Unconsolidated Affiliate (CenterPoint Energy and CERC)

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Unconsolidated Affiliate (CenterPoint Energy and CERC) [Text Block]

Unconsolidated Affiliates (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, accounts for its investment in Enable’s common units using the equity method of accounting. Enable is considered to be a VIE because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CenterPoint Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable. As of September 30, 2019, CenterPoint Energy’s maximum exposure to loss related to Enable is limited to its investment in unconsolidated affiliate, its investment in Enable Series A Preferred Units and outstanding current accounts receivable from Enable.

Investment in Unconsolidated Affiliates (CenterPoint Energy):

	September 30, 2019		December 31, 2018
	(in millions)
Enable	$	2,467	$	2,482
Other (1)	2		—
Total	$	2,469	$	2,482

(1) Represents the equity investment in ProLiance Holdings, LLC related primarily to an investment in LA Storage, LLC, a joint venture in a development project for salt-cavern natural gas storage, which was acquired in the Merger. This presentation reflects preliminary fair value of the equity investment on the acquisition date and is subject to change. See Note 3.

CenterPoint Energy 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 is recognized in earnings when an impairment is deemed to be other than temporary. As of September 30, 2019, CenterPoint Energy’s investment in Enable is $10.55 per unit and Enable’s common unit price closed at $12.03 per unit (approximately $347 million above carrying value). The lowest close price for Enable’s common units in October 2019 was $10.07, which was approximately $112 million below carrying value. CenterPoint Energy performed an analysis of its investment in Enable as of September 30, 2019 and determined it will recover the value of its investment of $2.5 billion.

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

	September 30, 2019
	Limited Partner Interest (1)		Common Units (2)	Enable Series A Preferred Units (3)
CenterPoint Energy	53.7	%	233,856,623	14,520,000
OGE	25.5	%	110,982,805	—
Public unitholders	20.8	%	90,310,731	—
Total units outstanding	100.0	%	435,150,159	14,520,000

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

(2) Held indirectly through CNP Midstream by CenterPoint Energy.

(3) 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 September 30, 2019 and $363 million as of December 31, 2018. No impairment charges or adjustment due to observable price changes were made during the current or prior reporting periods.

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 CenterPoint Energy 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, 2019
	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) Held indirectly through CNP Midstream.

Distributions Received from Enable (CenterPoint Energy and CERC):

CenterPoint Energy

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Per Unit		Cash Distribution		Per Unit		Cash Distribution		Per Unit		Cash Distribution		Per Unit		Cash Distribution
	(in millions, except per unit amounts)
Enable common units (1)	$	0.3305	$	77	$	0.3180	$	74	$	0.9665	$	226	$	0.9540	$	223
Enable Series A Preferred Units	0.6250		9		0.6250		9		1.8750		27		1.8750		27
Total CenterPoint Energy			$	86			$	83			$	253			$	250

CERC

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Per Unit		Cash Distribution		Per Unit		Cash Distribution
	(in millions, except per unit amounts)
Enable common units (1)	$	0.3180	$	74	$	0.9540	$	223
Total CERC			$	74			$	223

(1) Prior to the Internal Spin in September 2018, distributions from Enable were received by CERC. After such date, distributions from Enable were received by CenterPoint Energy.

Transactions with Enable (CenterPoint Energy and CERC):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
CenterPoint Energy
Natural gas expenses, including transportation and storage costs (1)	$	26	$	23	$	89	$	89
Reimbursement of support services (2)	—		1		3		4
CERC
Natural gas expenses, including transportation and storage costs (1)	26		23		89		89
Reimbursement of support services (2)	—		1		3		4

(1) Included in Non-utility costs of revenues, including natural gas on CenterPoint Energy’s and CERC’s respective Condensed Statements of Consolidated Income.

(2) Represents amounts billed for certain support services provided to Enable. Actual support services costs are recorded net of reimbursement.

	September 30, 2019		December 31, 2018
	(in millions)
CenterPoint Energy
Accounts payable for natural gas purchases from Enable	$	9	$	11
Accounts receivable for amounts billed for services provided to Enable	3		2
CERC
Accounts payable for natural gas purchases from Enable	9		11
Accounts receivable for amounts billed for services provided to Enable	3		2

Summarized unaudited consolidated income information for Enable is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
	(in millions)
Operating revenues	$	699	$	928	$	2,229		$	2,481
Cost of sales, excluding depreciation and amortization	263		516		958			1,335
Depreciation and amortization	108		100		323			292
Operating income	175		171		507			436
Net income attributable to Enable common units	123		129		351			320
Reconciliation of Equity in Earnings (Losses), net:
CenterPoint Energy’s interest	$	66	$	70	$	189		$	173
Basis difference amortization (1)	11		11		35			35
Loss on dilution, net of proportional basis difference recognition	—		—		(11		)	—
CenterPoint Energy’s equity in earnings, net	$	77	$	81	$	213		$	208

(1) Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in Enable and its underlying equity in net assets of Enable. The basis difference is being amortized through the year 2048.

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

	September 30, 2019			December 31, 2018
	(in millions)
Current assets	$	417		$	449
Non-current assets	12,018			11,995
Current liabilities	819			1,615
Non-current liabilities	4,076			3,211
Non-controlling interest	37			38
Preferred equity	362			362
Accumulated other comprehensive loss	(4		)	—
Enable partners’ equity	7,145			7,218
Reconciliation of Investment in Enable:
CenterPoint Energy’s ownership interest in Enable partners’ equity	$	3,838		$	3,896
CenterPoint Energy’s basis difference	(1,371		)	(1,414		)
CenterPoint Energy’s equity method investment in Enable	$	2,467		$	2,482

Discontinued Operations (CERC):

On September 4, 2018, CERC completed the Internal Spin. CERC executed the Internal Spin to, among other things, enhance the access of CERC and CenterPoint Energy to low cost debt and equity through increased transparency and understandability of the financial statements, improve CERC’s credit quality by eliminating the exposure to Enable’s midstream business and provide clarity of internal reporting and performance metrics to enhance management’s decision making for CERC and CNP Midstream.

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 with Enable other than its natural gas purchases from 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. 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, 2018		Nine months ended September 30, 2018
	(in millions)
Equity in earnings of unconsolidated affiliate, net		$	57	$	184
Income tax expense		13		44
Income from discontinued operations, net of tax		$	44	$	140