Goodwill and Other Intangibles (CenterPoint Energy and CERC)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles (CenterPoint Energy and CERC) [Text Block]

Goodwill and Other Intangibles (CenterPoint Energy and CERC)

Goodwill and intangible assets related to the Infrastructure Services and Energy Services Disposal Groups are classified as held for sale on CenterPoint Energy’s and CERC’s respective Condensed Consolidated Balance Sheets, as applicable, and are excluded from the tabular disclosures below. See Note 3 for further information.

CenterPoint Energy’s goodwill by reportable segment as of March 31, 2020 and December 31, 2019 is as follows:

		December 31, 2019		Impairment		March 31, 2020
	(in millions)
Indiana Electric Integrated		$	1,121	$	185	$	936
Natural Gas Distribution		3,312		—		3,312
Corporate and Other		449		—		449
Total		$	4,882	$	185	$	4,697

CERC’s goodwill by reportable segment as of March 31, 2020 and December 31, 2019 is as follows:

	March 31, 2020		December 31, 2019
	(in millions)
Natural Gas Distribution	$	746	$	746
Corporate and Other	11		11
Total	$	757	$	757

CenterPoint Energy and CERC perform goodwill impairment tests at least annually and evaluate goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by comparing the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. The reporting units approximate the reportable segments, with the exception of ESG, which is a separate reporting unit but included in CenterPoint Energy’s Corporate and Other. The estimated fair value of the reporting unit is primarily determined based on an income approach or a weighted combination of income and market approaches. If the carrying amount is in excess of the estimated fair value of the reporting unit, then the excess amount is the impairment charge that should be recorded, not to exceed the carrying amount of goodwill.

In connection with their preparation of the financial statements for the three months ended March 31, 2020, CenterPoint Energy and CERC identified triggering events to perform interim goodwill impairment tests for each of their reporting units due to the macroeconomic conditions related in part to the COVID-19 pandemic and the resulting decrease in CenterPoint Energy’s enterprise market capitalization below book value from the decline in CenterPoint Energy’s common stock price.

CenterPoint Energy’s interim impairment test in the first quarter of 2020 resulted in a non-cash goodwill impairment charge

in the amount of $185 million for the Indiana Electric Integrated reportable segment. The Indiana Electric Integrated reporting unit fair value analysis resulted in an implied fair value of goodwill of $936 million for this reporting unit, and as a result, the non-cash impairment charge was recorded in the three months ended March 31, 2020.

CenterPoint Energy estimated the value of the Indiana Electric Integrated reporting unit using primarily an income approach. Under the income approach, the fair value of the reporting unit is determined by using the present value of future expected cash flows, which include management’s projections of the amount and timing of future capital expenditures and the cash inflows from the related regulatory recovery. These estimated future cash flows are then discounted using a rate that approximates the weighted average cost of capital of a market participant. The selection of the discount rate requires significant judgment.

With the exception of Indiana Electric Integrated discussed above, the fair value of each of CenterPoint Energy’s and CERC’s reporting units exceeded their carrying value, resulting in no goodwill impairment from the March 31, 2020 interim impairment test. See Note 3 for goodwill impairments included within discontinued operations.

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

	March 31, 2020							December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Balance		Gross Carrying Amount		Accumulated Amortization			Net Balance
	(in millions)
Customer relationships	$	33	$	(5	)	$	28	$	33	$	(4	)	$	29
Trade names	16		(1		)	15		16		(1		)	15
Construction backlog (1)	5		(4		)	1		5		(4		)	1
Operation and maintenance agreements (1)	12		(1		)	11		12		—			12
Other	2		(1		)	1		2		(1		)	1
Total	$	68	$	(12	)	$	56	$	68	$	(10	)	$	58

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

		Three Months Ended March 31,
		2020		2019
	(in millions)
Amortization expense of intangible assets recorded in Depreciation and amortization		$	1	$	—
Amortization expense of intangible assets recorded in Non-utility cost of revenues, including natural gas		1		7

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

	Amortization Expense
	(in millions)
Remaining nine months of 2020	$	6
2021	6
2022	6
2023	6
2024	5
2025	5