Unconsolidated Affiliate (CenterPoint Energy and CERC)

CenterPoint Energy has 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. Upon the adoption of ASU 2014-09 and ASU 2017-05 on January 1, 2018, CenterPoint Energy 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 maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to the equity investment, the Series A Preferred Unit investment and outstanding current accounts receivable from Enable.

On September 4, 2018, CERC completed the Internal Spin of its equity investment in Enable and Enable GP. The Internal Spin has been accounted for under the guidance for transactions between entities under common control. As of September 4, 2018, CERC derecognized its investment in Enable at carrying value on the date of distribution of $2.4 billion, net of deferred income taxes of $974 million, and CNP Midstream recorded the net asset contribution from CERC at CERC’s carrying value. Neither CERC nor CNP Midstream recognized a gain or loss upon the distribution or contribution, respectively, of net assets involved in the Internal Spin. In connection with the Internal Spin, CenterPoint Energy, through Utility Holding, made a $600 million capital contribution to CERC, which was used by CERC to repay outstanding indebtedness that historically supported CERC’s legacy midstream assets. See Note 18 for further discussion.

Limited Partner Interest and Units Held in Enable (CenterPoint Energy):



	September 30, 2018
	Limited Partner Interest (1)		Common Units	Enable Series A Preferred Units (2)
CenterPoint Energy (3)	54.0	%	233,856,623	14,520,000
OGE	25.6	%	110,982,805	—
Public unitholders	20.4	%	88,376,728	—
Total units outstanding	100.0	%	433,216,156	14,520,000


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

(2)

The carrying amount of the Enable Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both September 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.


(3)	Includes Enable Series A Preferred Units held directly by CenterPoint Energy and common units held indirectly through CNP Midstream.

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 CNP Midstream 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.

Interests Held in Enable GP (CenterPoint Energy):



	September 30, 2018
	Management Rights (1)		Incentive Distribution Rights (2)
CenterPoint Energy (3)	50	%	40	%
OGE	50	%	60	%


(1)	Enable is controlled jointly by CenterPoint Energy and OGE. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable GP to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable GP.

(2)

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 Enable GP 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, Enable GP will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances Enable GP 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.


(3)	Includes interests held through CNP Midstream.

Distributions Received from Enable (CenterPoint Energy and CERC):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Investment in Enable common units (1)	$	74	$	74	$	223	$	223
Total CERC (2)	74		74		223		223
Investment in Enable Series A Preferred Units (3)	9		9		27		27
Total CenterPoint Energy	$	83	$	83	$	250	$	250


(1)	Reflects cash distributions of $0.318 and $0.954 per common unit for the three and nine months ended September 30, 2018 and 2017, respectively.


(2)	On September 4, 2018, CERC completed the Internal Spin. After such date, CNP Midstream owned the Enable common units previously owned by CERC.


(3)	Reflects cash distributions of $0.625 and $1.875 per Enable Series A Preferred Unit for the three and nine months ended September 30, 2018 and 2017, respectively.

Transactions with Enable (CenterPoint Energy and CERC):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Reimbursement of transition services (1) (CenterPoint Energy)	$	1	$	—	$	4	$	3
Natural gas expenses, including transportation and storage costs (CenterPoint Energy and CERC)	23		23		89		80


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

Summarized unaudited consolidated income information for Enable is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Operating revenues	$	928	$	705	$	2,481	$	1,997
Cost of sales, excluding depreciation and amortization	516		349		1,335		936
Depreciation and amortization	100		90		292		267
Operating income	171		137		436		399
Net income attributable to Enable common units	129		104		320		301
Reconciliation of Equity in Earnings, net:
CenterPoint Energy’s interest	$	70	$	56	$	173	$	163
Basis difference amortization (1)	11		12		35		36
CenterPoint Energy’s equity in earnings, net	$	81	$	68	$	208	$	199

(1)

Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’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:



	September 30, 2018			December 31, 2017
	(in millions)
Current assets	$	481		$	416
Non-current assets	11,454			11,177
Current liabilities	1,403			1,279
Non-current liabilities	2,964			2,660
Non-controlling interest	11			12
Preferred equity	362			362
Enable partners’ equity	7,195			7,280
Reconciliation of Investment in Enable:
CenterPoint Energy’s ownership interest in Enable partners’ equity	$	3,883		$	3,935
CenterPoint Energy’s basis difference	(1,426		)	(1,463		)
CenterPoint Energy’s equity method investment in Enable	$	2,457		$	2,472

Discontinued Operations (CERC):

The Internal Spin represents a significant strategic shift that has a material effect on CERC’s operations and financial results and, as a result, CERC’s distribution of its equity investment in Enable met the criteria for discontinued operations classification. CERC has no continuing involvement in the equity investment of Enable. Therefore, CERC’s equity in earnings and related income taxes have been classified as Income from discontinued operations, net of tax, in CERC’s Condensed Statements of Consolidated Income for the periods presented. CERC’s equity method investment and related deferred income tax liabilities have been classified as Investment in unconsolidated affiliate - discontinued operations and Deferred income taxes, net - discontinued operations, respectively, in CERC’s Condensed Consolidated Balance Sheets for the periods presented. The following table presents amounts included in Income from discontinued operations, net of tax in CERC’s Condensed Statements of Consolidated Income.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in millions)
Equity in earnings of unconsolidated affiliate, net	$	57	$	68	$	184	$	199
Income tax expense	13		26		44		75
Income from discontinued operations, net of tax	$	44	$	42	$	140	$	124