CenterPoint Energy 2014 Annual Report Download - page 52

usage in the residential sector. Enable’
s management believes that increasing consumption of natural gas over the long term will continue to
drive demand for Enable’s natural gas gathering, processing, transportation and storage services.
Enable depends on access to the capital markets to fund expansion capital expenditures. Historically, unit prices of publicly traded
midstream master limited partnerships have experienced periods of volatility. In addition, because Enable’s common units are yield-
based
securities, rising market interest rates could impact the relative attractiveness of Enable’
s common units to investors. Capital market volatility
could limit Enable’
s ability to timely issue units or debt on satisfactory terms, or at all, which may limit its ability to expand its operations or
make future acquisitions. Our Midstream Investments segment currently includes a 0.1% interest in SESH owned by CERC that may be
contributed by CERC to Enable in the future, upon exercise of certain put or call rights under which CERC would contribute to Enable CERC’
s
retained interest in SESH.
Significant Events
Enable Initial Public Offering.
On April 16, 2014, Enable Midstream Partners, LP (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 Capital Partners, LLC
(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 its IPO, on March 25, 2014, Enable effected a 1 for 1.279082616 reverse unit split. Immediately following the unit split,
CenterPoint Energy Resources Corp. (CERC Corp.) owned 227,508,825 common units, representing a 58.3% limited partner interest in Enable.
Also in connection with Enable’s IPO, 139,704,916 of CERC Corp.’
s common units were converted into subordinated units. 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,
CenterPoint Energy’s subordinated units in Enable will be converted to common units in Enable on a one-for-one basis.
Subsequent to the IPO, Enable continues to be controlled jointly by CenterPoint Energy and OGE; each own 50% of the management rights in
the general partner of Enable. CenterPoint Energy and OGE also own a 40% and 60% economic interest, respectively, in the incentive
distribution rights held by the general partner of Enable.
As a result of Enable’s IPO, CenterPoint Energy’
s limited partner interest in Enable was reduced from approximately 58.3% to approximately
54.7%. CenterPoint Energy 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. CenterPoint Energy did not receive any cash from Enable’
s IPO and, as such, CenterPoint Energy did not recognize a gain
or loss. CenterPoint Energy’s basis difference in Enable was reduced for the impact of the Enable IPO.
In accordance with the Enable formation agreements, CenterPoint Energy had certain put rights, and Enable had certain call rights, exercisable
with respect to the 25.05% interest in SESH retained by CenterPoint Energy on May 1, 2013 (Closing Date), under which CenterPoint Energy
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 CenterPoint Energy to Enable or from Enable to CenterPoint Energy, 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.
On May 30, 2014, CenterPoint Energy 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 CenterPoint Energy’
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 CenterPoint Energy’
s
exercise of the 24.95% Put. CenterPoint Energy 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, CenterPoint Energy
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, CenterPoint Energy’
s basis difference in Enable was reduced for the impact of
its exercise of the 24.95% Put.
CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $130 million and $123 million, during the
year ended December 31, 2014 and 2013, respectively, for transactions with Enable occurring on or after the Closing Date.
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