Unconsolidated Affiliate (CenterPoint Energy and CERC)

CenterPoint Energy and CERC have the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, account for the investment in Enable’s common units using the equity method of accounting for in-substance real estate. Upon the adoption of ASU 2014-09 and ASU 2017-05 on January 1, 2018, CenterPoint Energy and CERC evaluated transactions in the investment in Enable that occurred prior to January 1, 2018 (the effective date) and concluded a cumulative effect adjustment to the opening balance of retained earnings was not required. See Note 2 for further discussion.

CenterPoint Energy’s and CERC’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy and CERC are not the primary beneficiaries, is limited to the equity investment, the Series A Preferred Unit investment and outstanding current accounts receivable from Enable.

Limited Partner Interest and Units Held in Enable:



	June 30, 2018
	Limited Partner Interest (1)		Common Units	Series A Preferred Units (2)
CERC Corp.	54.0	%	233,856,623	—
OGE	25.6	%	110,982,805	—
Public unitholders	20.4	%	88,225,208	—
CenterPoint Energy	—		—	14,520,000
Total units outstanding	100.0	%	433,064,636	14,520,000


(1)	Excluding the Series A Preferred Units owned by CenterPoint Energy.


(2)	The carrying amount of the Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both June 30, 2018 and December 31, 2017. No impairment charges or adjustment due to observable price changes were made during the current or prior reporting periods. See Note 2 for further discussion.

Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units CERC Corp. owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) 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 set forth in Enable’s Agreement of Limited Partnership.

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.

Distributions Received from Enable:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
Investment in Enable common units	$	75	$	75	$	149	$	149
Total CERC	75		75		149		149
Investment in Enable Series A Preferred Units	9		9		18		18
Total CenterPoint Energy	$	84	$	84	$	167	$	167

As of June 30, 2018, CERC Corp. and OGE also owned 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.

Transactions with Enable (CenterPoint Energy and CERC):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
Reimbursement of transition services (1)	$	1	$	1	$	3	$	3
Natural gas expenses, including transportation and storage costs	29		24		66		57


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



	June 30, 2018		December 31, 2017
	(in millions)
Accounts receivable for amounts billed for transition services	$	3	$	1
Accounts payable for natural gas purchases from Enable	8		13

Summarized unaudited consolidated income information for Enable is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
Operating revenues	$	805	$	626	$	1,553	$	1,292
Cost of sales, excluding depreciation and amortization	444		279		819		587
Operating income	126		122		265		262
Net income attributable to Enable	86		86		191		197
Reconciliation of Equity in Earnings, net:
CenterPoint Energy’s and CERC’s interest	$	46	$	47	$	103	$	107
Basis difference amortization (1)	12		12		24		24
CenterPoint Energy’s and CERC’s equity in earnings, net	$	58	$	59	$	127	$	131

(1)

Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s and CERC’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s and CERC’s original investment in Enable and their underlying equity in Enable’s net assets. The basis difference is amortized over approximately 31 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:



	June 30, 2018			December 31, 2017
	(in millions)
Current assets	$	432		$	416
Non-current assets	11,360			11,177
Current liabilities	1,258			1,279
Non-current liabilities	2,963			2,660
Non-controlling interest	11			12
Preferred equity	362			362
Enable partners’ equity	7,198			7,280
Reconciliation of Investment in Enable:
CenterPoint Energy’s and CERC’s ownership interest in Enable partners’ equity	$	3,887		$	3,935
CenterPoint Energy’s and CERC’s basis difference	(1,436		)	(1,463		)
CenterPoint Energy’s and CERC’s equity method investment in Enable	$	2,451		$	2,472