Held for Sale and Divestitures (CenterPoint Energy and CERC)

6 Months Ended

Jun. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]

Held for Sale and Divestitures (CenterPoint Energy and CERC)

Held for Sale and Divestitures (CenterPoint Energy and CERC)

Held for Sale. On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses for $2.15 billion in cash, including recovery of approximately $425 million of storm-related incremental natural gas costs incurred in the February 2021 Winter Storm Event, subject to certain adjustments set forth in the Asset Purchase Agreement. The assets include approximately 17,000 miles of main pipeline in Arkansas, Oklahoma and certain portions of Bowie County, Texas serving more than half a million customers. The Arkansas and Oklahoma Natural Gas businesses are reflected in CenterPoint Energy’s Natural Gas reportable segment and CERC’s single reportable segment, as applicable. Filings were made on June 11, 2021 to the APSC and June 24, 2021 to the OCC requesting approval of the transaction. The transaction is anticipated to close by the end of 2021, subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance and state regulatory approvals. As announced in December 2020, CenterPoint Energy’s business strategy incorporated the Business Review and Evaluation Committee’s recommendations to increase its planned capital expenditures in its electric and natural gas businesses to support rate base growth and sell certain of its Natural Gas businesses located in Arkansas and Oklahoma as a means to efficiently finance a portion of such increased capital expenditures, among other recommendations.

In April 2021, certain assets and liabilities representing the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria. The sale will be considered an asset sale for tax purposes, requiring net deferred tax liabilities to be excluded from held for sale balances. The deferred taxes associated with the businesses will be recognized as a deferred income tax benefit by CenterPoint Energy and CERC upon closing.

The Registrants record assets and liabilities held for sale at the lower of their carrying value or their estimated fair value less cost to sell. Neither CenterPoint Energy nor CERC recognized any gains or losses upon classification of held for sale during the three and six months ended June 30, 2021. See Note 10 for further information about the allocation of goodwill to the businesses to be disposed.

The assets and liabilities of the Arkansas and Oklahoma Natural Gas businesses classified as held for sale in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets, as applicable, included the following:

	June 30, 2021
	CenterPoint Energy		CERC
	(in millions)
Receivables, net	$	28	$	28
Accrued unbilled revenues	14		14
Natural gas inventory	20		20
Materials and supplies	8		8
Property, plant and equipment, net	1,238		1,238
Goodwill	403		146
Regulatory assets	386		386
Other	95		95
Total current assets held for sale	$	2,192	$	1,935
Short term borrowings (1)	$	14	$	14
Accounts payable	20		20
Taxes accrued	5		5
Customer deposits	12		12
Regulatory liabilities	286		286
Other	135		135
Total current liabilities held for sale	$	472	$	472

(1)Represents third-party AMAs associated with utility distribution service in Arkansas and Oklahoma. These transactions are accounted for as an inventory financing. For further information, see Note 12.

Although the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria, their disposals do not represent a strategic shift to CenterPoint Energy and CERC as both will retain significant operations in, and will continue to invest in, their natural gas businesses. Therefore, the assets and liabilities associated with these transactions are not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable, and the December 31, 2020 Condensed Consolidated Balance Sheets were not required to be recast for assets held for sale. Since the depreciation on the Arkansas and Oklahoma Natural Gas assets will continue to be reflected in revenues through customer rates until the expected closing of the transaction and will be reflected in the carryover basis of the rate-regulated assets once sold, CenterPoint Energy and CERC will continue to record depreciation on those assets through the expected closing of the transaction.

The pre-tax income for the Arkansas and Oklahoma Natural Gas businesses, excluding interest and corporate allocations, included in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in millions)
Income from Continuing Operations Before Income Taxes	$	10	$	8	$	62	$	60

Divestiture of Infrastructure Services and Energy Services (CenterPoint Energy and CERC). CenterPoint Energy completed the sale of the Infrastructure Services Disposal Group on April 9, 2020 for $850 million and collected a receivable of $4 million from PowerTeam Services in January 2021 for full and final settlement of the working capital adjustment in the Securities Purchase Agreement. CenterPoint Energy, through its subsidiary CERC Corp., completed the sale of the Energy Services Disposal Group on June 1, 2020 for $286 million in cash and collected a receivable for $79 million in October 2020 for full and final settlement of the working capital adjustment. The earnings and expenses directly associated with these dispositions for the three and six months ended June 30, 2020 are reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income through the closing of the transactions, as applicable.

A summary of the Infrastructure Services and Energy Services Disposal Groups presented in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable, is as follows:

	Three Months Ended June 30, 2020
	CenterPoint Energy						CERC
	Infrastructure Services Disposal Group		Energy Services Disposal Group		Total		Energy Services Disposal Group
	(in millions)
Revenues	$	28	$	281	$	309	$	281
Expenses:
Non-utility cost of revenues	6		300		306		300
Operation and maintenance	21		14		35		14
Taxes other than income taxes	—		2		2		2
Total	27		316		343		316
Income (loss) from discontinued operations before income taxes	1		(35)		(34)		(35)
Gain on sale, net	3		39		42		39
Income tax expense	30		8		38		8
Net loss from discontinued operations	$	(26)	$	(4)	$	(30)	$	(4)

	Six Months Ended June 30, 2020
	CenterPoint Energy						CERC
	Infrastructure Services Disposal Group		Energy Services Disposal Group		Total		Energy Services Disposal Group
	(in millions)
Revenues	$	250	$	1,167	$	1,417	$	1,167
Expenses:
Non-utility cost of revenues	50		1,108		1,158		1,108
Operation and maintenance	184		34		218		34
Taxes other than income taxes	1		3		4		3
Total	235		1,145		1,380		1,145
Income from discontinued operations before income taxes	15		22		37		22
Loss on classification to held for sale, net (1)	(93)		(99)		(192)		(93)
Income tax expense (benefit)	25		(4)		21		(3)
Net loss from discontinued operations	$	(103)	$	(73)	$	(176)	$	(68)

(1)Loss from classification to held for sale is inclusive of goodwill impairment, gains and losses recognized upon sale, and for CenterPoint Energy, its costs to sell.

CenterPoint Energy and CERC have elected not to separately disclose discontinued operations on their respective Condensed Statements of Consolidated Cash Flows. The following table summarizes CenterPoint Energy’s and CERC’s cash flows from discontinued operations and certain supplemental cash flow disclosures related to the Infrastructure Services and Energy Services Disposal Groups, as applicable:

	Six Months Ended June 30, 2020
	CenterPoint Energy				CERC
	Infrastructure Services Disposal Group		Energy Services Disposal Group		Energy Services Disposal Group
	(in millions)
Write-down of natural gas inventory	$	—	$	3	$	3
Capital expenditures	16		1		1
Non-cash transactions:
Accounts payable related to capital expenditures	2		4		4

Other Sale Related Matters (CenterPoint Energy and CERC). CES provided natural gas supply to CenterPoint Energy’s and CERC’s Natural Gas under contracts executed in a competitive bidding process, with the duration of some contracts extending into 2021. In addition, CERC is the natural gas transportation provider for a portion of CES’s customer base and will continue to be the transportation provider for these customers as long as these customers retain a relationship with the divested CES business.

Transactions between CES and CenterPoint Energy’s and CERC’s Natural Gas businesses that were previously eliminated in consolidation have been reflected in continuing operations until June 1, 2020, which was the date of closing of the sale of the Energy Services Disposal Group. Revenues and expenses included in continuing operations were as follows:

	Three Months Ended June 30, 2020
	CenterPoint Energy		CERC
	(in millions)
Transportation revenue	$	18	$	18
Natural gas expense	3		3
	Six Months Ended June 30, 2020
	CenterPoint Energy		CERC
	(in millions)
Transportation revenue	$	34	$	34
Natural gas expense	48		47

In the normal course of business prior to June 1, 2020, the Energy Services Disposal Group through CES traded natural gas under supply contracts and entered into natural gas related transactions under transportation, storage and other contracts. In connection with the Energy Services Disposal Group’s business activities prior to the closing of the sale of the Energy Services Disposal Group on June 1, 2020, CERC Corp. issued guarantees to certain of CES’s counterparties to guarantee the payment of CES’s obligations. For further information, see Note 14.

Natural Gas had AMAs associated with their utility distribution service in Arkansas, Louisiana and Oklahoma with the Energy Services Disposal Group which expired in March 2021. The expired AMAs were replaced with new third-party AMAs beginning in April 2021. CenterPoint Energy and CERC had outstanding obligations related to the AMAs with the Energy Services Disposal Group of $-0- and $24 million as of June 30, 2021 and December 31, 2020, respectively.

The Infrastructure Services Disposal Group provided pipeline construction and repair services to CenterPoint Energy’s and CERC’s Natural Gas. In accordance with consolidation guidance in ASC 980—Regulated Operations, costs incurred by Natural Gas utilities for these pipeline construction and repair services are not eliminated in consolidation when capitalized and included in rate base by the Natural Gas utility. Amounts charged for these services that are not capitalized are included primarily in Operation and maintenance expenses.

Fees incurred by CenterPoint Energy’s and CERC’s Natural Gas segment for pipeline construction and repair services are as follows:

	Six Months Ended June 30, 2020
	CenterPoint Energy		CERC
	(in millions)
Pipeline construction and repair services capitalized	$	34	$	—
Pipeline construction and repair service charges in operations and maintenance expense	1		1

(1)Represents charges for the period from January 1, 2020 until the closing of the sale of the Infrastructure Services Disposal Group.

In the Securities Purchase Agreement, CenterPoint Energy agreed to a mechanism to reimburse PowerTeam Services subsequent to closing of the sale for certain amounts of specifically identified change orders that may be ultimately rejected by one of VISCO’s customers as part of on-going audits. CenterPoint Energy’s maximum contractual exposure under the Securities Purchase Agreement, in addition to the amount reflected in the working capital adjustment, for these change orders is $21 million. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows. CenterPoint Energy anticipates this matter will be resolved in 2021.