Income Taxes

6 Months Ended

Jun. 30, 2020

Income Taxes

The Registrants reported the following effective tax rates:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
CenterPoint Energy - Continuing operations (1) (2)	18	%	9	%	26	%	9	%
CenterPoint Energy - Discontinued operations (3) (4)	475	%	24	%	(14	)%	24	%
Houston Electric (5)	16	%	19	%	15	%	19	%
CERC - Continuing operations (6) (7)	(31	)%	167	%	17	%	10	%
CERC - Discontinued operations (8) (9)	200	%	16	%	4	%	19	%

(1)

CenterPoint Energy’s higher effective tax rate on income from continuing operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily driven by state tax impacts. In 2019, CenterPoint Energy recorded state deferred tax benefits as a result of the impact of state tax law changes and the release of a valuation allowance on certain state net operating losses.

(2)

CenterPoint Energy’s higher effective tax rate on the loss from continuing operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 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 the Indiana Electric Integrated reporting unit, an increase in the amount of amortization of the net regulatory EDIT liability, 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 effective tax rate on income from discontinued operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to the tax impacts from the sale of the Infrastructure Services Disposal Group on April 9, 2020 and the sale of the Energy Services Disposal Group on June 1, 2020, the effect of which was compounded by lower book earnings in the three months ended June 30, 2020. See Note 3 for further information.

(4)

CenterPoint Energy’s lower effective tax rate on the loss from discontinued operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to the tax impacts from the sale of the Infrastructure Services Disposal Group on April 9, 2020 and the sale of the Energy Services Disposal Group on June 1, 2020, the effect of which was compounded by lower book earnings in the six months ended June 30, 2020. See Note 3 for further information.


(5)	Houston Electric’s lower effective tax rate for the three and six months ended June 30, 2020 compared to the same periods for 2019 was primarily due to 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 months ended June 30, 2020 compared to the three months ended June 30, 2019 was driven by state tax impacts. In 2019, CERC recorded state deferred tax benefits as a result of the impact of state tax law changes, and the release of a valuation allowance on certain state net operating losses, the effect of which was compounded by the book loss in the three months ending June 30, 2019.


(7)	CERC’s higher effective tax rate on income from continuing operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily driven by the absence of state deferred tax benefits as result of state tax law changes and the release of a valuation allowance on certain state net operating losses in 2019.

(8)

CERC’s higher effective tax rate on income from discontinued operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to the tax impacts from the sale of the Energy Services Disposal Group on June 1, 2020, the effect of which was compounded by lower book earnings in the three months ended June 30, 2020. See Note 3 for further information.


(9)	CERC’s lower effective 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 June 1, 2020, the effect of which was compounded by lower book earnings in the six months ended June 30, 2020. See Note 3 for further information.

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. The tax effects of changes in tax laws are recognized in the period in which the law is enacted. As such, during the three months ended March 31, 2020, CenterPoint Energy recorded a $19 million benefit resulting from carryback claims expected to be filed to refund taxes paid.

The Registrants reported a net uncertain tax liability, inclusive of interest and penalties, of $7 million as of June 30, 2020. The net $1 million decrease during the three months ended June 30, 2020 was primarily driven by the transfer of the Infrastructure Services Disposal Group’s uncertain tax liability to PowerTeam Services as part of the April 2020 sale. The Registrants believe that it is reasonably possible that a decrease of up to $5 million in unrecognized tax benefits may occur in the next 12 months as a result of a lapse of statutes on older exposures and/or the filing of applications for accounting method changes. For CenterPoint Energy, tax years through 2018 have been audited and settled with the IRS. For the 2019 and 2020 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. Legacy Vectren is not currently under audit with the IRS, and the 2017-2019 tax years are still open.