10-Q/APeriod: Q3 FY2005

CENTERPOINT ENERGY INC Quarterly Report (Amendment) for Q3 Ended Sep 30, 2005

Filed January 10, 2006For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported a net income of $50 million for the three months ended September 30, 2005, a significant turnaround from a net loss of $1,136 million in the same period of the prior year. This improvement was largely driven by the sale of Texas Genco, which resulted in a substantial extraordinary loss in the prior year. Income from continuing operations also saw a healthy increase, rising to $50 million from $17 million year-over-year, reflecting stronger performance in the Pipelines and Gathering segment and a positive return on the true-up balance related to the Texas electric restructuring. Financially, the company saw a decrease in total assets from $18,096 million at the end of 2004 to $16,436 million at the end of September 2005, partly due to the sale of Texas Genco. Long-term debt also decreased, indicating a deleveraging effort. The company's liquidity appears adequate, with significant credit facilities in place to manage its capital needs, although the company is navigating the upcoming repeal of the Public Utility Holding Company Act of 1935, which will remove certain regulatory restrictions.

Key Highlights

  • 1Net income for the three months ended September 30, 2005, was $50 million, a substantial improvement from a net loss of $1,136 million in the same period of 2004.
  • 2Income from continuing operations increased to $50 million for the three months ended September 30, 2005, from $17 million in the prior year's comparable period.
  • 3The company completed the sale of its remaining interest in Texas Genco in April 2005, receiving an additional $700 million cash payment.
  • 4A significant positive impact on other income was the return on the true-up balance for CenterPoint Houston Electric, LLC, amounting to $35 million for the three months ended September 30, 2005.
  • 5Total assets decreased to $16,436 million as of September 30, 2005, from $18,096 million as of December 31, 2004, reflecting strategic divestitures.
  • 6CenterPoint Energy is preparing for the repeal of the Public Utility Holding Company Act of 1935, effective February 8, 2006, which will remove certain regulatory restrictions.
  • 7The company experienced a material weakness in internal control over financial reporting related to interdivision natural gas transactions, leading to a restatement of prior periods' revenues and expenses, though net income was unaffected.

Frequently Asked Questions

The substantial improvement was primarily due to the sale of Texas Genco. In Q3 2004, the company recorded a large extraordinary loss of $894 million related to Texas Genco's operations and the subsequent disposal. In contrast, Q3 2005 benefited from the cash proceeds from the sale and the absence of such extraordinary charges, along with improved operating performance in continuing operations.

The 'true-up balance' refers to costs determined during Texas's electricity restructuring, specifically stranded costs for CenterPoint Houston Electric, LLC. The company is recovering these costs through a Competition Transition Charge (CTC) and by issuing transition bonds. The return on this balance, particularly the debt return component, is recognized as other income, positively impacting the company's results as seen in Q3 2005.

The repeal of PUHCA, effective February 8, 2006, will eliminate many restrictions previously imposed on CenterPoint Energy and its subsidiaries as a registered public utility holding company. These restrictions related to issuing securities, borrowing money, and paying dividends. The repeal is expected to provide greater flexibility in financing and business operations.

The company identified a material weakness related to the improper elimination of interdivision purchases and sales of natural gas within its Natural Gas Distribution segment. This led to an overstatement of revenues and natural gas expenses in prior periods. The company has since restated its financial statements for the affected periods and implemented improved procedures, including enhanced review and approval controls, to address this weakness.