debt.