Unconsolidated Affiliates

CERC has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accounts for its investment in Enable’s common and subordinated units using the equity method of accounting. See Note 2 for information on the formation of Enable.

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 Consolidated Balance Sheet as of December 31, 2016 and outstanding current accounts receivable from Enable. In connection with CenterPoint Energy’s purchase of Series A Preferred Units from Enable, 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%.

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 provided seconded employees to Enable to support its operations for a term ending on December 31, 2014. Enable, at its discretion, had the right to select and offer employment to seconded employees from CERC. During the fourth quarter of 2014, Enable notified CERC that it selected seconded employees and provided employment offers to substantially all of the seconded employees from CERC. Substantially all of the seconded employees became employees of Enable effective January 1, 2015.

In accordance with the Enable formation agreements, CERC had certain put rights, and Enable had certain call rights, exercisable with respect to the 25.05% interest in SESH retained by CenterPoint Energy. As of June 30, 2015, CERC’s remaining interest in SESH was transferred to Enable.

Transactions with Enable:



	Year Ended December 31,
	2016		2015		2014
	(in millions)
Reimbursement of transition services (1)	$	7	$	16	$	163
Natural gas expenses, including transportation and storage costs	110		117		130
Interest income related to notes receivable from Enable	1		8		8


(1)	Represents amounts billed under the Transition Agreements, including the costs of seconded employees. Actual transition services costs are recorded net of reimbursement.



	Year Ended December 31,
	2016		2015
	(in millions)
Accounts receivable for amounts billed for transition services	$	1	$	3
Interest receivable related to notes receivable from Enable	—		4
Accounts payable for natural gas purchases from Enable	10		11

CERC evaluates its equity method investments for impairment when factors indicate that a decrease in the 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 estimated 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. Based on the sustained low Enable common unit price and further declines in such price during the year ended December 31, 2015, as well as the market outlook for continued depressed crude oil and natural gas prices impacting the midstream oil and gas industry, CERC determined that an other than temporary decrease in the value of its equity method investment in Enable had occurred. CERC wrote down the value of its equity method investment in Enable to its estimated fair value which resulted in impairment charges of $1,225 million for the year ended December 31, 2015. Both the income approach and market approach were utilized to estimate the fair value of CERC’s total investment in Enable, which includes the limited partner common and subordinated units, general partner interest and incentive distribution rights held by CERC. The determination of fair value considered a number of relevant factors including Enable’s common unit price and forecasted results, recent comparable transactions and the limited float of Enable’s publicly traded common units. See Note 10 for further discussion of the determination of fair value of CERC’s equity method investment in Enable in 2015.

As of December 31, 2016, the carrying value of CERC’s equity method investment in Enable was $10.71 per unit, which includes limited partner common and subordinated units, a general partner interest and incentive distribution rights. On December 31, 2016, Enable’s common unit price closed at $15.73. There was no impairment indicated in 2016.

Investment in Unconsolidated Affiliates:



	As of December 31,
	2016		2015
	(in millions)
Enable	$	2,505	$	2,594

Equity in Earnings (Losses) of Unconsolidated Affiliates, net:



	Year Ended December 31,
	2016		2015			2014
	(in millions)
Enable	$	208	$	(1,633	)	$	303
SESH (1)	—		—			5
Total	$	208	$	(1,633	)	$	308


(1)	CERC contributed a 24.95% interest in SESH to Enable on May 30, 2014 and its remaining 0.1% interest in SESH to Enable on June 30, 2015.

Limited Partner Interest in Enable:



	As of December 31,
	2016			2015		2014
CenterPoint Energy	54.1	%	(1)	55.4	%	55.4	%
OGE	25.7	%		26.3	%	26.3	%


(1)	In November 2016, Enable closed a public offering of 10,000,000 common units. In connection with the offering, Enable and an affiliate of ArcLight sold an additional combined 1,500,000 common units to the underwriters.

Enable Common and Subordinated Units Held:

Sales of more than 5% of the aggregate of the common units and subordinated units we own in Enable or sales by OGE of more than 5% of the aggregate of the common units and subordinated units it owns in Enable are subject to mutual rights of first offer and first refusal.

Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable. Sale of our or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and we are not permitted to dispose of less than all of our interest in Enable’s general partner.

Summarized consolidated income (loss) information for Enable is as follows:



	Year Ended December 31,
	2016		2015			2014
	(in millions)
Operating revenues	$	2,272	$	2,418		$	3,367
Cost of sales, excluding depreciation and amortization	1,017		1,097			1,914
Impairment of goodwill and other long-lived assets	9		1,134			8
Operating income (loss)	385		(712		)	586
Net income (loss) attributable to Enable	290		(752		)	530

Reconciliation of Equity in Earnings (Losses), net:
CERC’s interest	$	160	$	(416	)	$	298
Basis difference amortization (1)	48		8			5
Impairment of CERC’s equity method investment in Enable	—		(1,225		)	—
CERC’s equity in earnings (losses), net (2)	$	208	$	(1,633	)	$	303


(1)	Equity in earnings of unconsolidated affiliates includes CERC’s share of Enable earnings adjusted for the amortization of the basis difference of CERC’s original investment in Enable and its underlying equity in net assets of Enable. The basis difference is being amortized over approximately 33 years, the average life of the assets to which the basis difference is attributed.


(2)	These amounts include impairment charges totaling $1,846 million composed of CERC’s impairment of its equity method investment in Enable of $1,225 million and CERC’s share, $621 million, of impairment charges Enable recorded for goodwill and long-lived assets for the year ended December 31, 2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

Summarized consolidated balance sheet information for Enable is as follows:



	December 31,
	2016			2015
	(in millions)
Current assets	$	396		$	381
Non-current assets	10,816			10,845
Current liabilities	362			615
Non-current liabilities	3,056			3,080
Non-controlling interest	12			12
Preferred equity	362			—
Enable partners’ capital	7,420			7,519

Reconciliation of Investment in Enable:
CERC’s ownership interest in Enable partners’ capital	$	4,067		$	4,163
CERC’s basis difference	(1,562		)	(1,569		)
CERC’s investment in Enable	$	2,505		$	2,594

Distributions Received from Unconsolidated Affiliates:



	Year Ended December 31,
	2016		2015		2014
	(in millions)
Investment in Enable’s common and subordinated units	$	297	$	294	$	298
Interest in SESH (1)	—		—		7
Total	$	297	$	294	$	305


(1)	CERC contributed a 24.95% interest in SESH to Enable on May 30, 2014 and its remaining 0.1% interest in SESH to Enable on June 30, 2015.

As of December 31, 2016, CERC Corp. and OGE also own 40% and 60%, respectively, of the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit on its outstanding units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made.

December 31, 2016

Subordinated

CenterPoint Energy