Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Registrants reported the following effective tax rates:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
CenterPoint Energy - Continuing operations (1)(2)	(1)	%	18	%	10	%	26	%
CenterPoint Energy - Discontinued operations (3) (4)	—	%	475	%	—	%	(14)	%
Houston Electric (5)	15	%	16	%	14	%	15	%
CERC - Continuing operations (6)	(45)	%	(31)	%	10	%	17	%
CERC - Discontinued operations (7) (8)	—	%	200	%	—	%	4	%

(1)CenterPoint Energy’s lower effective tax rate on income from continuing operations for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily driven by the recording of a $46 million deferred state tax benefit, detailed further below, that was triggered by state tax law legislation in Louisiana and Oklahoma combined with the impact of the accounting held for sale classification for the Arkansas and Oklahoma natural gas sale assets and liabilities in the period ended June 30, 2021. For tax purposes, when the held for

sale criteria is met, the CERC and unitary state apportionment rates must be updated to account for the sale and applied to the estimated post-sale net deferred tax liability which resulted in an $18 million net state tax benefit being recorded in the current quarter. Other factors in the remeasurement of the state deferred tax liability as a result of the reduction of the corporate tax rate in Oklahoma as of January 1, 2022 resulted in a benefit of $13 million and the change in the NOL carryforward period in Louisiana from 20 years to an indefinite period allowed for the release of the valuation allowance on certain Louisiana NOLs resulting in a benefit of $15 million.

(2)CenterPoint Energy’s lower than statutory tax rate on income from continuing operations for the six months ended June 30, 2021 was primarily due to an increase in the amount of amortization of the net regulatory EDIT liability, and the recording of a $46 million deferred state tax benefit, discussed above. This was partially offset by an increase in ordinary state income taxes. CenterPoint Energy’s higher than statutory tax rate on the loss from continuing operations for the six months ended June 30, 2020 was primarily due to lower earnings from the impairment of CenterPoint Energy’s investment in Enable. Other effective tax rate drivers included the non-deductible goodwill impairment at Indiana Electric Integrated reporting unit, and an increase in the amount of remeasurement of state tax liabilities for changes in apportionment, the effect of which was compounded by the book loss in the six months ended June 30, 2020.

(3)CenterPoint Energy’s higher than statutory tax rate on income from discontinued operations for the three months ended June 30, 2020 was primarily due to the tax impacts from the sales of the Infrastructure Services and Energy Services Disposal Groups.

(4)CenterPoint Energy’s lower than statutory tax rate on the loss from discontinued operations for the six months ended June 30, 2020 was primarily due to the tax impacts from the sales of the Infrastructure Services and Energy Services Disposal Groups.

(5)Houston Electric’s lower effective tax rate for the three and six months ended June 30, 2021 compared to the same periods in 2020 was primarily driven by a decrease in state income taxes which is partially offset by an increase in the amount of amortization of the net regulatory EDIT liability.

(6)CERC’s lower effective tax rate on income from continuing operations for the three and six months ended June 30, 2021 compared to the same periods ended June 30, 2020 was primarily driven by a $26 million deferred state tax benefit, detailed further below, that was triggered by state tax law legislation in Louisiana combined with the accounting held for sale classification for the Arkansas and Oklahoma natural gas sale assets and liabilities in the period ended June 30, 2021. For tax purposes, when the held for sale criteria is met, the CERC state apportionment rates must be updated to account for the sale and applied to the estimated post-sale net deferred tax liability which resulted in an $11 million net state tax benefit being recorded in the current quarter. A state law change in the NOL carryforward period in Louisiana from 20 years to an indefinite period allowed for the release of the valuation allowance on certain Louisiana NOLs resulting in a benefit of $15 million.

(7)CERC’s higher than statutory tax rate on income from discontinued operations for the three months ended June 30, 2020 was primarily due to the tax impacts from the sale of the Energy Services Disposal Group.

(8)CERC’s lower than statutory tax rate on the loss from discontinued operations for the six months ended June 30, 2020 was primarily due to the tax impacts from the sale of the Energy Services Disposal Group.

On March 11, 2021, the ARPA was enacted in response to continued economic and health impacts of the COVID-19 pandemic. The ARPA expands the definition of “covered employee” under section 162(m) beginning in 2027, and extends the employee retention tax credit through December 31, 2021, among other provisions. CenterPoint Energy does not currently anticipate any material impacts from this legislation. On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act provides relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, deferring the payment of the employer share of payroll taxes for the remaining months of 2020 until 2021 and 2022, increasing the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerating refunds for minimum tax credit carryforwards, among other provisions. Based on the CARES Act NOL carryback provision, during the three and six months ended June 30, 2020, CenterPoint Energy recorded a $-0- and $19 million benefit, respectively, resulting from carryback claims to be filed to refund taxes paid.

CenterPoint Energy reported a net uncertain tax liability, inclusive of interest and penalties, of $10 million as of June 30, 2021. Interest and penalties of $1 million were recorded on the uncertain tax liability for the six months ended June 30, 2021. The Registrants believe that it is reasonably possible that a decrease of up to $9 million in unrecognized tax benefits may occur in the next 12 months as a result of a lapse of statutes on older exposures, a tax settlement, a resolution of open audits, and/or the acceptance of an application for an accounting method change. For CenterPoint Energy, tax years through 2018 have been audited and settled with the IRS. For the 2019 through 2021 tax years CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. Vectren’s pre-Merger 2017 through 2019 tax years are still open for examination.