Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)

12 Months Ended

Dec. 31, 2023

Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)

(a) Equity Securities

Gains and losses on equity securities, net of transaction costs, are recorded as Gain (loss) on equity securities in CenterPoint Energy’s Statements of Consolidated Income. The following table presents information on CenterPoint Energy's equity securities for each period indicated:


	Year Ended December 31,
	2023		2022		2021
			(in millions)
AT&T Common	$	(17)	$	(63)	$	(43)
Charter Common	43		(273)		(8)
WBD Common	5		23		—
Energy Transfer Common Units (1)	—		95		(124)
Energy Transfer Series G Preferred Units (1)	—		(9)		2
Other	—		—		1
Total Gains (Losses) on Equity Securities	$	31	$	(227)	$	(172)

(1)In 2022, CenterPoint Energy completed the execution of its previously announced plan to exit the midstream sector by selling the remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units it held.

CenterPoint Energy recorded unrealized gains (losses) of $31 million, $(313) million, and $(52) million for the years ended December 31, 2023, 2022, and 2021, respectively, for equity securities held as of December 31, 2023, 2022, and 2021.

CenterPoint Energy and its subsidiaries hold shares of certain securities detailed in the table below, which are classified as trading securities. Shares of AT&T Common, Charter Common and WBD Common are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS.


	Shares Held at December 31,		Carrying Value at December 31,
	2023	2022	2023		2022
			(in millions)
AT&T Common	10,212,945	10,212,945	$	171	$	188
Charter Common	872,503	872,503	339		296
WBD Common	2,470,685	2,470,685	28		23


Other			3		3
			$	541	$	510

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1.0 billion, of which $828 million remained outstanding as of December 31, 2023. Each ZENS is exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.

CenterPoint Energy’s reference shares for each ZENS consisted of the following:


	December 31,
	2023	2022
	(in shares)
AT&T Common	0.7185	0.7185
Charter Common	0.061382	0.061382
WBD Common	0.173817	0.173817

CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of the ZENS is subject to increases or decreases to the extent that the annual yield from interest and cash dividends on the reference shares is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of December 31, 2023, the ZENS, having an original principal amount of $828 million and a contingent principal amount of $18 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS. As of December 31, 2023, the market value of such shares was approximately $538 million, which would provide an exchange amount of $618 for each $1,000 original principal amount of ZENS. At maturity of the ZENS in 2029, CenterPoint Energy will be obligated to pay in cash the higher of the contingent principal amount of the ZENS or an amount based on the then-current market value of the reference shares, which will include any additional publicly-traded securities distributed with respect to the current reference shares prior to maturity.

The ZENS obligation is bifurcated into a debt component and a derivative component (the holder’s option to receive the appreciated value of the reference shares at maturity). The bifurcated debt component accretes through interest charges annually up to the contingent principal amount of the ZENS in 2029. Such accretion will be reduced by annual cash interest payments, as described above. The derivative component is recorded at fair value and changes in the fair value of the derivative component are recorded in CenterPoint Energy’s Statements of Consolidated Income. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS.

The following table sets forth summarized financial information regarding CenterPoint Energy’s investment in ZENS-Related Securities and each component of CenterPoint Energy’s ZENS obligation.


	ZENS-Related Securities		Debt Component of ZENS		Derivative Component of ZENS
	(in millions)
Balance as of December 31, 2020	$	871	$	15	$	953
Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(17)		—

Distribution to ZENS holders	—		(5)		—

Gain on indexed debt securities	—		—		(50)
Loss on ZENS-Related Securities	(51)		—		—
Balance as of December 31, 2021	820		10		903
Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(17)		—

Distribution to ZENS holders	—		(3)		—

Gain on indexed debt securities	—		—		(325)
Loss on ZENS-Related Securities	(313)		—		—
Balance as of December 31, 2022	507		7		578

Accretion of debt component of ZENS	—		17		—
2% interest paid	—		(17)		—

Distribution to ZENS holders	—		(2)		—

Loss on indexed debt securities	—		—		27
Gain on ZENS-Related Securities	31		—		—
Balance as of December 31, 2023	$	538	$	5	$	605