10-QPeriod: Q2 FY2003

CENTERPOINT ENERGY INC Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 13, 2003For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported mixed financial results for the period ended June 30, 2003. While revenues saw a significant increase compared to the prior year, driven by higher energy prices and customer growth, net income attributable to common shareholders decreased substantially. This decline was primarily due to a significant increase in interest expense, higher operation and maintenance costs, and lower income from continuing operations. The company also incurred a loss on the disposal of discontinued operations. Key financial drivers included higher natural gas prices impacting both revenues and fuel costs, alongside a positive impact from weather conditions. The company's Electric Transmission & Distribution segment experienced a decrease in operating income, largely due to a reduction in non-cash ECOM revenue. Conversely, the Electric Generation segment showed improvement, turning a loss into a profit driven by higher capacity and energy revenues. The company continues to manage its capital structure, undertaking several debt financings and seeking regulatory approvals for future activities.

Key Highlights

  • 1Total revenues increased significantly to $2.09 billion for the three months ended June 30, 2003, up from $1.80 billion in the prior year period.
  • 2Net income attributable to common shareholders decreased substantially to $63.2 million for the three months ended June 30, 2003, down from $235.6 million in the prior year period.
  • 3Interest expense increased significantly, contributing to the lower net income, with a $75 million rise in the three-month period and a $182 million rise in the six-month period compared to the prior year.
  • 4The Electric Transmission & Distribution segment's operating income decreased by $40 million for the three-month period, primarily due to lower ECOM revenue.
  • 5The Electric Generation segment improved its operating performance, turning an operating loss of $29 million in the prior year's three-month period into an operating income of $50 million.
  • 6The company adopted SFAS No. 143, 'Accounting for Asset Retirement Obligations,' resulting in a cumulative effect of accounting change of $152 million.
  • 7Significant debt refinancing and capital market transactions were undertaken in 2003 to manage the company's debt structure and reduce interest rate risk.

Frequently Asked Questions

The substantial decrease in net income was primarily driven by a significant increase in interest expense, higher operation and maintenance costs across various segments, and a reduction in income from continuing operations, particularly within the Electric Transmission & Distribution segment due to lower ECOM revenue. These factors were partially offset by improved performance in the Electric Generation segment.

CenterPoint Energy engaged in several significant debt financing transactions in 2003. These included issuing convertible senior notes, senior notes, and general mortgage bonds across its subsidiaries. These actions aimed to convert floating-rate debt to fixed-rate debt, extend maturities, reduce current debt obligations, and manage borrowing costs. The company also focused on regulatory approvals for future financing activities.

CenterPoint Houston is expected to recover its stranded costs and other regulatory assets related to generation in a 2004 true-up proceeding. The company has recorded significant regulatory assets, but the ultimate recovery amounts are subject to final determination in the proceeding and are contingent upon the market value of Texas Genco. Any failure to successfully establish or recover these costs could adversely impact the company.

The adoption of SFAS No. 143, 'Accounting for Asset Retirement Obligations,' effective January 1, 2003, resulted in the recognition of asset retirement obligations and a cumulative effect of accounting change totaling $152 million. This adoption required adjustments to liabilities and assets related to nuclear decommissioning and mine reclamation.