(Mark One) | |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 | |
OR | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO |
Texas | 22-3865106 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1111 Louisiana | |
Houston, Texas 77002 | (713) 207-1111 |
(Address and zip code of principal executive offices) | (Registrant’s telephone number, including area code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | Emerging growth company o |
(Do not check if a smaller reporting company) |
PART I. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | |
Condensed Statements of Consolidated Income | ||
Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | ||
Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | ||
Condensed Consolidated Balance Sheets | ||
September 30, 2017 and December 31, 2016 (unaudited) | ||
Condensed Statements of Consolidated Cash Flows | ||
Nine Months Ended September 30, 2017 and 2016 (unaudited) | ||
Notes to Unaudited Condensed Consolidated Financial Statements | ||
Item 2. | Management’s Narrative Analysis of Results of Operations | |
Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 5. | Other Information | |
Item 6. | Exhibits |
GLOSSARY | ||
AMS | Advanced Metering System | |
ASU | Accounting Standards Update | |
Bond Companies | Transition and system restoration bond companies | |
Bond Company II | CenterPoint Energy Transition Bond Company II, LLC | |
Bond Company III | CenterPoint Energy Transition Bond Company III, LLC | |
Bond Company IV | CenterPoint Energy Transition Bond Company IV, LLC | |
Brazos Valley Connection | A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency | |
CenterPoint Energy | CenterPoint Energy, Inc., and its subsidiaries | |
CERC Corp. | CenterPoint Energy Resources Corp. | |
CERC | CERC Corp., together with its subsidiaries | |
CES | CenterPoint Energy Services, Inc. | |
DCRF | Distribution Cost Recovery Factor | |
EECRF | Energy Efficiency Cost Recovery Factor | |
ERCOT | Electric Reliability Council of Texas | |
FASB | Financial Accounting Standards Board | |
Fitch | Fitch, Inc. | |
Form 10-Q | Quarterly Report on Form 10-Q | |
GenOn | GenOn Energy, Inc. | |
GWh | Gigawatt-hours | |
Houston Electric | CenterPoint Energy Houston Electric, LLC and its subsidiaries | |
IBEW | International Brotherhood of Electrical Workers | |
Interim Condensed Financial Statements | Condensed consolidated interim financial statements and notes | |
IRS | Internal Revenue Service | |
LIBOR | London Interbank Offered Rate | |
Moody’s | Moody’s Investors Service, Inc. | |
NECA | National Electrical Contractors Association | |
NRG | NRG Energy, Inc. | |
PUCT | Public Utility Commission of Texas | |
Reliant Energy | Reliant Energy, Incorporated | |
REP | Retail electric provider | |
Restoration Bond Company | CenterPoint Energy Restoration Bond Company, LLC | |
RRI | Reliant Resources, Inc. | |
SEC | Securities and Exchange Commission | |
Securitization Bonds | Transition and system restoration bonds | |
S&P | Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies | |
TBD | To be determined | |
TCEH Corp. | Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy | |
TCOS | Transmission Cost of Service | |
TDU | Transmission and distribution utility | |
VIE | Variable interest entity | |
Vistra Energy Corp. | Texas-based energy company focused on the competitive energy and power generation markets | |
2016 Form 10-K | Annual Report on Form 10-K for the year ended December 31, 2016 |
• | industrial, commercial and residential growth in our service territory and changes in market demand, including the effects of energy efficiency measures and demographic patterns; |
• | timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment; |
• | future economic conditions in regional and national markets and their effect on sales, prices and costs; |
• | weather variations and other natural phenomena, including the impact of severe weather events on operations and capital; |
• | state and federal legislative and regulatory actions or developments affecting various aspects of our business, including, among others, energy deregulation or re-regulation, changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates we charge; |
• | tax reform and legislation; |
• | problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates; |
• | local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change; |
• | the impact of unplanned facility outages; |
• | any direct or indirect effects on our facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our business or the businesses of third parties, or other catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences; |
• | our ability to invest planned capital and the timely recovery of our investment in capital; |
• | our ability to control operation and maintenance costs; |
• | actions by credit rating agencies; |
• | the sufficiency of our insurance coverage, including availability, cost, coverage and terms; |
• | the investment performance of CenterPoint Energy, Inc.’s pension and postretirement benefit plans; |
• | commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets; |
• | changes in interest rates or rates of inflation; |
• | inability of various counterparties to meet their obligations to us; |
• | non-payment for our services due to financial distress of our customers; |
• | timely and appropriate regulatory actions allowing securitization or other recovery of costs associated with Hurricane Harvey and any future hurricanes or natural disasters; |
• | our potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses, which we cannot assure you will be completed or will have the anticipated benefits to us; |
• | acquisition and merger activities involving us or our competitors; |
• | our ability to recruit, effectively transition and retain management and key employees and maintain good labor relations; |
• | the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of NRG, and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations; |
• | the outcome of litigation; |
• | the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries; |
• | changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation; |
• | the timing and outcome of any audits, disputes and other proceedings related to taxes; |
• | the effect of changes in and application of accounting standards and pronouncements; and |
• | other factors we discuss in “Risk Factors” in Item 1A of Part I of our 2016 Form 10-K, which is incorporated herein by reference, and other reports we file from time to time with the SEC. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 843 | $ | 909 | $ | 2,233 | $ | 2,328 | |||||||
Expenses: | |||||||||||||||
Operation and maintenance | 344 | 339 | 1,043 | 1,001 | |||||||||||
Depreciation and amortization | 193 | 253 | 525 | 659 | |||||||||||
Taxes other than income taxes | 59 | 59 | 177 | 173 | |||||||||||
Total | 596 | 651 | 1,745 | 1,833 | |||||||||||
Operating Income | 247 | 258 | 488 | 495 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest and other finance charges | (32 | ) | (32 | ) | (97 | ) | (94 | ) | |||||||
Interest on securitization bonds | (18 | ) | (23 | ) | (58 | ) | (70 | ) | |||||||
Other, net | 4 | 5 | 13 | 14 | |||||||||||
Total | (46 | ) | (50 | ) | (142 | ) | (150 | ) | |||||||
Income Before Income Taxes | 201 | 208 | 346 | 345 | |||||||||||
Income tax expense | 71 | 72 | 123 | 121 | |||||||||||
Net Income | $ | 130 | $ | 136 | $ | 223 | $ | 224 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 130 | $ | 136 | $ | 223 | $ | 224 | |||||||
Other comprehensive income: | |||||||||||||||
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $1, $-0- and $-0-) | — | 2 | (1 | ) | 1 | ||||||||||
Total | $ | — | $ | 2 | $ | (1 | ) | $ | 1 | ||||||
Comprehensive income | $ | 130 | $ | 138 | $ | 222 | $ | 225 |
September 30, 2017 | December 31, 2016 | ||||||
Current Assets: | |||||||
Cash and cash equivalents ($200 and $340 related to VIEs, respectively) | $ | 200 | $ | 341 | |||
Accounts and notes receivable ($65 and $52 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively | 333 | 225 | |||||
Accounts and notes receivable–affiliated companies | 73 | 101 | |||||
Accrued unbilled revenues | 129 | 106 | |||||
Inventory | 137 | 134 | |||||
Taxes receivable | — | 6 | |||||
Other ($31 and $40 related to VIEs, respectively) | 55 | 66 | |||||
Total current assets | 927 | 979 | |||||
Property, Plant and Equipment: | |||||||
Property, plant and equipment | 11,256 | 10,840 | |||||
Less: accumulated depreciation and amortization | 3,593 | 3,443 | |||||
Property, plant and equipment, net | 7,663 | 7,397 | |||||
Other Assets: | |||||||
Regulatory assets ($1,690 and $1,919 related to VIEs, respectively) | 1,663 | 1,793 | |||||
Other | 36 | 42 | |||||
Total other assets | 1,699 | 1,835 | |||||
Total Assets | $ | 10,289 | $ | 10,211 |
September 30, 2017 | December 31, 2016 | ||||||
Current Liabilities: | |||||||
Current portion of VIE securitization bonds long-term debt | $ | 432 | $ | 411 | |||
Accounts payable | 255 | 145 | |||||
Accounts and notes payable–affiliated companies | 40 | 88 | |||||
Taxes accrued | 100 | 106 | |||||
Interest accrued | 46 | 68 | |||||
Other | 115 | 90 | |||||
Total current liabilities | 988 | 908 | |||||
Other Liabilities: | |||||||
Deferred income taxes, net | 2,039 | 2,003 | |||||
Benefit obligations | 145 | 148 | |||||
Regulatory liabilities | 428 | 530 | |||||
Other | 53 | 51 | |||||
Total other liabilities | 2,665 | 2,732 | |||||
Long-term Debt: | |||||||
VIE securitization bonds, net | 1,500 | 1,867 | |||||
Other, net | 2,884 | 2,587 | |||||
Total long-term debt, net | 4,384 | 4,454 | |||||
Commitments and Contingencies (Note 8) | |||||||
Member’s Equity: | |||||||
Common stock | — | — | |||||
Paid-in capital | 1,696 | 1,696 | |||||
Retained earnings | 556 | 420 | |||||
Accumulated other comprehensive income | — | 1 | |||||
Total member’s equity | 2,252 | 2,117 | |||||
Total Liabilities and Member’s Equity | $ | 10,289 | $ | 10,211 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash Flows from Operating Activities: | |||||||
Net income | $ | 223 | $ | 224 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 525 | 659 | |||||
Amortization of deferred financing costs | 10 | 10 | |||||
Deferred income taxes | 29 | (51 | ) | ||||
Changes in other assets and liabilities: | |||||||
Accounts and notes receivable, net | (131 | ) | (141 | ) | |||
Accounts receivable/payable–affiliated companies | (49 | ) | 103 | ||||
Inventory | (3 | ) | (5 | ) | |||
Accounts payable | 105 | 3 | |||||
Taxes receivable | 6 | 59 | |||||
Interest and taxes accrued | (28 | ) | (9 | ) | |||
Net regulatory assets and liabilities | (149 | ) | (70 | ) | |||
Other current assets | 2 | 3 | |||||
Other current liabilities | 25 | 24 | |||||
Other assets | 2 | 9 | |||||
Other liabilities | (1 | ) | 3 | ||||
Other, net | (4 | ) | (1 | ) | |||
Net cash provided by operating activities | 562 | 820 | |||||
Cash Flows from Investing Activities: | |||||||
Capital expenditures | (603 | ) | (655 | ) | |||
Decrease in notes receivable–affiliated companies | 29 | — | |||||
Decrease (increase) in restricted cash of Bond Companies | 8 | (2 | ) | ||||
Other, net | 2 | 13 | |||||
Net cash used in investing activities | (564 | ) | (644 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from long-term debt, net | 298 | 600 | |||||
Payments of long-term debt | (347 | ) | (527 | ) | |||
Decrease in short-term notes payable–affiliated companies | — | (183 | ) | ||||
Dividend to parent | (87 | ) | (54 | ) | |||
Debt issuance costs | (3 | ) | (6 | ) | |||
Net cash used in financing activities | (139 | ) | (170 | ) | |||
Net Increase (Decrease) in Cash and Cash Equivalents | (141 | ) | 6 | ||||
Cash and Cash Equivalents at Beginning of Period | 341 | 264 | |||||
Cash and Cash Equivalents at End of Period | $ | 200 | $ | 270 | |||
Supplemental Disclosure of Cash Flow Information: | |||||||
Cash Payments/Receipts: | |||||||
Interest, net of capitalized interest | $ | 176 | $ | 178 | |||
Income taxes, net | 76 | 82 | |||||
Non-cash transactions: | |||||||
Accounts payable related to capital expenditures | $ | 70 | $ | 52 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in millions) | ||||||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | 1 | ||||||||
Interest cost | 3 | 2 | 7 | 8 | ||||||||||||
Expected return on plan assets | (1 | ) | (1 | ) | (3 | ) | (4 | ) | ||||||||
Amortization of prior service credit | (2 | ) | (1 | ) | (4 | ) | (2 | ) | ||||||||
Curtailment gain (1) | — | — | — | (3 | ) | |||||||||||
Net periodic cost (2) | $ | — | $ | — | $ | — | $ | — |
(1) | A curtailment gain or loss is required when the expected future services of a significant number of current employees are reduced or eliminated for the accrual of benefits. In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the IBEW Local Union 66 that provides that for Houston Electric union employees covered under the agreement who retire on or after January 1, 2017, retiree medical and prescription drug coverage will be provided exclusively through the NECA/IBEW Family Medical Care Plan in exchange for the payment of monthly premiums as determined under the agreement. As a result, the accrued postretirement benefits related to such future Houston Electric union retirees were eliminated. In 2016, Houston Electric recognized a curtailment gain of $3 million as an accelerated recognition of the prior service credit that would otherwise be recognized in future periods. |
(2) | Net periodic cost in this table is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes. |
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Financial liabilities: | (in millions) | ||||||||||||||
Long-term debt | $ | 4,816 | $ | 5,077 | $ | 4,865 | $ | 5,079 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in millions) | ||||||||||||||||
Corporate service charges | $ | 41 | $ | 43 | $ | 127 | $ | 131 | ||||||||
Charges from CERC for services provided | 2 | 2 | 5 | 5 | ||||||||||||
Billings to CERC for services provided | (3 | ) | (4 | ) | (11 | ) | (11 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in millions) | ||||||||||||||||
Affiliates of NRG | $ | 221 | $ | 223 | $ | 540 | $ | 527 | ||||||||
Affiliates of Vistra Energy Corp. | 72 | 71 | 172 | 166 |
Issuance Date | Aggregate Principal Amount | Interest Rate | Maturity Date | |||||
(in millions) | ||||||||
January 2017 | $ | 300 | 3.00% | 2027 |
September 30, 2017 | December 31, 2016 | |||||||||||||||||
Size of Facility | Loans | Letters of Credit | Loans | Letters of Credit | ||||||||||||||
(in millions) | ||||||||||||||||||
$ | 300 | $ | — | $ | 4 | $ | — | $ | 4 |
Execution Date | Size of Facility | Draw Rate of LIBOR plus (1) | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio (2) | Debt for Borrowed Money to Capital Ratio as of September 30, 2017 (3) | Termination Date (4) | |||||||
(in millions) | ||||||||||||
March 3, 2016 | $ | 300 | 1.125% | 65% | 49% | March 3, 2022 |
(1) | Based on current credit ratings. |
(2) | The financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and Houston Electric certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date Houston Electric delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of Houston Electric’s certification or (iii) the revocation of such certification. |
(3) | As defined in the revolving credit facility agreement, excluding Securitization Bonds. |
(4) | Amended on June 16, 2017 to extend the termination date as noted above. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in millions, except throughput and customer data) | |||||||||||||||
Revenues: | |||||||||||||||
TDU | $ | 729 | $ | 726 | $ | 1,943 | $ | 1,878 | |||||||
Bond Companies | 114 | 183 | 290 | 450 | |||||||||||
Total revenues | 843 | 909 | 2,233 | 2,328 | |||||||||||
Expenses: | |||||||||||||||
Operation and maintenance, excluding Bond Companies | 344 | 336 | 1,040 | 995 | |||||||||||
Depreciation and amortization, excluding Bond Companies | 97 | 96 | 296 | 285 | |||||||||||
Taxes other than income taxes | 59 | 59 | 177 | 173 | |||||||||||
Bond Companies | 96 | 160 | 232 | 380 | |||||||||||
Total expenses | 596 | 651 | 1,745 | 1,833 | |||||||||||
Operating income | 247 | 258 | 488 | 495 | |||||||||||
Interest and other finance charges | (32 | ) | (32 | ) | (97 | ) | (94 | ) | |||||||
Interest on Securitization Bonds | (18 | ) | (23 | ) | (58 | ) | (70 | ) | |||||||
Other income, net | 4 | 5 | 13 | 14 | |||||||||||
Income before income taxes | 201 | 208 | 346 | 345 | |||||||||||
Income tax expense | 71 | 72 | 123 | 121 | |||||||||||
Net income | $ | 130 | $ | 136 | $ | 223 | $ | 224 | |||||||
Operating Income: | |||||||||||||||
TDU | $ | 229 | $ | 235 | $ | 430 | $ | 425 | |||||||
Bond Companies (1) | 18 | 23 | 58 | 70 | |||||||||||
Total operating income | $ | 247 | $ | 258 | $ | 488 | $ | 495 | |||||||
Throughput (in GWh): | |||||||||||||||
Residential | 10,419 | 10,776 | 23,512 | 23,427 | |||||||||||
Total | 26,453 | 26,518 | 67,956 | 66,839 | |||||||||||
Number of metered customers at end of period: | |||||||||||||||
Residential | 2,156,624 | 2,116,312 | 2,156,624 | 2,116,312 | |||||||||||
Total | 2,435,558 | 2,389,014 | 2,435,558 | 2,389,014 |
• | lower usage of $12 million, largely due to a return to more normal weather in 2017; |
• | lower equity return of $9 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during 2016; and |
• | lower miscellaneous revenues, including right-of-way, of $7 million. |
• | rate increases of $12 million related to distribution capital investments; |
• | lower operation and maintenance expenses of $4 million; and |
• | customer growth of $9 million from the addition of over 46,000 new customers. |
• | rate increases of $39 million related to distribution capital investments; and |
• | customer growth of $26 million from the addition of over 46,000 new customers. |
• | lower equity return of $22 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during 2016; |
• | higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $14 million; |
• | lower usage of $11 million; |
• | lower miscellaneous revenues, including right-of-way, of $9 million; |
• | higher operation and maintenance expenses of $2 million; and |
• | increased transmission costs billed by transmission providers of $47 million, which were partially offset by higher transmission-related revenues of $46 million. |
Mechanism | Annual Increase (1) (in millions) | Filing Date | Effective Date | Approval Date | Additional Information | |||||
AMS | N/A | June 2017 | TBD | TBD | Final reconciliation of AMS surcharge proposing a $28.7 million refund for AMS revenue in excess of expenses, for which a reserve has been recorded. Refunds began in September 2017. | |||||
EECRF (2) | $11.0 | June 2017 | TBD | TBD | Annual reconciliation filing for program year 2016 and includes proposed performance bonus of $11 million. Anticipated effective date of March 2018. | |||||
DCRF | 41.8 | April 2017 | September 2017 | July 2017 | Based on an increase in eligible distribution-invested capital for 2016 of $479 million. Unanimous Stipulation and Settlement Agreement was filed in June 2017 for $86.8 million (a $41.8 million annual increase). The settlement agreement also included the AMS refund referenced above. | |||||
TCOS | 7.8 | December 2016 | February 2017 | February 2017 | Based on an incremental increase in total rate base of $109.6 million. | |||||
TCOS | 39.3 | September 2017 | TBD | TBD | Based on an incremental increase in total rate base of $263.4 million. |
(1) | Represents proposed increases when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates. |
(2) | Amounts are recorded when approved. |
Execution Date | Size of Facility | Amount Utilized at October 26, 2017 (1) | Termination Date | |||||||
(in millions) | ||||||||||
March 3, 2016 | $ | 300 | $ | 4 | March 3, 2022 |
(1) | Represents outstanding letters of credit. |
Company | Aggregate Principal Amount Outstanding | |||
(in millions) | ||||
Bond Company II | $ | 402 | ||
Bond Company III | 138 | |||
Bond Company IV | 1,084 | |||
Restoration Bond Company | 312 | |||
Total | $ | 1,936 |
Moody’s | S&P | Fitch | ||||||||||
Instrument | Rating | Outlook (1) | Rating | Outlook (2) | Rating | Outlook (3) | ||||||
Senior Secured Debt | A1 | Stable | A | Positive | A+ | Stable |
(1) | A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term. |
(2) | An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term. |
(3) | A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period. |
• | increases in interest expense in connection with debt refinancings and borrowings under our credit facility; |
• | various legislative or regulatory actions; |
• | the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’s indemnity obligations to us; |
• | the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us; |
• | the outcome of litigation brought by or against us; |
• | restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and |
• | various other risks identified in “Risk Factors” in Item 1A of Part I of our 2016 Form 10-K. |
Item 4. | CONTROLS AND PROCEDURES |
Exhibit Number | Description | Report or Registration Statement | SEC File or Registration Number | Exhibit References | ||||
3.1 | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | 1-3187 | 3.1 | |||||
3.2 | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | 1-3187 | 3.2 | |||||
4.1 | Houston Electric’s Form 8-K dated March 3, 2016 | 1-3187 | 4.2 | |||||
4.2 | Houston Electric’s Form 8-K dated June 16, 2017 | 1-3187 | 4.2 | |||||
+12 | ||||||||
+31.1 | ||||||||
+31.2 | ||||||||
+32.1 | ||||||||
+32.2 | ||||||||
+101.INS | XBRL Instance Document | |||||||
+101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
+101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
+101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
+101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |||||||
+101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC | |
By: | /s/ Kristie L. Colvin |
Kristie L. Colvin | |
Senior Vice President and Chief Accounting Officer |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
(in millions, except ratios) | |||||||
Net income | $ | 223 | $ | 224 | |||
Income taxes | 123 | 121 | |||||
Capitalized interest | (5 | ) | (5 | ) | |||
341 | 340 | ||||||
Fixed charges, as defined: | |||||||
Interest | 155 | 164 | |||||
Capitalized interest | 5 | 5 | |||||
Interest component of rentals charged to operating expense | — | — | |||||
Total fixed charges | 160 | 169 | |||||
Earnings, as defined | $ | 501 | $ | 509 | |||
Ratio of earnings to fixed charges | 3.13 | 3.01 |
1. | I have reviewed this quarterly report on Form 10-Q of CenterPoint Energy Houston Electric, LLC; |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Scott M. Prochazka | |
Scott M. Prochazka | |
Chairman (Principal Executive Officer) |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ William D. Rogers | |
William D. Rogers | |
Executive Vice President and Chief Financial Officer |
/s/ Scott M. Prochazka | |
Scott M. Prochazka | |
Chairman (Principal Executive Officer) | |
November 3, 2017 |
/s/ William D. Rogers | |
William D. Rogers | |
Executive Vice President and Chief Financial Officer | |
November 3, 2017 |
Document and Entity Information - USD ($) |
9 Months Ended | ||
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Sep. 30, 2017 |
Oct. 26, 2017 |
Jun. 30, 2016 |
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Entity Information [Line Items] | |||
Entity Registrant Name | CENTERPOINT ENERGY HOUSTON ELECTRIC LLC | ||
Entity Central Index Key | 0000048732 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Non-accelerated Filer | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2017 | ||
Document Fiscal Year Focus | 2017 | ||
Document Fiscal Period Focus | Q3 | ||
Amendment Flag | false | ||
Entity Common Stock, Shares Outstanding | 1,000 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 0 |
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Revenues | $ 843 | $ 909 | $ 2,233 | $ 2,328 |
Expenses: | ||||
Operation and maintenance | 344 | 339 | 1,043 | 1,001 |
Depreciation and amortization | 193 | 253 | 525 | 659 |
Taxes other than income taxes | 59 | 59 | 177 | 173 |
Total | 596 | 651 | 1,745 | 1,833 |
Operating Income | 247 | 258 | 488 | 495 |
Other Income (Expense): | ||||
Interest and other finance charges | (32) | (32) | (97) | (94) |
Interest on securitization bonds | (18) | (23) | (58) | (70) |
Other, net | 4 | 5 | 13 | 14 |
Total | (46) | (50) | (142) | (150) |
Income Before Income Taxes | 201 | 208 | 346 | 345 |
Income tax expense | 71 | 72 | 123 | 121 |
Net Income | $ 130 | $ 136 | $ 223 | $ 224 |
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Net income | $ 130 | $ 136 | $ 223 | $ 224 |
Other comprehensive income: | ||||
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $1, $-0- and $-0-) | 0 | 2 | (1) | 1 |
Total | 0 | 2 | (1) | 1 |
Comprehensive income | $ 130 | $ 138 | $ 222 | $ 225 |
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Tax expense (benefit) on net deferred gains (losses) from cash flow hedges | $ 0 | $ 1 | $ 0 | $ 0 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions |
Sep. 30, 2017 |
Dec. 31, 2016 |
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Cash and Cash Equivalents | $ 200 | $ 341 |
Bad debt reserve | 1 | 1 |
Accounts and notes receivable, net | 333 | 225 |
Other | 55 | 66 |
Regulatory assets | 1,663 | 1,793 |
Variable Interest Entity, Primary Beneficiary [Member] | ||
Cash and Cash Equivalents | 200 | 340 |
Accounts and notes receivable, net | 65 | 52 |
Other | 31 | 40 |
Regulatory assets | $ 1,690 | $ 1,919 |
Background and Basis of Presentation |
9 Months Ended |
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Sep. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Background and Basis of Presentation [Text Block] | Background and Basis of Presentation General. Included in this Form 10-Q are the Interim Condensed Financial Statements of Houston Electric. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the 2016 Form 10-K. Background. Houston Electric is an indirect, wholly-owned subsidiary of CenterPoint Energy, Inc., a public utility holding company. Houston Electric provides electric transmission and distribution services to REPs serving over 2.4 million metered customers in the Texas Gulf Coast area that includes the city of Houston. As of September 30, 2017, Houston Electric had the following subsidiaries: Bond Company II, Bond Company III, Restoration Bond Company and Bond Company IV. As of September 30, 2017, Houston Electric had VIEs consisting of the Bond Companies, which it consolidates. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of Houston Electric. Basis of Presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Houston Electric’s Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in Houston Electric’s Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy, (b) timing of maintenance and other expenditures and (c) acquisitions and dispositions of businesses, assets and other interests. Houston Electric consists of a single reportable business segment: Electric Transmission & Distribution. |
New Accounting Pronouncements |
9 Months Ended |
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Sep. 30, 2017 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Accounting Pronouncements [Text Block] | New Accounting Pronouncements In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. ASU 2016-01 also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. As of the first reporting period in which the guidance is adopted, a cumulative-effect adjustment to beginning retained earnings will be made, with two features that will be adopted prospectively. Houston Electric does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures. In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A modified retrospective adoption approach is required. Houston Electric is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures. In 2016, the FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, as amended, provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. Early adoption is permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. Houston Electric is currently evaluating its revenue streams under these ASUs and has not yet identified any significant changes as the result of these new standards. A substantial amount of Houston Electric’s revenues are tariff based, which we do not anticipate will be significantly impacted by these ASUs. Houston Electric expects to adopt these ASUs on January 1, 2018 using the modified retrospective adoption approach. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. Houston Electric is currently assessing the impact that this standard will have on its statement of cash flows. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. This standard will not have an impact on Houston Electric’s financial position, results of operations, and disclosures, but it will have an impact on the presentation of the statement of cash flows. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted in certain circumstances. A prospective adoption approach is required. ASU 2017-01 could have a potential impact on Houston Electric’s accounting for future acquisitions. In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies when and how to apply ASC 610-20 Gains and Losses from the Derecognition of Nonfinancial Assets, which was issued as part of ASU 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2017-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Companies can elect a retrospective or modified retrospective approach to adoption. Houston Electric does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures. In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components and prospectively for the capitalization of the service cost component. The adoption of this guidance is expected to result in an increase to operating income and a decrease to other income. Prospectively, other components previously capitalized in assets will be recorded as regulatory assets. Houston Electric does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements, and updates the presentation and disclosure requirements. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness upon adoption is required for existing cash flow and net investment hedges. Presentation and disclosure guidance should be applied prospectively. Houston Electric is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures. Management believes that other recently issued standards, which are not yet effective, will not have a material impact on Houston Electric’s consolidated financial position, results of operations or cash flows upon adoption. |
Employee Benefit Plans |
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Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefit Plans [Text Block] | Employee Benefit Plans Houston Electric’s employees participate in CenterPoint Energy’s postretirement benefit plan. Houston Electric’s net periodic cost includes the following components relating to postretirement benefits:
Houston Electric expects to contribute approximately $9 million to its postretirement benefit plan in 2017, of which approximately $2 million and $7 million were contributed during the three and nine months ended September 30, 2017, respectively. |
Regulatory Accounting |
9 Months Ended |
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Sep. 30, 2017 | |
Regulatory Assets and Liabilities, Other Disclosures [Abstract] | |
Regulatory Accounting [Text Block] | Regulatory Accounting Equity Return. As of September 30, 2017, Houston Electric has not recognized an allowed equity return of $299 million because such return will be recognized as it is recovered in rates. During the three months ended September 30, 2017 and 2016, Houston Electric recognized approximately $13 million and $22 million, respectively, of the allowed equity return not previously recognized. During the nine months ended September 30, 2017 and 2016, Houston Electric recognized approximately $30 million and $52 million, respectively, of the allowed equity return not previously recognized. Hurricane Harvey. Houston Electric’s electric delivery system suffered damage as a result of Hurricane Harvey, a major storm classified as a Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale, that first struck the Texas coast on Friday, August 25, 2017 and remained over the Houston area for the next several days. The unprecedented flooding from torrential amounts of rainfall accompanying the storm caused significant damage to or destruction of residences and businesses served by Houston Electric. Currently, Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Harvey will range from $110 million to $120 million and estimates that the total restoration costs covered by insurance will be approximately $35 million. Houston Electric will defer the uninsured storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and through the next rate proceeding for operation and maintenance expenses. As of September 30, 2017, Houston Electric recorded an increase of $4 million in property, plant and equipment and $73 million in regulatory assets, net of $23 million in insurance receivables recorded, for restoration costs incurred. As a result, storm restoration costs should not materially affect Houston Electric’s reported net income for 2017. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Text Block] | Fair Value Measurements Assets and liabilities that are recorded at fair value in the 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 are investments listed in active markets. As of September 30, 2017 and December 31, 2016, Houston Electric held Level 1 investments of $50 million and $59 million, respectively, which were primarily investments in money market funds and are included in other current assets and other assets in the Condensed Consolidated Balance Sheets. 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, and inputs other than quoted prices that are observable for the asset or liability. Houston Electric had no Level 2 assets or liabilities as of either September 30, 2017 or December 31, 2016. 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 Houston Electric’s judgments about the assumptions market participants would use in determining fair value. Houston Electric had no Level 3 assets or liabilities as of either September 30, 2017 or December 31, 2016. Houston Electric determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period. For the nine months ended September 30, 2017, there were no transfers between levels. Estimated Fair Value of Financial Instruments The fair values of cash and cash equivalents and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been 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 Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
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Related Party Transactions and Major Customers |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions and Major Customers [Text Block] | Related Party Transactions and Major Customers (a) Related Party Transactions Houston Electric participates in a money pool through which it can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper. Houston Electric had investments in the money pool of $67 million and $96 million as of September 30, 2017 and December 31, 2016, respectively, which are included in accounts and notes receivable-affiliated companies, in the Condensed Consolidated Balance Sheets. As of September 30, 2017, Houston Electric’s money pool investments had a weighted-average interest rate of 1.44%. Houston Electric had affiliate related net interest income of $-0- and $1 million for the three and nine months ended September 30, 2017, respectively, and net interest expense of $1 million and $4 million for the three and nine months ended September 30, 2016, respectively. CenterPoint Energy provides some corporate services to Houston Electric. The costs of services have been charged directly to Houston Electric using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. Additionally, Houston Electric provides a number of services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. These charges are not necessarily indicative of what would have been incurred had Houston Electric not been an affiliate. Amounts charged to and by Houston Electric for these services were as follows and are included primarily in operation and maintenance expenses:
(b) Major Customers Houston Electric’s transmission and distribution revenues from major customers are as follows:
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Long-term Debt |
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Long-term Debt [Text Block] | Long-term Debt Debt Issuances. During the nine months ended September 30, 2017, Houston Electric issued the following general mortgage bonds:
The proceeds from the issuance of these bonds were used to repay short-term debt and for general limited liability company purposes. Revolving Credit Facility. In June 2017, Houston Electric entered into an amendment to its revolving credit facility to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. No changes were made to the aggregate commitments under the revolving credit facility. As of September 30, 2017 and December 31, 2016, Houston Electric had the following revolving credit facility and utilization of such facility:
Houston Electric was in compliance with all financial debt covenants as of September 30, 2017. Hedging of Interest Expense for Future Debt Issuances. In January 2017, Houston Electric entered into forward interest rate agreements with several counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 10-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $300 million issuance of fixed rate debt in January 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $0.5 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the bonds. Other. As of both September 30, 2017 and December 31, 2016, Houston Electric had issued $118 million of general mortgage bonds as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected in the consolidated financial statements because of the contingent nature of the obligations. |
Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies [Text Block] | Commitments and Contingencies Legal Matters Gas Market Manipulation Cases. CenterPoint Energy, Houston Electric or their predecessor, Reliant Energy, and certain of their former subsidiaries have been named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, RRI, CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits. In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly-owned subsidiary of RRI, and RRI changed its name to GenOn. In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly-owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation. A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all such cases. CES, a subsidiary of CERC Corp., was a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. On May 24, 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. The plaintiffs have appealed that ruling. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. In June 2017, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. If GenOn were unable to meet its indemnity obligations or satisfy a liability that has been assumed in the gas market manipulation litigation, then Houston Electric, CenterPoint Energy or CERC could incur liability and be responsible for satisfying the liability. Houston Electric does not expect the ultimate outcome of the case against CES to have a material adverse effect on its financial condition, results of operations or cash flows. Environmental Matters Asbestos. Some facilities owned by Houston Electric contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy and its subsidiaries, including Houston Electric, are from time to time named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and CenterPoint Energy anticipates that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, Houston Electric does not expect these matters, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations or cash flows. Other Environmental. From time to time, Houston Electric identifies the presence of environmental contaminants during its operations or on property where its predecessor companies have conducted operations. Other such sites involving contaminants may be identified in the future. Houston Electric has and expects to continue to remediate identified sites consistent with its legal obligations. From time to time, Houston Electric has received notices from regulatory authorities or others regarding its status as a potentially responsible party in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, Houston Electric has been named from time to time as a defendant in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, Houston Electric does not expect these matters, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations or cash flows. Other Proceedings Houston Electric is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. From time to time, Houston Electric is also a defendant in legal proceedings with respect to claims brought by various plaintiffs against broad groups of participants in the energy industry. Some of these proceedings involve substantial amounts. Houston Electric regularly analyzes current information and, as necessary, provides accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. Houston Electric does not expect the disposition of these matters to have a material adverse effect on its financial condition, results of operations or cash flows. |
Income Taxes |
9 Months Ended |
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Sep. 30, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes [Text Block] | Income Taxes The effective tax rate reported for the three months ended September 30, 2017 and 2016 was 35%. The effective tax rates reported for the nine months ended September 30, 2017 was 36% compared to 35% for the same period in 2016. Houston Electric reported no uncertain tax liability as of September 30, 2017 and expects no significant change to the uncertain tax liability over the next twelve months. CenterPoint Energy’s consolidated federal income tax returns have been audited and settled through 2015. For the 2016 and 2017 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. |
Employee Benefit Plans (Tables) |
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Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Defined Benefit Plans Disclosures [Table Text Block] | Houston Electric’s employees participate in CenterPoint Energy’s postretirement benefit plan. Houston Electric’s net periodic cost includes the following components relating to postretirement benefits:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping [Table Text Block] | The fair values of cash and cash equivalents and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been 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 Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
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Related Party Transactions and Major Customers (Tables) |
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Schedule of Related Party Transactions [Table Text Block] | CenterPoint Energy provides some corporate services to Houston Electric. The costs of services have been charged directly to Houston Electric using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. Additionally, Houston Electric provides a number of services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. These charges are not necessarily indicative of what would have been incurred had Houston Electric not been an affiliate. Amounts charged to and by Houston Electric for these services were as follows and are included primarily in operation and maintenance expenses:
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Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block] | Houston Electric’s transmission and distribution revenues from major customers are as follows:
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Long-term Debt (Tables) |
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Long-term Debt, Unclassified [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt [Table Text Block] | Debt Issuances. During the nine months ended September 30, 2017, Houston Electric issued the following general mortgage bonds:
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Schedule of Line of Credit Facilities [Table Text Block] | Revolving Credit Facility. In June 2017, Houston Electric entered into an amendment to its revolving credit facility to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. No changes were made to the aggregate commitments under the revolving credit facility. As of September 30, 2017 and December 31, 2016, Houston Electric had the following revolving credit facility and utilization of such facility:
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Background and Basis of Presentation (Details) customer in Millions |
Sep. 30, 2017
customer
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of metered customers | 2.4 |
Employee Benefit Plans (Details) - Other Postretirement Benefit Plans [Member] - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||||||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Defined Benefit Plan Disclosure [Line Items] | |||||||||
Service cost | $ 0 | $ 0 | $ 0 | $ 1 | |||||
Interest cost | 3 | 2 | 7 | 8 | |||||
Expected return on plan assets | (1) | (1) | (3) | (4) | |||||
Amortization of prior service credit | (2) | (1) | (4) | (2) | |||||
Curtailment gain (1) | [1] | 0 | 0 | 0 | (3) | ||||
Net periodic cost (2) | [2] | 0 | $ 0 | 0 | $ 0 | ||||
Expected contribution to postretirement benefit plan in current year | 9 | ||||||||
Total contribution to the plan during the period | $ 2 | $ 7 | |||||||
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Regulatory Accounting (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
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Amount of allowed equity return on the true-up balance that has not been recognized | $ 299 | $ 299 | |||
Amount of allowed equity return on the true-up balance that was recognized in the period | 13 | $ 22 | 30 | $ 52 | |
Recorded increase in regulatory assets | 1,663 | 1,663 | $ 1,793 | ||
Hurricane Harvey [Member] | |||||
Estimated restoration costs covered by insurance | 35 | 35 | |||
Recorded increase in property, plant and equipment | 4 | 4 | |||
Recorded increase in regulatory assets | 73 | 73 | |||
Recorded insurance receivables | 23 | 23 | |||
Hurricane Harvey [Member] | Minimum [Member] | |||||
Estimated costs to restore damaged facilities | 110 | 110 | |||
Hurricane Harvey [Member] | Maximum [Member] | |||||
Estimated costs to restore damaged facilities | $ 120 | $ 120 |
Long-term Debt (Details) $ in Millions |
9 Months Ended | |||||||||
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Jan. 12, 2017
USD ($)
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Sep. 30, 2017
USD ($)
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Dec. 31, 2016
USD ($)
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Debt Instrument [Line Items] | ||||||||||
Size of credit facility | $ 300.0 | $ 300.0 | ||||||||
General mortgage bonds used as collateral | 118.0 | 118.0 | ||||||||
Revolving Credit Facility [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Long-term line of credit | 0.0 | 0.0 | ||||||||
Letter of Credit [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Long-term line of credit | $ 4.0 | $ 4.0 | ||||||||
Line of Credit [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Percentage on limitation of debt to total capitalization under covenant | [1] | 65.00% | ||||||||
Ratio of indebtedness to net capital | [2] | 0.49 | ||||||||
Percentage on limitation of debt to total capitalization under covenant amended | 70.00% | |||||||||
System restoration costs threshold for increase in permitted debt to EBITDA covenant ratio | $ 100.0 | |||||||||
Consecutive period for system restoration costs to exceed $100 million (in months) | 12 | |||||||||
Line of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Basis spread on LIBOR | [3] | 1.125% | ||||||||
Treasury Lock [Member] | January [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Principal amount of debt issued | $ 300.0 | |||||||||
Aggregate notional amount | 150.0 | |||||||||
Effective portion of realized losses | $ 0.5 | |||||||||
Bonds General Mortgage Due 2027 [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Principal amount of debt issued | $ 300.0 | |||||||||
Interest rate of debt issued | 3.00% | |||||||||
Maturity date of debt issued | Feb. 01, 2027 | |||||||||
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Income Taxes (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Income Tax Disclosure [Abstract] | ||||
Effective tax rate | 35.00% | 35.00% | 36.00% | 35.00% |
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