Unconsolidated Affiliates

On May 1, 2013 (the Closing Date) CERC Corp., OGE Energy Corp. (OGE) and ArcLight Capital Partners, LLC (ArcLight) closed on the formation of Enable. CERC has the ability to significantly influence the operating and financial policies of Enable and, accordingly, accounts for its investment in Enable using the equity method of accounting. Under the equity method, CERC will adjust its investment in Enable each period for contributions made, distributions received, CERC’s share of Enable’s comprehensive income and accretion of any basis difference. 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.

CERC’s investment in Enable is considered to be a variable interest entity (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. CERC’s maximum exposure to loss related to Enable is limited to its equity investment as presented in the Condensed Consolidated Balance Sheet at March 31, 2014, CERC Corp.'s guarantee of Enable’s $1.05 billion term loan (Term Loan) and other guarantees discussed in Note 10, CERC Corp.’s $363 million notes receivable from Enable and outstanding current accounts receivable from Enable. CERC Corp.'s guarantee of Enable’s Term Loan is subordinated to all senior debt of CERC. The $363 million of notes receivable from Enable bears interest at an annual rate of 2.10% to 2.45% and mature in 2017. CERC had interest receivable of $6 million as of March 31, 2014 and interest income of $2 million during the three months ended March 31, 2014 on its $363 million of notes receivable from Enable.

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 for an initial term ending on April 30, 2016. The support services automatically extend year-to-year at the end of the initial term, unless terminated by Enable with at least 90 days’ notice. Enable may terminate these support services at any time with 180 days’ notice if approved by the board of Enable's general partner. Additionally, CERC agreed to provide seconded employees to Enable to support its operations for an initial term ending on December 31, 2014, unless revised by mutual agreement with CERC, OGE and Enable prior to that date.

CERC did not transfer any employees to Enable at formation of the partnership or at any time during the period from the Closing Date to March 31, 2014. CERC billed Enable for reimbursement of transitional services, including the costs of seconded employees, of $45 million during the three months ended March 31, 2014, under the Transition Agreements. Actual transitional services costs are recorded net of reimbursements received from Enable. Effective April 1, 2014, Enable’s general partner, CERC and OGE agreed to reduce certain governance related costs billed to Enable for transition services. These governance related costs were approximately $3 million in the three months ended March 31, 2014, which were included in the amounts billed for transitional services during the period. CERC had accounts receivable from Enable of $20 million as of March 31, 2014 for amounts billed for transitional services, including the cost of seconded employees.

Enable, at its discretion, has the right to select and offer employment to seconded employees from CERC. As of March 31, 2014, 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.

CERC has certain put rights, and Enable has certain call rights, exercisable with respect to the 25.05% interest in Southeast Supply Header, LLC (SESH) retained by CERC, under which CERC would contribute its retained interest in SESH, in exchange for a specified number of limited partner 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. Specifically, the rights are exercisable with respect to a 24.95% interest in SESH (which may be exercised no earlier than May 2014) and a 0.1% interest in SESH (which may be exercised no earlier than May 2015). If CERC were to exercise its put rights or Enable were to exercise its call rights, CERC would contribute to Enable its 24.95% interest in SESH in exchange for 6,322,457 common units and its 0.1% interest in SESH in exchange for 25,341 common units. Subject to certain restrictions, if the fair market value of the contributed SESH interest is more or less than the value of the common units issued as consideration for the SESH interest, a cash payment may be required to be made by either Enable or CERC.

During the three months ended March 31, 2014, CERC incurred natural gas expenses, including transportation and storage costs, of $47 million for transactions with Enable. CERC had accounts payable to Enable of $16 million at March 31, 2014 from such transactions.

As of March 31, 2014, CERC held an approximate 58.3% limited partner interest in Enable and a 25.05% interest in SESH.

On April 16, 2014, Enable completed its initial public offering of 28,750,000 common units at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received approximately $466 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. Following the offering, CERC Corp. owns approximately 54.7% of the limited partner interests in Enable, which consists of 87,803,909 common units and 139,704,916 subordinated units. Enable continues to be equally controlled by CenterPoint Energy and OGE; each own 50% of the management rights in the general partner of Enable. CenterPoint Energy and OGE also own a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner of Enable.

Investment in Unconsolidated Affiliates:



	March 31, 2014		December 31, 2013
	(in millions)
Enable	$	4,340	$	4,319
SESH	200		199
Total	$	4,540	$	4,518

Equity in Earnings of Unconsolidated Affiliates, net:



	Three Months Ended March 31,
	2014		2013
	(in millions)
Enable	$	88	$	—
SESH (1)	3		5
	$	91	$	5


(1)	On May 1, 2013, CERC contributed a 24.95% interest in SESH to Enable, leaving CERC with a 25.05% interest in SESH.

Summarized consolidated income information for Enable for the three months ended March 31, 2014 is as follows (in millions):



Operating revenues	$	1,002
Cost of sales, excluding depreciation and amortization	633
Operating income	162
Net income attributable to Enable	149

CERC's approximate 58.3% interest	$	87
Basis difference accretion gain	1
CERC's approximate 58.3% interest, net	$	88

Summarized consolidated balance sheet information for Enable as of March 31, 2014 is as follows (in millions):



Current assets	$	500
Non-current assets	10,758
Current liabilities	1,039
Non-current liabilities	2,002
Non-controlling interest	34
Enable Partner's capital	8,183

CERC's approximate 58.3% interest, net	$	4,773
CERC's basis difference	(433		)
CERC's investment in Enable	$	4,340

Summarized basis difference information for Enable is as follows (in millions):



Basis difference attributable to goodwill as of Closing Date (1)	$	229
Basis difference to be accreted over 30 years as of Closing Date	210
Total basis difference as of Closing Date	439

Accumulated accretion of basis difference as of March 31, 2014	(6		)
CERC's basis difference in Enable as of March 31, 2014	$	433


(1)	This difference related to CERC’s proportionate share of Enable’s goodwill arising from Enable's acquisition of Enogex, and therefore will not be recognized by CERC.

Cash distributions received from Enable and SESH were approximately $67 million and $3 million, respectively, during the three months ended March 31, 2014 and were $-0- and $9 million, respectively, during the three months ended March 31, 2013.