XML 39 R17.htm IDEA: XBRL DOCUMENT v3.19.2
Derivative Instruments
 6 Months Ended
Jun. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments [Text Block] Derivative Instruments

The Registrants are exposed to various market risks. These risks arise from transactions entered into in the normal course of business.  The Registrants utilize derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices, weather and interest rates on operating results and cash flows.

(a)
Non-Trading Activities

Commodity Derivative Instruments (CenterPoint Energy and CERC). CenterPoint Energy, through its Indiana Utilities, and CERC, through CES, enter into certain derivative instruments to mitigate the effects of commodity price movements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services reportable segment are designated as fair value hedges for accounting purposes. Outstanding derivative instruments designated as economic hedges at the acquired Indiana Utilities hedge long-term variable rate natural gas purchases. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging natural gas purchases, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.

Interest Rate Risk Derivative Instruments. From time to time, the Registrants may enter into interest rate derivatives that are designated as economic or cash flow hedges. The objective of these hedges is to offset risk associated with interest rates borne by the Registrants in connection with an anticipated future fixed rate debt offering or other exposure to variable rate debt. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset. For the impacts of cash flow hedges to Accumulated other comprehensive income, see Note 20.

The table below summarizes the Registrants’ outstanding interest rate hedging activity:
 
 
June 30, 2019
 
December 31, 2018
Hedging Classification
 
Notional Principal
 
 
CenterPoint
 Energy (1)
 
Houston
 Electric
 
CenterPoint
 Energy
 
Houston
 Electric
 
 
(in millions)
Economic hedge
 
$
84

 
$
—

 
$
—

 
$
—

Cash flow hedge
 
—

 
—

 
450

 
450


(1)
Relates to interest rate derivative instruments at SIGECO.

Weather Hedges (CenterPoint Energy and CERC). CenterPoint Energy and CERC have weather normalization or other rate mechanisms that largely mitigate the impact of weather on NGD in Arkansas, Indiana, Louisiana, Mississippi, Minnesota, Ohio and Oklahoma, as applicable. CenterPoint Energy’s and CERC’s NGD in Texas and CenterPoint Energy’s electric operations in Texas and Indiana do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to its other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on CenterPoint Energy’s and CERC’s NGD’s results in Texas and on CenterPoint Energy’s electric operations’ results in its Texas and Indiana service territories.

CenterPoint Energy and CERC, as applicable, enter into winter season weather hedges from time to time for certain NGD jurisdictions and electric operations’ service territory to mitigate the effect of fluctuations from normal weather on results of operations and cash flows. These weather hedges are based on heating degree days at 10-year normal weather. Houston Electric and Indiana Electric do not enter into weather hedges.

The tables below summarize CenterPoint Energy’s and CERC’s current weather hedge gain (loss) activity:
 
 
Three Months Ended June 30,
 
 
2019
 
2018
Texas Operations
 
Winter Season
 
Bilateral Cap
 
CenterPoint Energy
 
CERC
 
Winter Season
 
Bilateral Cap
 
CenterPoint Energy
 
CERC
 
 
(in millions)
NGD
 
2018 – 2019
 
$
9

 
$
—

 
$
—

 
2017 – 2018
 
$
8

 
$
—

 
$
—

Electric operations
 
2018 – 2019
 
8

 
—

 
—

 
2017 – 2018
 
9

 
—

 
—

Total (1)
 
 
 
 
 
$
—


$
—


 
 
 
 
$
—


$
—

 
 
Six Months Ended June 30,
 
 
2019
 
2018
Texas Operations
 
Winter Season
 
Bilateral Cap
 
CenterPoint Energy
 
CERC
 
Winter Season
 
Bilateral Cap
 
CenterPoint Energy
 
CERC
 
 
(in millions)
NGD
 
2018 – 2019
 
$
9

 
$
—

 
$
—

 
2017 – 2018
 
$
8

 
$
—

 
$
—

Electric operations
 
2018 – 2019
 
8

 
3

 
—

 
2017 – 2018
 
9

 
(4
)
 
—

Total (1)
 
 
 
 
 
$
3

 
$
—

 
 
 
 
 
$
(4
)
 
$
—


(1)
Weather hedge gains (losses) are recorded in Revenues in the Condensed Statements of Consolidated Income.

(b)
Derivative Fair Values and Income Statement Impacts

The following tables present information about derivative instruments and hedging activities. The first three tables provide a balance sheet overview of Derivative Assets and Liabilities, while the last two tables provide a breakdown of the related income statement impacts.

Fair Value of Derivative Instruments and Hedged Items

CenterPoint Energy
 
 
 
 
June 30, 2019
 
December 31, 2018
 
 
Balance Sheet Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate derivatives
 
Current Liabilities: Non-trading derivative liabilities
 
$
—

 
$
—

 
$
—

 
$
24

Derivatives designated as fair value hedges:
 
 
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
11

 
—

 
1

 
7

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Assets: Non-trading derivative assets
 
103

 
2

 
103

 
3

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
44

 
—

 
38

 
—

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
74

 
148

 
62

 
173

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
16

 
41

 
16

 
25

Interest rate derivatives
 
Other Liabilities
 
—

 
8

 
—

 
—

Indexed debt securities derivative
 
Current Liabilities
 
—

 
755

 
—

 
601

Total CenterPoint Energy
 
$
248

 
$
954

 
$
220

 
$
833


(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 2,186 Bcf or a net 355 Bcf long position and 1,674 Bcf or a net 140 Bcf long position as of June 30, 2019 and December 31, 2018, respectively.  Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)
Natural gas contracts are presented on a net basis in CenterPoint Energy’s Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within CenterPoint Energy’s
Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below.

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.

Houston Electric
 
 
 
 
June 30, 2019
 
December 31, 2018
 
 
Balance Sheet Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
 
 
 
(in millions)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate derivatives
 
Current Liabilities: Non-trading derivative liabilities
 
$
—

 
$
—

 
$
—

 
$
24

Total Houston Electric
 
$
—

 
$
—

 
$
—

 
$
24


CERC
 
 
 
 
June 30, 2019
 
December 31, 2018
 
 
Balance Sheet Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
 
 
 
(in millions)
Derivatives designated as fair value hedges:
 
 
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
$
11

 
$
—

 
$
1

 
$
7

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Assets: Non-trading derivative assets
 
103

 
2

 
103

 
3

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
44

 
—

 
38

 
—

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
74

 
142

 
62

 
173

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
16

 
30

 
16

 
25

Total CERC
 
$
248

 
$
174

 
$
220

 
$
208



(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 2,186 Bcf or a net 355 Bcf long position and 1,674 Bcf or a net 140 Bcf long position as of June 30, 2019 and December 31, 2018, respectively.  Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)
Natural gas contracts are presented on a net basis in CERC’s Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within CERC’s Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below.

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.



Cumulative Basis Adjustment for Fair Value Hedges (CenterPoint Energy and CERC)
 
 
 
 
June 30, 2019
 
 
Balance Sheet Location
 
Carrying Amount of Hedged Assets/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item
 
 
 
 
CenterPoint Energy
 
CERC
 
CenterPoint Energy
 
CERC
 
 
 
 
(in millions)
Hedged items in fair value hedge relationship:
 
 
 
 
 
 
 
 
Natural gas inventory
 
Current Assets: Natural gas inventory
 
$
48

 
$
48

 
$
(9
)
 
$
(9
)
Total
 
$
48

 
$
48

 
$
(9
)
 
$
(9
)

 
 
 
 
December 31, 2018
 
 
Balance Sheet Location
 
Carrying Amount of Hedged Assets/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item
 
 
 
 
CenterPoint Energy
 
CERC
 
CenterPoint Energy
 
CERC
 
 
 
 
(in millions)
Hedged items in fair value hedge relationship:
 
 
 
 
 
 
 
 
Natural gas inventory
 
Current Assets: Natural gas inventory
 
$
57

 
$
57

 
$
1

 
$
1

Total
 
$
57

 
$
57

 
$
1

 
$
1



Offsetting of Natural Gas Derivative Assets and Liabilities (CenterPoint Energy and CERC)

CenterPoint Energy
 
 
June 30, 2019
 
December 31, 2018
 
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
 
(in millions)
Current Assets: Non-trading derivative assets
 
$
188

 
$
(87
)
 
$
101

 
$
166

 
$
(66
)
 
$
100

Other Assets: Non-trading derivative assets
 
60

 
(16
)
 
44

 
54

 
(16
)
 
38

Current Liabilities: Non-trading derivative liabilities
 
(149
)
 
116

 
(33
)
 
(183
)
 
81

 
(102
)
Other Liabilities: Non-trading derivative liabilities
 
(41
)
 
23

 
(18
)
 
(25
)
 
20

 
(5
)
Total CenterPoint Energy
 
$
58

 
$
36

 
$
94

 
$
12

 
$
19

 
$
31


CERC
 
 
June 30, 2019
 
December 31, 2018
 
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
 
(in millions)
Current Assets: Non-trading derivative assets
 
$
188

 
$
(87
)
 
$
101

 
$
166

 
$
(66
)
 
$
100

Other Assets: Non-trading derivative assets
 
60

 
(16
)
 
44

 
54

 
(16
)
 
38

Current Liabilities: Non-trading derivative liabilities
 
(144
)
 
116

 
(28
)
 
(183
)
 
81

 
(102
)
Other Liabilities: Non-trading derivative liabilities
 
(30
)
 
23

 
(7
)
 
(25
)
 
20

 
(5
)
Total CERC
 
$
74

 
$
36

 
$
110

 
$
12

 
$
19

 
$
31


(1)
Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)
The derivative assets and liabilities on the Registrant’s respective Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.

Income Statement Impact of Hedge Accounting Activity (CenterPoint Energy and CERC)

 
 
Three Months Ended June 30,
 
 
2019
 
2018
 
 
Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (1)
 
 
Non-utility cost of revenues, including natural gas
 
 
CenterPoint Energy
 
CERC
 
CenterPoint Energy
 
CERC
 
 
(in millions)
Total amounts presented in the statements of income in which the effects of hedges are recorded
 
$
910

 
$
769

 
$
790

 
$
790

Gain (loss) on fair value hedging relationships:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Hedged items - Natural gas inventory
 
(4
)
 
(4
)
 
(12
)
 
(12
)
Derivatives designated as hedging instruments
 
4

 
4

 
12

 
12

Amounts excluded from effectiveness testing recognized in earnings immediately
 
(65
)
 
(65
)
 
69

 
69

 
 
Six Months Ended June 30,
 
 
2019
 
2018
 
 
Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (1)
 
 
Non-utility cost of revenues, including natural gas
 
 
CenterPoint Energy
 
CERC
 
CenterPoint Energy
 
CERC
 
 
(in millions)
Total amounts presented in the statements of income in which the effects of hedges are recorded
 
$
2,161

 
$
1,940

 
$
2,063

 
$
2,063

Gain (loss) on fair value hedging relationships:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Hedged items - Natural gas inventory
 
(10
)
 
(10
)
 
(14
)
 
(14
)
Derivatives designated as hedging instruments
 
10

 
10

 
14

 
14

Amounts excluded from effectiveness testing recognized in earnings immediately
 
(79
)
 
(79
)
 
(2
)
 
(2
)

(1)
Income statement impact associated with cash flow hedge activity is related to gains and losses reclassified from Accumulated other comprehensive income into income. Amounts are immaterial for each Registrant in the three and six months ended June 30, 2019 and 2018, respectively.

CenterPoint Energy
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
Income Statement Location
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(in millions)
Effects of derivatives not designated as hedging instruments on the income statement:
 
 
 
 
 
 
 
 
Commodity contracts
 
Gains (losses) in Non-utility revenues
 
$
86

 
$
11

 
$
90

 
$
68

Indexed debt securities derivative
 
Loss on indexed debt securities
 
(68
)
 
(254
)
 
(154
)
 
(272
)
Total CenterPoint Energy
 
$
18

 
$
(243
)
 
$
(64
)
 
$
(204
)


CERC
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
Income Statement Location
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(in millions)
Effects of derivatives not designated as hedging instruments on the income statement:
 
 
 
 
 
 
 
 
Commodity contracts
 
Gains (losses) in Non-utility revenues
 
$
86

 
$
11

 
$
90

 
$
68

Total CERC
 
$
86

 
$
11

 
$
90

 
$
68



(c)
Credit Risk Contingent Features (CenterPoint Energy and CERC)

CenterPoint Energy and CERC enter into financial derivative contracts containing material adverse change provisions.  These provisions could require CenterPoint Energy or CERC to post additional collateral if the S&P or Moody’s credit ratings of CenterPoint Energy, Inc. or its subsidiaries, including CERC Corp., are downgraded. 
 
June 30, 2019
 
December 31, 2018
 
CenterPoint Energy
 
CERC
 
CenterPoint Energy
 
CERC
 
(in millions)
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position
$
1

 
$
1

 
$
1

 
$
1

Fair value of collateral already posted
—

 
—

 
—

 
—

Additional collateral required to be posted if credit risk contingent features triggered
1

 
1

 
—

 
—