8-KRegulation FD

CENTERPOINT ENERGY INC 8-K Report, Regulation FD Disclosure (Jan 21, 2020)

Filed January 21, 2020For Securities:CNP

Summary

This 8-K filing by CenterPoint Energy, Inc. (CNP) announces a significant agreement reached by its subsidiary, CenterPoint Energy Houston Electric, LLC, concerning its base rate application with the Public Utility Commission of Texas (PUCT) and local cities. The agreement, supported by all parties involved or unopposed, outlines key terms including a modest revenue requirement increase of approximately $13 million, a return on equity of 9.4%, and a capital structure of 57.5% debt and 42.5% equity. A key financial component is a refund of $105 million plus carrying costs related to excess deferred income taxes (EDIT), to be paid over 30-36 months. While the agreement is expected to result in reductions to Houston Electric's Funds from Operations and Operating Income in 2020 (estimated at $70 million and $40 million respectively, compared to prior plans), it avoids significant write-offs of rate base. The agreement also includes important ring-fencing measures to protect Houston Electric's financial stability, such as maintaining a standalone credit rating and restrictions on asset transfers. However, dividend restrictions will be determined by the PUCT, with specific conditions outlined if credit ratings fall or debt-to-equity ratios are breached. The company anticipates a final PUCT order by mid-first quarter 2020.

Key Highlights

  • 1Agreement reached on Houston Electric's base rate application, supported by all parties.
  • 2Approved revenue requirement increase of approximately $13 million.
  • 3Set return on equity at 9.4% and capital structure at 57.5% debt / 42.5% equity.
  • 4Houston Electric to refund $105 million plus carrying costs of excess deferred income taxes over 30-36 months.
  • 5Anticipated 2020 annualized reduction to Houston Electric's Funds from Operations ($70 million) and Operating Income ($40 million).
  • 6Inclusion of ring-fencing measures to enhance Houston Electric's financial independence and creditworthiness.
  • 7Dividend restrictions to be determined by the PUCT, with specific triggers and conditions outlined.

Frequently Asked Questions

The agreement is expected to result in reductions to Houston Electric's Funds from Operations by approximately $70 million and Operating Income by approximately $40 million on an annualized basis in 2020. While these represent reductions compared to prior plans, no write-offs of rate base are anticipated. The company is still assessing the overall financial impact.

The agreement includes significant ring-fencing measures. Houston Electric must maintain a standalone credit rating, adhere to provisions in its credit agreement, and is prohibited from transferring material assets to affiliates or engaging in certain intercompany lending/borrowing, with specific exceptions. This aims to strengthen its financial independence.

The Public Utility Commission of Texas (PUCT) will determine the application of dividend restrictions. Specific conditions are outlined, including limits on dividend payments to net income, suspension of dividends if credit ratings fall below a certain threshold, and restrictions if payments would violate the PUCT-approved debt-to-equity ratio.

CenterPoint Energy anticipates a final order from the PUCT regarding this agreement during the mid-first quarter of 2020.