Unconsolidated Affiliates (Notes) | 9 Months Ended |
Sep. 30, 2014 |
Equity Method Investments and Joint Ventures [Abstract] | ' |
Equity Method Investments and Joint Ventures Disclosure [Text Block] | ' |
Unconsolidated Affiliates |
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On May 1, 2013 (the Closing Date) CERC Corp., OGE Energy Corp. (OGE) and ArcLight Capital Partners, LLC (ArcLight) closed on the formation of Enable. CERC has the ability to significantly influence the operating and financial policies of Enable and, accordingly, accounts for its investment in Enable using the equity method of accounting. Under the equity method, CERC will adjust its investment in Enable each period for contributions made, distributions received, CERC’s share of Enable’s comprehensive income and accretion of basis differences, as appropriate. CERC evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. |
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CERC’s investment in Enable is considered to be a variable interest entity (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, CERC 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. CERC’s maximum exposure to loss related to Enable is limited to its equity investment as presented in the Condensed Consolidated Balance Sheet at September 30, 2014, CERC Corp.’s guarantee of collection of Enable’s $1.1 billion senior notes due 2019 and 2024 (Guaranteed Senior Notes) and other guarantees discussed in Note 10, CERC Corp.’s $363 million notes receivable from Enable and outstanding current accounts receivable from Enable. The $363 million of notes receivable from Enable bears interest at an annual rate of 2.10% to 2.45% and matures in 2017. CERC recorded interest income of $2 million and $2 million during the three months ended September 30, 2014 and 2013, respectively, and $6 million and $3 million during the nine months ended September 30, 2014 and 2013, respectively, for interest earned on or after the Closing Date and had interest receivable from Enable of $2 million and $4 million as of September 30, 2014 and December 31, 2013, respectively, on its notes receivable from Enable. |
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Effective on the Closing Date, CenterPoint Energy and Enable entered into a Services Agreement, Employee Transition Agreement, Transitional Services Agreement and other agreements (collectively, Transition Agreements) whereby CERC agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions for an initial term ending on April 30, 2016. The support services automatically extend year-to-year at the end of the initial term, unless terminated by Enable with at least 90 days’ notice. Enable may terminate the initial support services at any time with 180 days’ notice if approved by the board of Enable's general partner. Additionally, CERC agreed to provide seconded employees to Enable to support its operations for an initial term ending on December 31, 2014, unless revised by mutual agreement with CERC, OGE and Enable prior to that date. |
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CERC billed Enable for reimbursement of transitional services, including the costs of seconded employees, $36 million and $42 million during the three months ended September 30, 2014 and 2013, respectively, and $118 million and $70 million during the nine months ended September 30, 2014 and 2013, respectively, under the Transition Agreements for transition services incurred on or after the Closing Date. Actual transitional services costs are recorded net of reimbursements received from Enable. Effective April 1, 2014, Enable’s general partner, CERC and OGE agreed to reduce certain governance related costs billed to Enable for transition services. CERC had accounts receivable from Enable of $17 million and $21 million as of September 30, 2014 and December 31, 2013, respectively, for amounts billed for transitional services, including the cost of seconded employees. |
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Enable, at its discretion, has the right to select and offer employment to seconded employees from CERC. CERC did not transfer any employees to Enable at formation of the partnership or at any time during the period from the Closing Date through September 30, 2014. As of September 30, 2014, CERC determined it cannot reasonably estimate the impact of the costs associated with the termination of employees related to the formation of Enable or transfer of employees from CERC to Enable, including the impact of the changes to the actuarial determination of employee benefit plan obligations. Pursuant to the Transition Agreements, Enable has agreed to reimburse CERC for certain severance and termination costs related to the termination of CERC's seconded employees. |
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On April 16, 2014, Enable completed its initial public offering (IPO) of 28,750,000 common units, at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received $464 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. In connection with Enable’s IPO, a portion of CERC’s common units were converted into subordinated units, as discussed further below. Subsequent to the IPO, Enable continues to be equally controlled by CERC and OGE; each own 50% of the management rights in the general partner of Enable. CERC and OGE also own a 40% and 60% economic interest, respectively, in the incentive distribution rights held by the general partner of Enable. |
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As a result of Enable’s IPO, CERC’s limited partner interest in Enable was reduced from approximately 58.3% to approximately 54.7%. CERC accounted for the dilution of its investment in Enable as a result of Enable’s IPO as a failed partial sale of in-substance real estate. CERC did not receive any cash from Enable’s IPO and, as such, CERC did not recognize a gain or loss. CERC’s basis difference in Enable was reduced for the impact of the Enable IPO. |
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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 Southeast Supply Header, LLC (SESH) retained by CERC, under which CERC would contribute its retained interest in SESH, in exchange for a specified number of limited partner units in Enable and a cash payment, payable either from CERC to Enable or from Enable to CERC, to the extent of changes in the value of SESH subject to certain restrictions. Specifically, the rights were and are exercisable with respect to (1) a 24.95% interest in SESH (24.95% Put), which closed on May 30, 2014 as discussed below and (2) a 0.1% interest in SESH, which may be exercised no earlier than June 2015 for 25,341 common units in Enable. |
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On May 30, 2014, CERC closed its 24.95% Put and contributed to Enable its 24.95% interest in SESH in exchange for 6,322,457 common units of Enable, which increased CERC's limited partner interest in Enable from approximately 54.7% to approximately 55.4%. No cash payment was required to be made pursuant to the Enable formation agreements in connection with CERC's exercise of the 24.95% Put. CERC accounted for the contribution of its 24.95% interest in SESH to Enable in exchange for common units of Enable as a non-monetary transaction of in-substance real estate equity method investments. As such, CERC recorded the 6,322,457 common units at the historical cost of the contributed 24.95% interest in SESH of $196 million and recorded no gain or loss in connection with its exercise of the 24.95% Put. As a result, CERC's basis difference in Enable was reduced for the impact of its exercise of the 24.95% Put. |
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CERC incurred natural gas expenses, including transportation and storage costs, of $24 million and $42 million, during the three months ended September 30, 2014 and 2013, respectively, and $99 million and $70 million during the nine months ended September 30, 2014 and 2013, respectively, for transactions with Enable occurring on or after the Closing Date. CERC had accounts payable to Enable of $10 million and $22 million at September 30, 2014 and December 31, 2013, respectively, from such transactions. |
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As of September 30, 2014, CERC held an approximate 55.4% limited partner interest in Enable consisting of 94,126,366 common units and 139,704,916 subordinated units and a 0.1% interest in SESH. The principal difference between Enable common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. If Enable does not pay distributions on its subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. At the end of the subordination period, CERC’s subordinated units in Enable will be converted to common units in Enable on a one-for-one basis. On September 30, 2014, Enable’s common units closed at $24.64 per unit on the New York Stock Exchange. |
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Investment in Unconsolidated Affiliates: |
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| | September 30, 2014 | | December 31, 2013 | | | | | | | | |
| | (in millions) | | | | | | | | |
Enable | | $ | 4,524 | | | $ | 4,319 | | | | | | | | | |
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SESH (1) | | 1 | | | 199 | | | | | | | | | |
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Total | | $ | 4,525 | | | $ | 4,518 | | | | | | | | | |
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-1 | On May 30, 2014, CERC contributed a 24.95% interest in SESH to Enable, leaving CERC with a 0.1% interest in SESH as of September 30, 2014. | | | | | | | | | | | | | | | |
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Equity in Earnings of Unconsolidated Affiliates, net: |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | (in millions) |
Enable (1) | | $ | 79 | | | $ | 77 | | | $ | 236 | | | $ | 110 | |
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SESH (2) | | — | | | 3 | | | 5 | | | 12 | |
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| | $ | 79 | | | $ | 80 | | | $ | 241 | | | $ | 122 | |
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-1 | On May 1, 2013, CERC formed Enable with OGE and ArcLight. | | | | | | | | | | | | | | | |
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-2 | On each of May 1, 2013 and May 30, 2014, CERC contributed a 24.95% interest in SESH to Enable, leaving CERC with a 0.1% interest in SESH as of September 30, 2014. | | | | | | | | | | | | | | | |
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Summarized unaudited consolidated income information for Enable is as follows: |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 (1) | | 2014 | | 2013 (1) |
| | (in millions) |
Operating revenues | | $ | 804 | | | $ | 796 | | | $ | 2,632 | | | $ | 1,298 | |
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Cost of sales, excluding depreciation and amortization | | 439 | | | 458 | | | 1,550 | | | 753 | |
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Operating income | | 151 | | | 132 | | | 452 | | | 207 | |
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Net income attributable to Enable | | 139 | | | 123 | | | 408 | | | 188 | |
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CERC's approximate interest | | $ | 76 | | | $ | 72 | | | $ | 230 | | | $ | 110 | |
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Basis difference accretion | | 3 | | | 5 | | | 6 | | | — | |
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CERC's equity in earnings, net | | $ | 79 | | | $ | 77 | | | $ | 236 | | | $ | 110 | |
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-1 | On May 1, 2013, CERC formed Enable with OGE and ArcLight. The amounts included in the table represent the three- and five- month periods ended September 30, 2013. Enable concluded that its formation was considered a business combination, in which the fair value of the consideration paid for Enogex, LLC (Enogex), the businesses contributed by OGE, was allocated to the assets acquired and liabilities assumed by Enable on the Closing Date. In the third quarter of 2013, Enable completed its valuation of Enogex, and Enogex's assets, liabilities and equity, and its related depreciation and amortization for the five-month period ended September 30, 2013, was accordingly adjusted to estimated fair value as of the Closing Date. CERC’s equity in earnings, net of basis difference, in the third quarter of 2013 was not materially different as a result of the final fair value determination. | | | | | | | | | | | | | | | |
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Summarized unaudited consolidated balance sheet information for Enable is as follows: |
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| | September 30, 2014 | | December 31, 2013 | | | | | | | | |
| | (in millions) | | | | | | | | |
Current assets | | $ | 520 | | | $ | 549 | | | | | | | | | |
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Non-current assets | | 11,172 | | | 10,683 | | | | | | | | | |
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Current liabilities | | 520 | | | 720 | | | | | | | | | |
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Non-current liabilities | | 2,346 | | | 2,331 | | | | | | | | | |
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Non-controlling interest | | 32 | | | 33 | | | | | | | | | |
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Enable partners' capital | | 8,794 | | | 8,148 | | | | | | | | | |
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CERC's ownership interest in Enable's partner capital | | $ | 4,870 | | | $ | 4,753 | | | | | | | | | |
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CERC's basis difference | | (346 | ) | | (434 | ) | | | | | | | | |
CERC's investment in Enable | | $ | 4,524 | | | $ | 4,319 | | | | | | | | | |
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Distributions Received from Unconsolidated Affiliates: |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | (in millions) |
Enable (1) | | $ | 70 | | | $ | 36 | | | $ | 227 | | | $ | 36 | |
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SESH (2) | | 1 | | | 3 | | | 8 | | | 21 | |
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Total | | $ | 71 | | | $ | 39 | | | $ | 235 | | | $ | 57 | |
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-1 | On May 1, 2013, CERC formed Enable with OGE and ArcLight. | | | | | | | | | | | | | | | |
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-2 | On each of May 1, 2013 and May 30, 2014, CERC contributed a 24.95% interest in SESH to Enable, leaving CERC with a 0.1% interest in SESH as of September 30, 2014. | | | | | | | | | | | | | | | |