Leases

6 Months Ended

Jun. 30, 2024

In 2021, Houston Electric entered into a temporary short-term lease and long-term leases for mobile generation. The short-term lease agreement allowed 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. At such time, the short-term lease agreement expired and all mobile generation assets were leased under the long-term lease agreement. 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, net of amounts recovered in rates, $95 million and $100 million as of June 30, 2024 and December 31, 2023, respectively.

The long-term lease agreement includes up to 505 MW of TEEEF, all of which was delivered as of December 31, 2022, triggering lease commencement at delivery, with an initial term ending in 2029 for all TEEEF leases. 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 June 30, 2024 and December 31, 2023 and relates to removal costs that will be incurred at the end of the lease term. As of June 30, 2024, Houston Electric has secured a first lien on the assets leased under the prepayment agreement, except for assets with lease payments totaling $88 million. The $88 million prepayment is being held in an escrow account, not controlled by Houston Electric, and the funds will be released when a first lien can be secured for Houston Electric. Expenses associated with the long-term lease, including depreciation expense on the right of use asset and carrying costs, are deferred to a regulatory asset and totaled, net of amounts recovered in rates, $139 million and $124 million as of June 30, 2024 and December 31, 2023, respectively. The long-term lease agreement contains a termination clause that can be exercised in the event of material adverse regulatory actions. If the right to terminate is elected, subject to the satisfaction of certain conditions, 75% of Houston Electric’s prepaid lease costs that are attributable to the period from the effective date of termination to the end of the lease term would be refunded. In December 2022, the long-term lease agreement was amended to include a disallowance reimbursement clause that can be exercised in the event that any regulatory proceeding or settlement agreement results in a disallowance of Houston Electric’s recovery of deferred costs under either the long-term lease agreement, short-term lease agreement or any other quantifiable adverse financial impact to Houston Electric. The disallowance reimbursement clause expired on December 31, 2023 and Houston Electric can no longer seek relief in the event of an unfavorable regulatory ruling. For further discussion of the regulatory impacts, see Note 6.

Houston Electric will also incur variable costs throughout the lease term for the operation and maintenance of the generators. Lease costs, including variable and ROU asset amortization costs, are deferred to Regulatory assets as incurred as a recoverable cost under the 2021 Texas legislation. See Note 6 for further information regarding recovery of these deferred costs.

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 June 30,
	2024						2023
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease cost	$	1	$	1	$	1	$	1	$	—	$	1
Short-term lease cost	6		5		—		13		14		—

Total lease cost (1)	$	7	$	6	$	1	$	14	$	14	$	1

	Six Months Ended June 30,
	2024						2023
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease cost	$	2	$	2	$	1	$	3	$	1	$	1
Short-term lease cost	8		7		—		13		13		—

Total lease cost (1)	$	10	$	9	$	1	$	16	$	14	$	1

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

The components of lease income were as follows:


	Three Months Ended June 30,
	2024						2023
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease income	$	1	$	—	$	1	$	1	$	—	$	1
Variable lease income	1		—		—		—		—		—
Total lease income	$	2	$	—	$	1	$	1	$	—	$	1

	Six Months Ended June 30,
	2024						2023
	CenterPoint Energy		Houston Electric		CERC		CenterPoint Energy		Houston Electric		CERC
	(in millions)
Operating lease income	$	3	$	—	$	2	$	3	$	—	$	2
Variable lease income	1		—		—		1		—		—
Total lease income	$	4	$	—	$	2	$	4	$	—	$	2

Supplemental balance sheet information related to leases was as follows:


	June 30, 2024									December 31, 2023
	CenterPoint Energy			Houston Electric			CERC			CenterPoint Energy			Houston Electric			CERC
	(in millions, except lease term and discount rate)
Assets:
Operating ROU assets (1)	$	17		$	6		$	4		$	13		$	6		$	4
Finance ROU assets (2)	478			478			—			526			526			—
Total leased assets	$	495		$	484		$	4		$	539		$	532		$	4

Liabilities:
Current operating lease liability (3)	$	3		$	1		$	1		$	3		$	1		$	1
Non-current operating lease liability (4)	14			4			3			10			5			3
Total leased liabilities (5)	$	17		$	5		$	4		$	13		$	6		$	4

Weighted-average remaining lease term (in years) - operating leases	11.6			3.4			3.4			4.7			3.9			3.1
Weighted-average discount rate - operating leases	4.49		%	4.11		%	3.95		%	4.13		%	4.09		%	3.60		%
Weighted-average remaining lease term (in years) - finance leases	5			5			—			5.5			5.5			—
Weighted-average discount rate - finance leases	3.60		%	3.60		%	—			3.60		%	3.60		%	—

(1)Reported within Other assets in the Registrants’ respective Condensed Consolidated Balance Sheets, net of accumulated amortization.

(2)Reported within Property, Plant and Equipment in the Registrants’ respective Condensed Consolidated Balance Sheets, 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 June 30, 2024 or December 31, 2023 and are reported within Other long-term debt in the Registrants’ respective Condensed Consolidated Balance Sheets when applicable.

As of June 30, 2024, finance lease liabilities were not significant to the Registrants. As of June 30, 2024, maturities of operating lease liabilities were as follows:


	CenterPoint Energy		Houston Electric		CERC
	(in millions)
Remainder of 2024	$	2	$	1	$	1
2025	4		2		2
2026	4		1		1
2027	2		1		—
2028	1		—		—
2029	10		—		—
2030 and beyond	1		—		—
Total lease payments	24		5		4
Less: Interest	7		—		—
Present value of lease liabilities	$	17	$	5	$	4

As of June 30, 2024, future minimum finance lease payments to be received were not significant to the Registrants. As of June 30, 2024, maturities of undiscounted operating lease payments to be received are as follows:


	CenterPoint Energy		Houston Electric		CERC
	(in millions)
Remainder of 2024	$	3	$	—	$	2
2025	6		1		4
2026	7		—		5
2027	7		—		5
2028	7		—		5
2029	7		—		6
2030 and beyond	158		—		156
Total lease payments to be received	$	195	$	1	$	183

Other information related to leases is as follows:









	Six Months Ended June 30,
	2024						2023
	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	$	2	$	1	$	1	$	3	$	1	$	1

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