Unconsolidated Affiliate

CERC Corp. 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 units using the equity method of accounting.

CERC Corp.’s maximum exposure to loss related to Enable, a VIE in which CERC Corp. is not the primary beneficiary, is limited to its equity investment as presented in the Condensed Consolidated Balance Sheets as of September 30, 2017 and outstanding current accounts receivable from Enable.

Transactions with Enable:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Reimbursement of transition services (1)	$	—	$	1	$	3	$	6
Natural gas expenses, including transportation and storage costs	23		22		80		79
Interest income related to notes receivable from Enable	—		—		—		1


(1)	Represents amounts billed under the Transition Agreements for certain support services provided to Enable. Actual transition services costs are recorded net of reimbursement.



	September 30, 2017		December 31, 2016
	(in millions)
Accounts receivable for amounts billed for transition services	$	1	$	1
Accounts payable for natural gas purchases from Enable	8		10

Limited Partner Interest in Enable:



	September 30, 2017
CERC Corp.	54.1	%
OGE	25.7	%

In November 2016, Enable completed a public offering of 11,500,000 common units of which 1,424,281 were sold by ArcLight Capital Partners, LLC. The common units issued and sold by Enable resulted in dilution of both CERC Corp.’s and OGE’s limited partner interest in Enable.

Enable Common Units Held:



	September 30, 2017
CERC Corp.	233,856,623
OGE	110,982,805

The 139,704,916 subordinated units previously owned by CERC Corp. converted into common units of Enable on a one-for-one basis on August 30, 2017, at the end of the subordination period, as set forth in Enable’s Fourth Amended and Restated Agreement of Limited Partnership. Upon conversion, holders of common units resulting from the conversion of subordinated units have all the rights and obligations of unitholders holding all other common units, including the right to receive distributions pro rata made with respect to common units.

Generally, sales of more than 5% of the aggregate of the common units CERC Corp. owns in Enable or sales by OGE of more than 5% of the aggregate of the common 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 CERC Corp.’s 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 CERC Corp. is not permitted to dispose of less than all of its interest in Enable’s general partner.

Summarized unaudited consolidated income information for Enable is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Operating revenues	$	705	$	620	$	1,997	$	1,658
Cost of sales, excluding depreciation and amortization	349		268		936		717
Impairment of goodwill and other long-lived assets	—		8		—		8
Operating income	137		139		399		299
Net income attributable to Enable	104		110		301		231

Reconciliation of Equity in Earnings, net:
CERC Corp.’s interest	$	56	$	61	$	163	$	128
Basis difference amortization (1)	12		12		36		36
CERC Corp.’s equity in earnings, net	$	68	$	73	$	199	$	164


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

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



	September 30, 2017			December 31, 2016
	(in millions)
Current assets	$	446		$	396
Non-current assets	10,816			10,816
Current liabilities	831			362
Non-current liabilities	2,740			3,056
Non-controlling interest	12			12
Preferred equity	362			362
Enable partners’ equity	7,317			7,420

Reconciliation of Equity Method Investment in Enable:
CERC Corp.’s ownership interest in Enable partners’ capital	$	4,007		$	4,067
CERC Corp.’s basis difference	(1,526		)	(1,562		)
CERC Corp.’s equity method investment in Enable	$	2,481		$	2,505

Distributions Received from Unconsolidated Affiliate:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in millions)
Investment in Enable’s common units	$	74	$	74	$	223	$	223

As of September 30, 2017, 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 common unit on its outstanding common 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 common 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.