Leases

9 Months Ended

Sep. 30, 2022

In 2021, Houston Electric entered into a temporary short-term lease and a long-term lease, each for mobile generation. The short-term lease agreement allows Houston Electric to take delivery of TEEEF assets on a short-term basis with an initial term ending on September 30, 2022 and extended until December 31, 2022. Per Houston Electric’s short term lease accounting policy election, a ROU asset and lease liability are not reflected on Houston Electric’s Condensed Consolidated Balance Sheets. Expenses associated with the short-term lease, including carrying costs, are deferred to a regulatory asset and totaled $90 million and $20 million as of September 30, 2022 and December 31, 2021, respectively.

Houston Electric took delivery of an additional 32 MW and 160 MW of TEEEF under the long-term lease during the three and nine months ended September 30, 2022, respectively, and remitted cash payments under the lease of $47 million and $218 million, respectively. These assets were previously available under the short-term lease agreement. Houston Electric derecognized the finance lease liability when the extinguishment criteria in Topic 405 - Liabilities was achieved. Per the terms of the agreement, lease payments are due and made in full by Houston Electric upon taking possession of the asset, relieving substantially all of the associated finance lease liability at that time. The remaining finance lease liability associated with the commenced long-term TEEEF agreement was not significant as of September 30, 2022 and December 31, 2021 and relates to removal costs that will be incurred at the end of the lease term. The long-term lease agreement includes up to 505 MW of TEEEF of which 285 MW and 125 MW was delivered as of September 30, 2022 and December 31, 2021, respectively, triggering lease commencement at delivery, and has an initial term ending in 2029 for all TEEEF leases. As of September 30, 2022, Houston Electric has secured a first lien on all the generation equipment long-term leases and no amount of the payments made by Houston Electric under long-term leases were held in escrow. Expenses associated with the long-term lease, including carrying costs, are deferred to a regulatory asset and totaled $41 million and $1 million as of September 30, 2022 and December 31, 2021, respectively. The long-term lease agreement also contains a termination clause that can be exercised in the event of material adverse regulatory actions. For further discussion of the regulatory impacts, see Note 6.

The components of lease cost, included in Operation and maintenance expense on the Registrants’ respective Condensed Statements of Consolidated Income, are as follows:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease cost	$	2	$	—	$	—	$	2	$	—	$	1
Short-term lease cost	39		39		1		54		54		—
Variable lease cost	—		—		—		—		—		—
Total lease cost (1)	$	41	$	39	$	1	$	56	$	54	$	1

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease cost	$	4	$	—	$	1	$	6	$	—	$	3
Short-term lease cost	123		122		1		89		89		—
Variable lease cost	—		—		—		—		—		—
Total lease cost (1)	$	127	$	122	$	2	$	95	$	89	$	3

(1) CenterPoint Energy and Houston Electric defer finance lease costs for TEEEF to Regulatory assets for recovery rather than recognizing Depreciation and Amortization in the Condensed Statements of Consolidated Income.

The components of lease income were as follows:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease income	$	1	$	1	$	1	$	1	$	1	$	1
Variable lease income	—		—		—		—		—		—
Total lease income	$	1	$	1	$	1	$	1	$	1	$	1

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease income	$	4	$	1	$	2	$	4	$	1	$	2
Variable lease income	1		—		—		1		—		—
Total lease income	$	5	$	1	$	2	$	5	$	1	$	2

Supplemental balance sheet information related to leases was as follows:


	September 30, 2022									December 31, 2021
	CenterPoint Energy			Houston Electric			CERC			CenterPoint Energy			Houston Electric			CERC
	(in millions, except lease term and discount rate)
Assets:
Operating ROU assets (1)	$	15		$	—		$	6		$	22		$	1		$	12
Finance ROU assets (2)	367			367			—			179			179			—
Total leased assets	$	382		$	367		$	6		$	201		$	180		$	12

Liabilities:
Current operating lease liability (3)	$	5		$	—		$	2		$	6		$	1		$	2
Non-current operating lease liability (4)	10			—			4			17			—			11
Total leased liabilities (5)	$	15		$	—		$	6		$	23		$	1		$	13

Weighted-average remaining lease term (in years) - operating leases	5			5.4			4.1			6.2			4.1			6.5
Weighted-average discount rate - operating leases	3.16		%	3.50		%	3.55		%	3.10		%	2.86		%	3.20		%
Weighted-average remaining lease term (in years) - finance leases	6.8			6.8			—			7.5			7.5			—
Weighted-average discount rate - finance leases	2.73		%	2.73		%	—			2.21		%	2.21		%	—

(1)Reported within Other assets in the Registrants’ respective Condensed Consolidated Balance Sheets.

(2)Reported within Property, Plant and Equipment in the Registrants’ respective Condensed Consolidated Balance Sheets. Finance lease assets are recorded net of accumulated amortization.

(3)Reported within Current other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.

(4)Reported within Other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.

(5)Finance lease liabilities were not significant as of September 30, 2022 or December 31, 2021 and are reported within Other long-term debt in the Registrants’ respective Condensed Consolidated Balance Sheets when applicable.

As of September 30, 2022, finance lease liabilities were not significant to the Registrants. As of September 30, 2022, maturities of operating lease liabilities were as follows:


	CenterPoint Energy		Houston Electric		CERC
	(in millions)
Remainder of 2022	$	2	$	—	$	1
2023	5		—		2
2024	4		—		2
2025	2		—		1
2026	2		—		1
2027 and beyond	2		—		—
Total lease payments	17		—		7
Less: Interest	2		—		1
Present value of lease liabilities	$	15	$	—	$	6

As of September 30, 2022, future minimum finance lease payments were not significant to the Registrants, exclusive of approximately $271 million of legally-binding undiscounted minimum lease payments for finance leases for approximately 220 MW of TEEEF leases signed but not yet commenced. As of September 30, 2022, maturities of undiscounted operating lease payments to be received are as follows:


	CenterPoint Energy		Houston Electric		CERC
	(in millions)
Remainder of 2022	$	1	$	—	$	1
2023	7		1		4
2024	7		1		4
2025	7		1		4
2026	7		—		4
2027	7		—		4
2028 and beyond	160		—		156
Total lease payments to be received	$	196	$	3	$	177

Other information related to leases is as follows:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating cash flows from operating leases included in the measurement of lease liabilities	$	1	$	—	$	—	$	2	$	—	$	1
Financing cash flows from finance leases included in the measurement of lease liabilities	47		47		—		—		—		—

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating cash flows from operating leases included in the measurement of lease liabilities	$	4	$	—	$	1	$	5	$	—	$	3
Financing cash flows from finance leases included in the measurement of lease liabilities	218		218		—		—		—		—

See Note 16 for information on ROU assets obtained in exchange for operating lease liabilities.