Unconsolidated Affiliate

On May 1, 2013 (the Formation Date) CERC Corp., OGE and 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’s common and subordinated units using the equity method of accounting.

CERC’s maximum exposure to loss related to Enable, a VIE in which CERC is not the primary beneficiary, is limited to its equity investment as presented in the Condensed Consolidated Balance Sheets as of June 30, 2016, the guarantees discussed in Note 11, and outstanding current accounts receivable from Enable. In connection with the Private Placement, Enable redeemed $363 million of notes owed to a wholly-owned subsidiary of CERC Corp., which bore interest at an annual rate of 2.10% to 2.45%. CERC recorded interest income of $-0- and $2 million during the three months ended June 30, 2016 and 2015, respectively, and $1 million and $4 million during the six months ended June 30, 2016 and 2015, respectively, and had interest receivable from Enable of $-0- and $4 million as of June 30, 2016 and December 31, 2015, respectively, on its notes receivable.

Effective on the Formation Date, CenterPoint Energy and Enable entered into the Transition Agreements. Under the Services Agreement, CERC agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions for an initial term, which ended on April 30, 2016. CERC is providing certain services to Enable on a year-to-year basis. Enable may terminate (i) the entire Services Agreement with at least 90 days’ notice prior to the end of any extension term, or (ii) either any service provided under the Services Agreement, or the entire Services Agreement, at any time upon approval by its board of directors and with at least 180 days’ notice.

CERC billed Enable for reimbursement of transition services of $2 million during both the three months ended June 30, 2016 and 2015, and $5 million and $7 million during the six months ended June 30, 2016 and 2015, respectively, under the Transition Agreements. Actual transition services costs are recorded net of reimbursements received from Enable. CERC had accounts receivable from Enable of $1 million and $3 million as of June 30, 2016 and December 31, 2015, respectively, for amounts billed for transition services.

CERC incurred natural gas expenses, including transportation and storage costs, of $24 million and $26 million during the three months ended June 30, 2016 and 2015, respectively, and $57 million and $65 million during the six months ended June 30, 2016 and 2015, respectively, for transactions with Enable. CERC had accounts payable to Enable of $8 million and $11 million as of June 30, 2016 and December 31, 2015, respectively, from such transactions.

As of June 30, 2016, CERC held an approximate 55.4% limited partner interest in Enable consisting of 94,151,707 common units and 139,704,916 subordinated units. As of June 30, 2016, CERC and OGE each own a 50% management interest in the general partner of Enable and a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner.

CERC evaluates its equity method investments for impairment when factors indicate that a decrease in value of its investment has occurred and the carrying amount of its investment may not be recoverable. An impairment loss, based on the excess of the carrying value over the best estimate of fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. Considerable judgment is used in determining if an impairment loss is other than temporary and the amount of any impairment. As of June 30, 2016, the carrying value of CERC’s equity method investment in Enable was $10.85 per unit, which includes limited partner common and subordinated units, a general partner interest and incentive distribution rights. On June 30, 2016, Enable’s common unit price closed at $13.51.

Summarized unaudited consolidated income information for Enable is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in millions)
Operating revenues	$	529	$	590	$	1,038	$	1,206
Cost of sales, excluding depreciation and amortization	254		277		449		569
Operating income	57		93		160		197
Net income attributable to Enable	35		77		121		168

Reconciliation of Equity in Earnings, net:
CERC’s interest	$	19	$	42	$	67	$	93
Basis difference amortization	12		1		24		2
CERC’s equity in earnings, net	$	31	$	43	$	91	$	95

Summarized unaudited consolidated balance sheet information for Enable is as follows:



	June 30, 2016			December 31, 2015
	(in millions)
Current assets	$	349		$	381
Non-current assets	10,851			10,857
Current liabilities	301			615
Non-current liabilities	3,150			3,092
Non-controlling interest	11			12
Preferred equity	362			—
Enable partners’ equity	7,376			7,519

Reconciliation of Equity Method Investment in Enable:
CERC’s ownership interest in Enable partners’ capital	$	4,084		$	4,163
CERC’s basis difference	(1,548		)	(1,569		)
CERC’s equity method investment in Enable	$	2,536		$	2,594

Distributions Received from Unconsolidated Affiliate:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in millions)
Enable	$	75	$	73	$	149	$	145