Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes [Text Block]

Income Taxes

The components of the Registrant’ income tax expense (benefit) were as follows:

	Year Ended December 31,
	2020		2019		2018
	(in millions)
CenterPoint Energy - Continuing Operations
Current income tax expense (benefit):
Federal	$	(1)	$	30	$	77
State	32		15		6
Total current expense	31		45		83
Deferred income tax expense (benefit):
Federal	(257)		55		(6)
State	(48)		(8)		78
Total deferred expense (benefit)	(305)		47		72
Total income tax expense (benefit)	$	(274)	$	92	$	155
CenterPoint Energy - Discontinued Operations
Current income tax expense:
Federal	$	117	$	18	$	12
State	28		6		3
Total current expense	145		24		15
Deferred income tax expense (benefit):
Federal	(102)		19		(19)
State	(22)		3		(5)
Total deferred expense (benefit)	(124)		22		(24)
Total income tax expense (benefit)	$	21	$	46	$	(9)
Houston Electric
Current income tax expense:
Federal	$	76	$	84	$	109
State	19		20		18
Total current expense	95		104		127
Deferred income tax benefit:
Federal	(42)		(24)		(38)
Total deferred benefit	(42)		(24)		(38)
Total income tax expense	$	53	$	80	$	89

	Year Ended December 31,
	2020		2019		2018
	(in millions)
CERC - Continuing Operations
Current income tax expense (benefit):
State	$	4	$	5	$	(3)
Total current expense (benefit)	4		5		(3)
Deferred income tax expense (benefit):
Federal	26		26		9
State	67		(34)		25
Total deferred expense (benefit)	93		(8)		34
Total income tax expense (benefit)	$	97	$	(3)	$	31
CERC - Discontinued Operations
Current income tax expense:
State	—		2		7
Total current expense	—		2		7
Deferred income tax expense (benefit):
Federal	—		13		30
State	(2)		2		—
Total deferred expense (benefit)	(2)		15		30
Total income tax expense (benefit)	$	(2)	$	17	$	37

A reconciliation of income tax expense (benefit) using the federal statutory income tax rate to the actual income tax expense and resulting effective income tax rate is as follows:

	Year Ended December 31,
	2020			2019			2018
	(in millions)
CenterPoint Energy - Continuing Operations (1) (2) (3)
Income (loss) before income taxes	$	(865)		$	774		$	551
Federal statutory income tax rate	21		%	21		%	21		%
Expected federal income tax expense (benefit)	(182)			163			116
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	(15)			30			23
State valuation allowance, net of federal income tax	1			(4)			11
State law change, net of federal income tax	—			(21)			32
Excess deferred income tax amortization	(76)			(55)			(24)
Goodwill impairment	39			—			—
Net operating loss carryback	(37)			—			—
Other, net	(4)			(21)			(3)
Total	(92)			(71)			39
Total income tax expense (benefit)	$	(274)		$	92		$	155
Effective tax rate	32		%	12		%	28		%
CenterPoint Energy - Discontinued Operations (4)(5)
Income (loss) before income taxes	$	(161)		$	155		$	(37)
Federal statutory income tax rate	21		%	21		%	21		%
Expected federal income tax expense (benefit)	(34)			32			(8)
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	(5)			6			(1)
Goodwill impairment	25			8			—
Tax impact of sale of Energy Services and Infrastructure Services Disposal Groups	30			—			—
Other, net	5			—			—
Total	55			14			(1)
Total income tax expense (benefit)	$	21		$	46		$	(9)
Effective tax rate	(13)		%	30		%	24		%

	Year Ended December 31,
	2020			2019			2018
	(in millions)
Houston Electric (6) (7) (8)
Income before income taxes	$	387		$	436		$	425
Federal statutory income tax rate	21		%	21		%	21		%
Expected federal income tax expense	81			92			89
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	15			16			14
Excess deferred income tax amortization	(42)			(21)			(9)
Other, net	(1)			(7)			(5)
Total	(28)			(12)			—
Total income tax expense	$	53		$	80		$	89
Effective tax rate	14		%	18		%	21		%
CERC - Continuing Operations (9) (10) (11)
Income before income taxes	$	244		$	186		$	129
Federal statutory income tax rate	21		%	21		%	21		%
Expected federal income tax expense	51			39			27
Increase (decrease) in tax expense resulting from:
State income tax expense, net of federal income tax	55			(15)			5
State law change, net of federal income tax	—			(4)			—
State valuation allowance, net of federal income tax	1			(4)			11
Excess deferred income tax amortization	(16)			(18)			(15)
Other, net	6			(1)			3
Total	46			(42)			4
Total income tax expense (benefit)	$	97		$	(3)		$	31
Effective tax rate	40		%	(2)		%	24		%
CERC - Discontinued Operations (12) (13)
Income (loss) before income taxes	$	(68)		$	40		$	147
Federal statutory income tax rate	21		%	21		%	21		%
Expected federal income tax expense (benefit)	(14)			8			31
Increase in tax expense resulting from:
State income tax expense, net of federal income tax	(2)			3			7
Goodwill impairment	10			8			—
Other, net	4			(2)			(1)
Total	12			9			6
Total income tax expense (benefit)	$	(2)		$	17		$	37
Effective tax rate	3		%	43		%	25		%

(1)Recognized a $76 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions, a $39 million deferred tax expense for the non-deductible portion of the goodwill impairment on SIGECO, and a $37 million benefit for the NOL carryback claim allowed by the CARES Act.

(2)Recognized a $55 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions, a $21 million net benefit for the impact of state law changes that resulted in the remeasurement of state deferred taxes in those jurisdictions, and a $4 million net benefit for the reduction in valuation allowances on certain state NOLs that are now expected to be realized.

(3)Recognized a $32 million deferred tax expense due to state law changes that resulted in remeasurement of state deferred taxes in those jurisdictions. Also, recorded an additional $11 million valuation allowance on certain state net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. These items are partially offset by $24 million of amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions beginning in 2018.

(4)Recognized a $25 million deferred tax expense for the non-deductible portion of the goodwill impairment on both the Energy Services and Infrastructure Services Disposal Groups. Also, recognized a $30 million net tax expense on both the sale of the Energy Services and Infrastructure Services Disposal Groups.

(5)Recognized an $8 million deferred tax expense for the non-deductible portion of the goodwill impairment on the Energy Services Disposal Group.

(6)Recognized a $42 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions.

(7)Recognized a $21 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions.

(8)Recognized a $9 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions beginning in 2018.

(9)Recognized a $16 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulatory in certain jurisdictions.

(10)Recognized an $18 million benefit for the amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions, a $4 million net benefit for the impact of state law changes that resulted in the remeasurement of state deferred taxes in those jurisdictions and a $4 million net benefit for the reduction in valuation allowances on certain state NOLs that are now expected to be realized.

(11)Recorded an additional $11 million valuation allowance on certain state net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. This item was offset by $15 million of amortization of the net regulatory EDIT liability in certain jurisdictions as decreed by regulators beginning in 2018.

(12)Recognized a $10 million deferred tax expense for the non-deductible portion of the goodwill impairment on the Energy Services Disposal Group.

(13)Recognized an $8 million deferred tax expense for the non-deductible portion of the goodwill impairment on the Energy Services Disposal Group.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:

	December 31,
	2020		2019
	(in millions)
CenterPoint Energy
Deferred tax assets:
Benefits and compensation	$	141	$	152
Regulatory liabilities	435		447
Loss and credit carryforwards	103		111
Asset retirement obligations	152		89
Indexed debt securities derivative	47		34
Other	52		40
Valuation allowance	(26)		(25)
Total deferred tax assets	904		848
Deferred tax liabilities:
Property, plant and equipment	2,790		2,656
Investment in unconsolidated affiliates	624		1,010
Regulatory assets	325		344
Investment in marketable securities and indexed debt	649		586
Other	119		180
Total deferred tax liabilities	4,507		4,776
Net deferred tax liabilities	$	3,603	$	3,928
Houston Electric
Deferred tax assets:
Regulatory liabilities	$	201	$	195
Benefits and compensation	17		14
Asset retirement obligations	9		9
Other	9		7
Total deferred tax assets	236		225
Deferred tax liabilities:
Property, plant and equipment	1,159		1,129
Regulatory assets	118		126
Total deferred tax liabilities	1,277		1,255
Net deferred tax liabilities	$	1,041	$	1,030
CERC
Deferred tax assets:
Benefits and compensation	$	28	$	24
Regulatory liabilities	147		144
Loss and credit carryforwards	143		183
Asset retirement obligations	140		80
Other	26		23
Valuation allowance	(15)		(15)
Total deferred tax assets	469		439
Deferred tax liabilities:
Property, plant and equipment	916		821
Regulatory assets	53		45
Other	84		43
Total deferred tax liabilities	1,053		909
Net deferred tax liabilities	$	584	$	470

Merger with Vectren. On Merger Date, pursuant to the Merger Agreement, CenterPoint Energy consummated the Merger and acquired Vectren for approximately $6 billion in cash. On the Merger Date, Vectren became a wholly-owned subsidiary of CenterPoint Energy which triggered an ownership change under Section 382 of the Code. Under this Code section, future utilization of acquired NOL carry forwards and other tax attributes can be limited. On the Merger Date, Vectren estimated

$177 million and $60 million of federal NOL and of charitable contribution carryforwards, respectively, the utilization of which is not expected to be limited under Section 382.

Tax Attribute Carryforwards and Valuation Allowance.  CenterPoint Energy has no federal NOL carryforwards and no federal charitable contribution carryforwards as of December 31, 2020. As of December 31, 2020, CenterPoint Energy had $979 million of state NOL carryforwards that expire between 2021 and 2040 and $22 million of state tax credits that do not expire. CenterPoint Energy reported a valuation allowance of $26 million because it is more likely than not that the benefit from certain state NOL carryforwards will not be realized.

CERC has $425 million of federal NOL carryforwards which have an indefinite carryforward period. CERC has $592 million of gross state NOL carryforwards which expire between 2021 and 2040 and $17 million of state tax credits which do not expire. CERC reported a valuation allowance of $15 million since it is more likely than not that the benefit from certain state NOL carryforwards will not be realized.

A reconciliation of CenterPoint Energy’s beginning and ending balance of unrecognized tax benefits, excluding interest and penalties, for 2020 and 2019 are as follows:

	Year Ended December 31,
	2020		2019
	(in millions)
Balance, beginning of year	$	8	$	—
Unrecognized tax benefits assumed through the Merger	—		9
Increases related to tax positions of prior years	3		—
Decreases related to tax positions of prior years	(4)		(1)
Balance, end of year	$	7	$	8

CenterPoint Energy had no unrecognized tax benefits for 2018 and acquired $9 million of unrecognized tax benefits in connection with the Merger during 2019. Included in the balance of uncertain tax positions as of December 31, 2020 are $3 million of tax benefits that, if recognized, would affect the effective tax rate. The above table does not include $2 million of accrued penalties and interest as of December 31, 2020. The Registrants recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. The Registrants believe that it is reasonably possible that a decrease of up to $6 million including interest and penalties, in unrecognized tax benefits may occur by the end of 2021 as a result of a lapse of statutes on older exposures and/or the acceptance of an application for an accounting method change. CenterPoint Energy’s net unrecognized tax benefits, including penalties and interest, were $9 million as of December 31, 2020 and are included in other non-current liabilities in the Consolidated Financial Statements.

Tax Audits and Settlements. Tax years through 2018 have been audited and settled with the IRS for CenterPoint Energy. For the 2019 and 2020 tax years, the Registrants are participants in the IRS’s Compliance Assurance Process. Legacy Vectren is not currently under audit with the IRS, and the 2017-2019 tax years are still open.