Unconsolidated Affiliates

As discussed in Note 1, on May 1, 2013 (the Closing Date) CERC Corp., OGE and ArcLight closed on the formation of Enable. Enable owns CenterPoint Midstream, which consists of substantially all of CERC Corp.’s former Interstate Pipelines and Field Services business segments. As a result, CERC no longer has Interstate Pipelines or Field Services business segments. Equity earnings associated with CERC's interest in Enable and equity earnings associated with its retained 25.05% interest in SESH are now reported under the Midstream Investments segment. For a further description of CERC's reportable business segments, see Note 12.

The formation of Enable by CERC has been considered a contribution of in-substance real estate to a limited partnership as the businesses are composed of, and reliant upon, substantial real estate assets and integral equipment. Real estate assets and integral equipment primarily includes gas transmission pipelines, compressor station equipment, rights of way, storage and processing assets, and long-term customer contracts. Accordingly, CERC did not recognize a gain or loss upon contribution and recorded its investment in Enable using the equity method of accounting based on the historical cost of the contributed assets and liabilities as of the Closing Date. Approximately $5.8 billion of assets and $1.5 billion of liabilities (which includes the Term Loan and the indebtedness owed to CERC, both discussed below, of $1.05 billion and $363 million, respectively) were contributed by CERC Corp. CERC has the ability to significantly influence the operating and financial policies of Enable and, accordingly, recorded an equity method investment of $4.3 billion in Enable on the Closing Date. Pursuant to the MFA, CERC retained certain assets and liabilities historically held by CenterPoint Midstream such as balances relating to federal income taxes and benefit plan obligations.

CERC’s investment in Enable is considered to be a VIE because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CERC is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable. As discussed above, CERC accounts for its investment in Enable using the equity method of accounting. Under the equity method, the investment will be adjusted each period for contributions made, distributions received and CERC’s share of Enable’s comprehensive income. CERC’s maximum exposure to loss related to Enable is limited to its equity investment as presented in the Condensed Consolidated Balance Sheet at September 30, 2013 and its guarantee of Enable’s $1.05 billion Term Loan and certain other guarantees as discussed in Note 10. CERC evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. See Note 1 for further discussion on Enable’s ownership structure.

Effective on the Closing Date, CenterPoint Energy and Enable entered into a Services Agreement, Employee Transition Agreement, Transitional Services Agreement and other agreements (collectively, Transition Agreements) whereby CERC agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions. Additionally, CERC provides seconded employees to Enable to support its operations. CERC does not anticipate extending the services provided to Enable, including providing seconded employees, beyond December 31, 2014. CERC did not transfer any employees to Enable at formation of the partnership or at any time during the nine months ended September 30, 2013. CERC billed Enable for reimbursement of transitional services, including the costs of seconded employees, of $42 million and $70 million during the three and five months ended September 30, 2013, respectively, under the Transition Agreements. Actual transitional services costs are recorded net of reimbursements received from Enable.

Enable, at its discretion, has the right to select and offer employment to seconded employees from CERC. As of September 30, 2013, CERC determined it cannot reasonably estimate the impact of the costs associated with the termination of employees related to the formation of Enable or transfer of employees from CERC to Enable, including the impact of the changes to the actuarial determination of employee benefit plan obligations. Pursuant to the Transition Agreements, Enable has agreed to reimburse CERC for severance and termination costs related to the termination of CERC's seconded employees, including any potential benefit-related costs, regardless of whether such seconded employees are offered employment by Enable.

On the Closing Date, Enable entered into a $1.05 billion three-year senior unsecured term loan facility (the Term Loan) with third parties and repaid $1.05 billion of affiliated notes payable (Affiliated Notes Payable) owed to CERC. CERC provided a guarantee of Enable's obligations under the Term Loan. The guarantee is subordinated to all senior debt of CERC. Certain of the entities contributed to Enable by CERC are obligated on approximately $363 million of indebtedness owed to CERC bearing interest at an annual rate of 2.10% to 2.45% and scheduled to mature in 2017.

CERC has certain put rights, and Enable has certain call rights, exercisable with respect to the 25.05% interest in SESH retained by CERC, under which CERC would contribute its retained interest in SESH, in exchange for a specified number of limited partnership units in Enable and a cash payment, payable either from CERC to Enable or from Enable to CERC, for changes in the value of SESH.

As of September 30, 2013, CERC held an approximate 58.3% interest in Enable and a 25.05% interest in SESH.

Investment in Unconsolidated Affiliates:



	December 31, 2012		September 30, 2013
	(in millions)
Enable	$	—	$	4,326
SESH	404		199
Other	1		—
Total	$	405	$	4,525

Equity in Earnings of Unconsolidated Affiliates, net:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2013		2012		2013
	(in millions)
Enable	$	—	$	77	$	—	$	110
SESH	8		3		20		12
Other	—		—		5		—
	$	8	$	80	$	25	$	122

Summarized income information for Enable from formation on May 1, 2013 through September 30, 2013, based on the Enogex assets recorded at estimated fair value on the Closing Date, is as follows (in millions):



Operating Revenues	$	1,298
Gross Margin	545
Operating Income	207
Net Income from Controlling Interest	188

CERC's 58.3% interest	$	110

Summarized balance sheet information for Enable as of September 30, 2013 is as follows (in millions):



Current assets	$	428
Non-current assets	10,537
Current liabilities	622
Non-current liabilities	2,140

Enable concluded that the formation of Enable is considered a business combination, and CenterPoint Midstream is the acquirer for accounting purposes. Under this method, the fair value of the consideration paid by CenterPoint Midstream for Enogex is allocated to the assets acquired and liabilities assumed on the Closing Date based on their fair value. Enogex’s assets, liabilities and equity were accordingly adjusted to estimated fair value as of May 1, 2013. Determining the fair value of assets and liabilities is judgmental in nature and often involves the use of significant estimates and assumptions. Enable used appraisers to assist in the determination of the estimated fair value of certain assets and liabilities contributed by Enogex.

CERC recorded its 58.3% interest in Enable’s net income for the period May 1, 2013 through September 30, 2013 of $110 million, which includes the depreciation and amortization of the step-up in fair value of Enogex assets at Enable.

As of September 30, 2013, CERC’s investment in Enable, recorded at the historical cost of the contributed CenterPoint Midstream assets and liabilities, was $439 million less than CERC’s proportionate share of Enable’s limited partners’ capital. This difference in CERC’s investment basis included $229 million related to CERC’s proportionate share of Enable’s goodwill arising from its acquisition of Enogex, and therefore will not be recognized by CERC. CERC will accrete the remaining $210 million basis difference over 30 years.

Distributions received from Enable were approximately $36 million during the three and five months ended September 30, 2013.