Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)

12 Months Ended

Dec. 31, 2022

Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)

(a) Equity Securities

During February and March 2022, CenterPoint Energy completed the execution of its previously announced plan to exit the midstream sector by selling the remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units it held as discussed below. CenterPoint Energy used the proceeds from these sales to redeem outstanding debt and pay incurred expenses associated with the early redemptions. See Note 13 for further information.

CenterPoint Energy’s sales of equity securities during the year ended December 31, 2022 are as follows:


Equity Security/Date Sold	Units Sold	Proceeds (1)
		(in millions)
Energy Transfer Common Units
February and March 2022	50,999,768	$	515
Energy Transfer Series G Preferred Units
March 2022	192,390	$	187

(1)Proceeds are net of transaction costs.

Gains and losses on equity securities, net of transaction costs, are recorded as Gain (Loss) on Equity Securities in CenterPoint Energy’s Statements of Consolidated Income.


	Gains (Losses) on Equity Securities
	Year Ended December 31,
	2022		2021		2020
			(in millions)
AT&T Common	$	(63)	$	(43)	$	(105)
Charter Common	(273)		(8)		154
WBD Common	23		—		—
Energy Transfer Common Units	95		(124)		—
Energy Transfer Series G Preferred Units	(9)		2		—
Other	—		1		—
	$	(227)	$	(172)	$	49

CenterPoint Energy recorded unrealized gains (losses) of $(313) million, $(52) million, and $49 million for the years ended December 31, 2022, 2021, and 2020, respectively, for equity securities held as of December 31, 2022, 2021, and 2020.

CenterPoint Energy and its subsidiaries hold shares of certain securities detailed in the table below, which are classified as trading securities. Shares of AT&T Common, Charter Common and WBD Common are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS.


	Shares Held at December 31,		Carrying Value at December 31,
	2022	2021	2022		2021
			(in millions)
AT&T Common	10,212,945	10,212,945	188		$	251
Charter Common	872,503	872,503	296		569
WBD Common	2,470,685	—	23		—
Energy Transfer Common Units	—	50,999,768	—		420
Energy Transfer Series G Preferred Units	—	192,390	—		196
Other			3		3
			$	510	$	1,439

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1.0 billion of which $828 million remained outstanding as of December 31, 2022. Each ZENS is exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.

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


	December 31,
	2022	2021
	(in shares)
AT&T Common	0.7185	0.7185
Charter Common	0.061382	0.061382
WBD Common	0.173817	—

CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of the ZENS is subject to increases or decreases to the extent that the annual yield from interest and cash dividends on the reference shares is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of December 31, 2022, the ZENS, having an original principal amount of $828 million and a contingent principal amount of $26 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS. As of December 31, 2022, the market value of such shares was approximately $507 million, which would provide an exchange amount of $582 for each $1,000 original principal amount of ZENS. At maturity of the ZENS in 2029, CenterPoint Energy will be obligated to pay in cash the higher of the contingent principal amount of the ZENS or an amount based on the then-current market value of the reference shares, which will include any additional publicly-traded securities distributed with respect to the current reference shares prior to maturity.

The ZENS obligation is bifurcated into a debt component and a derivative component (the holder’s option to receive the appreciated value of the reference shares at maturity). The bifurcated debt component accretes through interest charges annually up to the contingent principal amount of the ZENS in 2029. Such accretion will be reduced by annual cash interest payments, as described above. The derivative component is recorded at fair value and changes in the fair value of the derivative component are recorded in CenterPoint Energy’s Statements of Consolidated Income. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS.

The following table sets forth summarized financial information regarding CenterPoint Energy’s investment in ZENS-Related Securities and each component of CenterPoint Energy’s ZENS obligation.


	ZENS-Related Securities		Debt Component of ZENS		Derivative Component of ZENS
	(in millions)
Balance as of December 31, 2019	$	822	$	19	$	893
Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(16)		—

Distribution to ZENS holders	—		(5)		—

Loss on indexed debt securities	—		—		60
Gain on ZENS-Related Securities	49		—		—
Balance as of December 31, 2020	871		15		953
Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(17)		—

Distribution to ZENS holders	—		(5)		—

Gain on indexed debt securities	—		—		(50)
Loss on ZENS-Related Securities	(51)		—		—
Balance as of December 31, 2021	820		10		903

Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(17)		—

Distribution to ZENS holders	—		(3)		—

Gain on indexed debt securities	—		—		(325)
Loss on ZENS-Related Securities	(313)		—		—
Balance as of December 31, 2022	$	507	$	7	$	578

On May 17, 2021, AT&T announced that it had entered into a definitive agreement with Discovery, Inc. to combine their media assets into a new publicly traded company to be called Warner Bros. Discovery. The transaction closed on April 8, 2022. Pursuant to the definitive agreement, AT&T shareholders received 0.241917 shares of WBD Common for each share of AT&T Common owned, representing 71% of the new company. Upon the closing of the transaction, reference shares attributable to ZENS now consist of 0.7185 shares of AT&T Common, 0.061382 shares of Charter Common and 0.173817 shares of WBD Common.