Document
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _______________________________________
FORM 10-Q
 _______________________________________
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File No. 1-36413
 _______________________________________
ENABLE MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter) 
 _______________________________________
Delaware
 
72-1252419
(State or jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
One Leadership Square
211 North Robinson Avenue
Suite 150
Oklahoma City, Oklahoma 73102
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (405) 525-7788
 _______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of April 14, 2017, there were 224,534,129 common units and 207,855,430 subordinated units outstanding.
 
 
 
 
 


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ENABLE MIDSTREAM PARTNERS, LP
FORM 10-Q
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 

 AVAILABLE INFORMATION

Our website is www.enablemidstream.com. On the investor relations tab of our website, http://investors.enablemidstream.com, we make available free of charge a variety of information to investors. Our goal is to maintain the investor relations tab of our website as a portal through which investors can easily find or navigate to pertinent information about us, including but not limited to:
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;
press releases on quarterly distributions, quarterly earnings, and other developments;
governance information, including our governance guidelines, committee charters, and code of ethics and business conduct;
information on events and presentations, including an archive of available calls, webcasts, and presentations; and
news and other announcements that we may post from time to time that investors may find useful or interesting.

Information contained on our website or any other website is not incorporated by reference into this report and does not constitute a part of this report.
 




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GLOSSARY OF TERMS
 
Adjusted EBITDA.
A non-GAAP measure calculated as net income attributable to limited partners plus depreciation and amortization expense, interest expense, income tax expense, distributions received from equity method affiliate in excess of equity earnings, non-cash equity based compensation, impairments, changes in fair value of derivatives, noncontrolling interest share of Adjusted EBITDA and certain other non-cash gains and losses (including gains and losses on sales of assets and write-downs of materials and supplies).
Adjusted interest expense.
A non-GAAP measure calculated as interest expense plus amortization of premium on long-term debt and capitalized interest, less amortization of debt expense and discount.
Annual Report.
Annual Report on Form 10-K for the year ended December 31, 2016.
ArcLight.
ArcLight Capital Partners, LLC, a Delaware limited liability company, its affiliated entities ArcLight Energy Partners Fund V, L.P., ArcLight Energy Partners Fund IV, L.P., Bronco Midstream Partners, L.P., Bronco Midstream Infrastructure LLC and Enogex Holdings LLC, and their respective general partners and subsidiaries.
ASU.
Accounting Standards Update.
Barrel.
42 U.S. gallons of petroleum products.
Bbl.
Barrel.
Bbl/d.
Barrels per day.
Bcf/d.
Billion cubic feet per day.
Btu.
British thermal unit. When used in terms of volume, Btu refers to the amount of natural gas required to raise the temperature of one pound of water by one degree Fahrenheit at one atmospheric pressure.
CenterPoint Energy.
CenterPoint Energy, Inc., a Texas corporation, and its subsidiaries.
CERC.
CenterPoint Energy Resources Corp., a Delaware corporation.
Condensate.
A natural gas liquid with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.
DCF.
A non-GAAP measure calculated as Adjusted EBITDA, as further adjusted for Series A Preferred Unit distributions, Adjusted interest expense, maintenance capital expenditures and current income taxes. 
Distribution coverage ratio.
A non-GAAP measure calculated as DCF divided by distributions related to common and subordinated unitholders.
DRIP.
Distribution Reinvestment Plan entered into on June 23, 2016, which offers owners of our common and subordinated units the ability to purchase additional common units by reinvesting all or a portion of the cash distributions paid to them on their common or subordinated units.
EGT.
Enable Gas Transmission, LLC, a wholly owned subsidiary of the Partnership that operates a 5,900-mile interstate pipeline that provides natural gas transportation and storage services to customers principally in the Anadarko, Arkoma and Ark-La-Tex Basins in Oklahoma, Texas, Arkansas, Louisiana and Kansas.
Enable GP.
Enable GP, LLC, a Delaware limited liability company and the general partner of Enable Midstream Partners, LP.
EOIT.
Enable Oklahoma Intrastate Transmission, LLC, formerly Enogex LLC, a wholly owned subsidiary of the Partnership that operates a 2,200-mile intrastate pipeline that provides natural gas transportation and storage services to customers in Oklahoma.
Exchange Act.
Securities Exchange Act of 1934, as amended.
FASB.
Financial Accounting Standards Board.
FERC.
Federal Energy Regulatory Commission.
Fractionation.
The separation of the heterogeneous mixture of extracted NGLs into individual components for end-use sale.
GAAP.
Generally accepted accounting principles in the United States.
Gas imbalance.
The difference between the actual amounts of natural gas delivered from or received by a pipeline, as compared to the amounts scheduled to be delivered or received.
General Partner.
Enable GP, LLC, a Delaware limited liability company, the general partner of Enable Midstream Partners, LP.
Gross margin.
A non-GAAP measure calculated as Total revenues minus cost of natural gas and natural gas liquids, excluding depreciation and amortization.

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IPO.
Initial public offering of Enable Midstream Partners, LP.
LDC.
Local distribution company involved in the delivery of natural gas to consumers within a specific geographic area.
LIBOR.
London Interbank Offered Rate.
MBbl.
Thousand barrels.
MBbl/d.
Thousand barrels per day.
MFA.
Master Formation Agreement dated as of March 14, 2013.
MMcf.
Million cubic feet of natural gas.
MMcf/d.
Million cubic feet per day.
MRT.
Enable Mississippi River Transmission, LLC, a wholly owned subsidiary of the Partnership that operates a 1,600-mile interstate pipeline that provides natural gas transportation and storage services principally in Texas, Arkansas, Louisiana, Missouri and Illinois.
NGLs.
Natural gas liquids, which are the hydrocarbon liquids contained within natural gas including condensate.
NYMEX.
New York Mercantile Exchange.
OGE Energy.
OGE Energy Corp., an Oklahoma corporation, and its subsidiaries.
Partnership.
Enable Midstream Partners, LP, and its subsidiaries.
Partnership Agreement.
Fourth Amended and Restated Agreement of Limited Partnership of Enable Midstream Partners, LP dated as of June 22, 2016.
Revolving Credit Facility.
$1.75 billion senior unsecured revolving credit facility.
SEC.
Securities and Exchange Commission.
Securities Act.
Securities Act of 1933, as amended.
Series A Preferred Units.
10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in the Partnership.
SESH.
Southeast Supply Header, LLC, in which the Partnership owns a 50% interest, that operates an approximately 290-mile interstate natural gas pipeline from Perryville, Louisiana to southwestern Alabama near the Gulf Coast.
TBtu.
Trillion British thermal units.
TBtu/d.
Trillion British thermal units per day.
WTI.
West Texas Intermediate.
2015 Term Loan Agreement.
$450 million unsecured term loan agreement.
2019 Notes.
$500 million 2.400% senior notes due 2019.
2024 Notes.
$600 million 3.900% senior notes due 2024.
2027 Notes.
$700 million 4.400% senior notes due 2027.
2044 Notes.
$550 million 5.000% senior notes due 2044.


 
 
 

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FORWARD-LOOKING STATEMENTS
 
Some of the information in this report may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “could,” “will,” “should,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this report include our expectations of plans, strategies, objectives, growth and anticipated financial and operational performance, including revenue projections, capital expenditures and tax position. Forward-looking statements can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed.
 
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and in our Annual Report on Form 10-K for the year ended December 31, 2016. Those risk factors and other factors noted throughout this report and in our Annual Report could cause our actual results to differ materially from those disclosed in any forward-looking statement. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
changes in general economic conditions;
competitive conditions in our industry;
actions taken by our customers and competitors;
the supply and demand for natural gas, NGLs, crude oil and midstream services;
our ability to successfully implement our business plan;
our ability to complete internal growth projects on time and on budget;
the price and availability of debt and equity financing;
strategic decisions by CenterPoint Energy and OGE Energy regarding their ownership of us and our General Partner;
operating hazards and other risks incidental to transporting, storing, gathering and processing natural gas, NGLs, crude oil and midstream products;
natural disasters, weather-related delays, casualty losses and other matters beyond our control;
interest rates;
labor relations;
large customer defaults;
changes in the availability and cost of capital;
changes in tax status;
the effects of existing and future laws and governmental regulations;
changes in insurance markets impacting costs and the level and types of coverage available;
the timing and extent of changes in commodity prices;
the suspension, reduction or termination of our customers’ obligations under our commercial agreements;
disruptions due to equipment interruption or failure at our facilities, or third-party facilities on which our business is dependent;
the effects of future litigation; and
other factors set forth in this report and our other filings with the SEC, including our Annual Report.
Forward-looking statements speak only as of the date on which they are made. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Three Months Ended 
 March 31,
 
2017

2016
 
(In millions, except per unit data)
Revenues (including revenues from affiliates (Note 11)):





Product sales
$
386


$
245

Service revenue
280


264

Total Revenues
666


509

Cost and Expenses (including expenses from affiliates (Note 11)):





Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
308


195

Operation and maintenance
89


95

General and administrative
25


20

Depreciation and amortization
88


81

Taxes other than income taxes
16


15

Total Cost and Expenses
526


406

Operating Income
140


103

Other Income (Expense):



Interest expense (including expenses from affiliates (Note 11))
(27
)

(23
)
Equity in earnings of equity method affiliate
7


7

Other, net
1



Total Other Expense
(19
)

(16
)
Income Before Income Taxes
121


87

Income tax expense
1


1

Net Income
$
120


$
86

Less: Net income attributable to noncontrolling interest



Net Income Attributable to Limited Partners
$
120


$
86

Less: Series A Preferred Unit distributions (Note 4)
9



Net Income Attributable to Common and Subordinated Units (Note 3)
$
111


$
86







Basic earnings per unit (Note 3)





Common units
$
0.26


$
0.21

Subordinated units
$
0.25


$
0.20

Diluted earnings per unit (Note 3)



Common units
$
0.26


$
0.19

Subordinated units
$
0.25


$
0.20

 

See Notes to the Unaudited Condensed Consolidated Financial Statements
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ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) 
 
March 31,
2017
 
December 31,
2016
 
(In millions)
Current Assets:
 
Cash and cash equivalents
$
17

 
$
6

Restricted cash
14

 
17

Accounts receivable, net of allowance for doubtful accounts
231

 
249

Accounts receivable—affiliated companies
21

 
13

Inventory
40

 
41

Gas imbalances
24

 
41

Other current assets
28

 
29

Total current assets
375

 
396

Property, Plant and Equipment:
 
 
 
Property, plant and equipment
11,622

 
11,567

Less accumulated depreciation and amortization
1,496

 
1,424

Property, plant and equipment, net
10,126

 
10,143

Other Assets:
 
 
 
Intangible assets, net
299

 
306

Investment in equity method affiliate
325

 
329

Other
36

 
38

Total other assets
660

 
673

Total Assets
$
11,161

 
$
11,212

Current Liabilities:
 
 
 
Accounts payable
$
128

 
$
181

Accounts payable—affiliated companies
3

 
3

Taxes accrued
26

 
30

Gas imbalances
18

 
35

Other
104

 
113

Total current liabilities
279

 
362

Other Liabilities:
 
 
 
Accumulated deferred income taxes, net
10

 
10

Regulatory liabilities
20

 
19

Other
34

 
34

Total other liabilities
64

 
63

Long-Term Debt
3,047

 
2,993

Commitments and Contingencies (Note 12)

 

Partners’ Equity:
 
 
 
Series A Preferred Units (14,520,000 issued and outstanding at March 31, 2017 and December 31, 2016)
362

 
362

Common units (224,532,260 issued and outstanding at March 31, 2017 and 224,535,454 issued and outstanding at December 31, 2016, respectively)
3,727

 
3,737

Subordinated units (207,855,430 issued and outstanding at March 31, 2017 and December 31, 2016, respectively)
3,670

 
3,683

Noncontrolling interest
12

 
12

Total Partners’ Equity
7,771

 
7,794

Total Liabilities and Partners’ Equity
$
11,161

 
$
11,212


See Notes to the Unaudited Condensed Consolidated Financial Statements
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ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Cash Flows from Operating Activities:
 
Net income
$
120

 
$
86

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
88

 
81

Deferred income taxes
1

 

Loss on sale/retirement of assets
1

 
1

Equity in earnings of equity method affiliate
(7
)
 
(7
)
Return on investment in equity method affiliate
7

 
7

Equity based compensation
4

 
2

Amortization of debt costs and discount (premium)
(1
)
 
(1
)
Changes in other assets and liabilities:
 
 
 
Accounts receivable, net
18

 
19

Accounts receivable—affiliated companies
(8
)
 
5

Inventory
1

 
8

Gas imbalance assets
17

 
3

Other current assets
1

 

Other assets
2

 
1

Accounts payable
(55
)
 
(84
)
Accounts payable—affiliated companies

 
(3
)
Gas imbalance liabilities
(17
)
 
(18
)
Other current liabilities
(16
)
 
15

Other liabilities

 
2

Net cash provided by operating activities
156

 
117

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(61
)
 
(130
)
Proceeds from sale of assets
1

 

Return of investment in equity method affiliate
4

 
13

Net cash used in investing activities
(56
)
 
(117
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long term debt, net of issuance costs
691

 

Proceeds from revolving credit facility
264

 
495

Repayment of revolving credit facility
(900
)
 
(90
)
Decrease in short-term debt

 
(236
)
Repayment of notes payable—affiliated companies

 
(363
)
Proceeds from issuance of Series A Preferred Units, net of issuance costs

 
362

Distributions
(147
)
 
(134
)
Net cash provided by (used in) financing activities
(92
)
 
34

Net Increase in Cash, Cash Equivalents and Restricted Cash
8

 
34

Cash, Cash Equivalents and Restricted Cash at Beginning of Period
23

 
4

Cash, Cash Equivalents and Restricted Cash at End of Period
$
31

 
$
38



See Notes to the Unaudited Condensed Consolidated Financial Statements
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ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(Unaudited)
 
 
Series A
Preferred
Units
 
Common
Units
 
Subordinated
 Units
 
Noncontrolling
Interest
 
Total Partners’
Equity
 
Units
 
Value
 
Units
 
Value
 
Units
 
Value
 
Value
 
Value
 
(In millions)
Balance as of December 31, 2015

 
$

 
214

 
$
3,714

 
208

 
$
3,805

 
$
12

 
$
7,531

Net income

 

 

 
44

 

 
42

 

 
86

Issuance of Series A Preferred Units
15

 
362

 

 

 

 

 

 
362

Distributions

 

 

 
(68
)
 

 
(66
)
 

 
(134
)
Equity based compensation, net of units for employee taxes

 

 

 
2

 

 

 

 
2

Balance as of March 31, 2016
15

 
$
362

 
214

 
$
3,692

 
208

 
$
3,781

 
$
12

 
$
7,847

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
15

 
$
362

 
224

 
$
3,737

 
208

 
$
3,683

 
$
12

 
$
7,794

Net income

 
9

 

 
58

 

 
53

 

 
120

Distributions

 
(9
)
 

 
(72
)
 

 
(66
)
 

 
(147
)
Equity based compensation, net of units for employee taxes

 

 

 
4

 

 

 

 
4

Balance as of March 31, 2017
15

 
$
362

 
224

 
$
3,727

 
208

 
$
3,670

 
$
12

 
$
7,771


See Notes to the Unaudited Condensed Consolidated Financial Statements
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ENABLE MIDSTREAM PARTNERS, LP
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

(1) Summary of Significant Accounting Policies

Organization
 
Enable Midstream Partners, LP (Partnership) is a Delaware limited partnership formed on May 1, 2013 by CenterPoint Energy, OGE Energy and ArcLight. The Partnership’s assets and operations are organized into two reportable segments: (i) gathering and processing and (ii) transportation and storage. The gathering and processing segment primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers. The transportation and storage segment provides interstate and intrastate natural gas pipeline transportation and storage services primarily to our producer, power plant, LDC and industrial end-user customers. The Partnership’s natural gas gathering and processing assets are primarily located in Oklahoma, Texas, Arkansas and Louisiana and serve natural gas production in the Anadarko, Arkoma and Ark-La-Tex Basins. Crude oil gathering assets are located in North Dakota and serve crude oil production in the Bakken Shale formation of the Williston Basin. The Partnership’s natural gas transportation and storage assets consist primarily of an interstate pipeline system extending from western Oklahoma and the Texas Panhandle to Louisiana, an interstate pipeline system extending from Louisiana to Illinois, an intrastate pipeline system in Oklahoma, and our investment in SESH, a pipeline extending from Louisiana to Alabama.
 
CenterPoint Energy and OGE Energy each have 50% of the management interests in Enable GP. Enable GP is the general partner of the Partnership and has no other operating activities. Enable GP is governed by a board made up of two representatives designated by each of CenterPoint Energy and OGE Energy, along with the Partnership’s Chief Executive Officer and three independent board members CenterPoint Energy and OGE Energy mutually agreed to appoint. CenterPoint Energy and OGE Energy also own a 40% and 60% interest, respectively, in the incentive distribution rights held by Enable GP.

As of March 31, 2017, CenterPoint Energy held approximately 54.1% of the Partnership’s common and subordinated units, or 94,151,707 common units and 139,704,916 subordinated units, and OGE Energy held approximately 25.7% of the Partnership’s common and subordinated units, or 42,832,291 common units and 68,150,514 subordinated units. Additionally, CenterPoint Energy holds 14,520,000 Series A Preferred Units. See Note 4 for further information related to the Series A Preferred Units. The limited partner interests of the Partnership have limited voting rights on matters affecting the business. As such, limited partners do not have rights to elect the Partnership’s General Partner (Enable GP) on an annual or continuing basis and may not remove Enable GP without at least a 75% vote by all unitholders, including all units held by the Partnership’s limited partners, and Enable GP and its affiliates, voting together as a single class.
 
As of March 31, 2017, the Partnership owned a 50% interest in SESH. See Note 6 for further discussion of SESH.

Basis of Presentation

The accompanying condensed consolidated financial statements and related notes of the Partnership have been prepared pursuant to the rules and regulations of the SEC and GAAP. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report.  

 These condensed consolidated financial statements and the related financial statement disclosures reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective periods. Amounts reported in the Partnership’s Condensed Consolidated Statements of Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests.
 
For a description of the Partnership’s reportable segments, see Note 14.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial

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statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Restricted Cash

Restricted cash consists of cash which is restricted by agreements with third parties. The Condensed Consolidated Balance Sheets have $14 million and $17 million of restricted cash as of March 31, 2017 and December 31, 2016, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not typically bear interest. The determination of the allowance for doubtful accounts requires management to make estimates and judgments regarding our customers’ ability to pay. The allowance for doubtful accounts is determined based upon specific identification and estimates of future uncollectable amounts. On an ongoing basis, we evaluate our customers’ financial strength based on aging of accounts receivable, payment history, and review of other relevant information, including ratings agency credit ratings and alerts, publicly available reports and news releases, and bank and trade references. It is the policy of management to review the outstanding accounts receivable at least quarterly, giving consideration to historical bad debt write-offs, the aging of receivables and specific customer circumstances that may impact their ability to pay the amounts due. Based on this review, management determined that a $4 million and $3 million allowance for doubtful accounts was required as of March 31, 2017 and December 31, 2016, respectively.


(2) New Accounting Pronouncements

Adopted Accounting Standards

Share-Based Compensation

In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718).” This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Partnership adopted the amendment in the first quarter of 2017, which had no material impact on our Condensed Consolidated Financial Statements and related disclosures.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This standard is intended to reduce existing diversity in practice in how certain transactions are presented on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The Partnership adopted ASU No. 2016-15 in the first quarter of 2017, which had no material impact on our Condensed Consolidated Financial Statements and related disclosures.

Accounting Standards to be Adopted in Future Periods

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Topic 606 is based on the core principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

Topic 606 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in 2017. However, we do not plan to adopt the standard early. Entities will have the option to apply the standard using a full retrospective or modified retrospective adoption method. The Partnership expects to adopt this ASU using the modified retrospective method. Our evaluation of the impact on our Consolidated Financial Statements and related disclosures is ongoing and not complete. In connection with our assessment work, we formed an implementation work team, completed training on the Topic 606 revenue recognition model and are continuing our review of contracts relative to the provisions of Topic 606.

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Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Partnership expects to adopt this standard by the first quarter of 2019 and is currently evaluating the impact of this standard on our Condensed Consolidated Financial Statements and related disclosures. In connection with our assessment work, we formed an implementation work team and are continuing our review of our contracts relative to the provisions of the lease standard.

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a more timely matter. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

Income Taxes

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This standard requires entities to recognize the tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted as of the beginning of an annual period (i.e., only in the first interim period). The guidance requires application using a modified retrospective approach. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.



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(3) Earnings Per Limited Partner Unit

The following table illustrates the Partnership’s calculation of earnings per unit for common and subordinated units:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions, except per unit data)
Net income
$
120

 
$
86

Net income attributable to noncontrolling interest

 

Series A Preferred Unit distribution
9

 

General partner interest in net income

 

Net income available to common and subordinated unitholders
$
111

 
$
86

 
 
 
 
Net income allocable to common units
$
58

 
$
44

Net income allocable to subordinated units
53

 
42

Net income available to common and subordinated unitholders
$
111

 
$
86

 
 
 
 
Net income allocable to common units
$
58

 
$
44

Dilutive effect of Series A Preferred Unit distributions

 

Diluted net income allocable to common units
58

 
44

Diluted net income allocable to subordinated units
53

 
42

Total
$
111

 
$
86

 
 
 
 
Basic weighted average number of outstanding
 
 
 
Common units(1)
225

 
214

Subordinated units 
208

 
208

Total
433

 
422

 
 
 
 
Basic earnings per unit
 
 
 
Common units
$
0.26

 
$
0.21

Subordinated units
$
0.25

 
$
0.20

 
 
 
 
Basic weighted average number of outstanding common units
225

 
214

Dilutive effect of Series A Preferred Units

 
21

Dilutive effect of performance units
1

 

Diluted weighted average number of outstanding common units
226

 
235

Diluted weighted average number of outstanding subordinated units
208

 
208

Total
434

 
443

 
 
 
 
Diluted earnings per unit
 
 
 
Common units
$
0.26

 
$
0.19

Subordinated units
$
0.25

 
$
0.20

____________________
(1)
Basic weighted average number of outstanding common units for the three months ended March 31, 2017 includes approximately one million time-based phantom units.

The dilutive effect of the unit-based awards discussed in Note 13 was less than $0.01 per unit during each of the three months ended March 31, 2017 and 2016.



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(4) Partners’ Equity

The Partnership Agreement requires that, within 60 days subsequent to the end of each quarter, the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to unitholders of record on the applicable record date.

The Partnership paid or has authorized payment of the following cash distributions to common and subordinated unitholders during 2016 and 2017 (in millions, except for per unit amounts):
Quarter Ended
 
Record Date
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
March 31, 2017(1)
 
May 23, 2017
 
May 30, 2017
 
$
0.318

 
$
137

December 31, 2016
 
February 21, 2017
 
February 28, 2017
 
$
0.318

 
$
137

September 30, 2016
 
November 14, 2016
 
November 22, 2016
 
$
0.318

 
$
134

June 30, 2016
 
August 16, 2016
 
August 23, 2016
 
$
0.318

 
$
134

March 31, 2016
 
May 6, 2016
 
May 13, 2016
 
$
0.318

 
$
134

December 31, 2015
 
February 2, 2016
 
February 12, 2016
 
$
0.318

 
$
134

_____________________
(1)
The board of directors of Enable GP declared this $0.318 per common unit cash distribution on May 2, 2017, to be paid on May 30, 2017, to common and subordinated unitholders of record at the close of business on May 23, 2017.

The Partnership paid or has authorized payment of the following cash distributions to holders of the Series A Preferred Units during 2016 and 2017 (in millions, except for per unit amounts):
Quarter Ended
 
Record Date
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
March 31, 2017(1)
 
May 2, 2017
 
May 12, 2017
 
$
0.625

 
$
9

December 31, 2016
 
February 10, 2017
 
February 15, 2017
 
$
0.625

 
$
9

September 30, 2016
 
November 1, 2016
 
November 14, 2016
 
$
0.625

 
$
9

June 30, 2016
 
August 2, 2016
 
August 12, 2016
 
$
0.625

 
$
9

March 31, 2016 (2)
 
May 6, 2016
 
May 13, 2016
 
$
0.2917

 
$
4

_____________________
(1)
The board of directors of Enable GP declared a $0.625 per Series A Preferred Unit cash distribution on May 2, 2017, to be paid on May 12, 2017, to Series A Preferred unitholders of record at the close of business on May 2, 2017.
(2)
The prorated quarterly distribution for the Series A Preferred Units is for a partial period beginning on February 18, 2016, and ending on March 31, 2016, which equates to $0.625 per unit on a full-quarter basis or $2.50 per unit on an annualized basis.

General Partner Interest and Incentive Distribution Rights

Enable GP owns a non-economic general partner interest in the Partnership and thus will not be entitled to distributions that the Partnership makes prior to the liquidation of the Partnership in respect of such general partner interest. Enable GP currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50.0%, of the cash the Partnership distributes from operating surplus (as defined in the Partnership Agreement) in excess of $0.330625 per unit per quarter. The maximum distribution of 50.0% does not include any distributions that Enable GP or its affiliates may receive on common units or subordinated units that they own.


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Subordinated Units

General

As of March 31, 2017, all subordinated units are held by CenterPoint Energy and OGE Energy. These units are considered subordinated because for a period of time, defined by the Partnership Agreement as the subordination period, the subordinated units will not be entitled to receive any distributions until the common units have received distributions of available cash each quarter from operating surplus in an amount equal to the minimum quarterly distribution, plus any arrearages on minimum quarterly distributions on the common units from prior quarters. In addition, the subordinated units are not entitled to arrearages on minimum quarterly distributions. On the expiration of the subordination period, the subordinated units will convert to common units on a one-for-one basis.

Subordination Period

The subordination period began on the closing date of the IPO and expires on the first to occur of the following dates: (1) the first business day following the distribution of available cash in respect of any quarter beginning with the quarter ending June 30, 2017 that the following tests are met: (a) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equal or exceed $1.15 per unit (the annualized minimum quarterly distribution) for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; (b) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum $1.15 (the annualized minimum quarterly distribution) on all of the common units and subordinated units outstanding during those periods on a fully diluted weighted average basis; and (c) there are no arrearages in the payment of the minimum quarterly distributions on the common units or (2) the first business day following the distribution of available cash in respect of any quarter beginning with the quarter ending June 30, 2015 that the following tests are met: (a) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equal to or exceeding $1.725 per unit (150% of the annualized minimum quarterly distribution) for the four consecutive quarter period immediately preceding that date; (b) the adjusted operating surplus generated during the four consecutive quarter period immediately preceding that date equaled or exceed $1.725 per unit (150% of the annualized minimum quarterly distribution) on all of the common units and subordinated units outstanding during that period on a fully diluted weighted average basis plus the corresponding incentive distribution rights; and (c) there are no arrearages in the payment of the minimum quarterly distributions on the common units.

Series A Preferred Units

On February 18, 2016, the Partnership completed the private placement of 14,520,000 Series A Preferred Units representing limited partner interests in the Partnership for a cash purchase price of $25.00 per Series A Preferred Unit, resulting in proceeds of $362 million, net of issuance costs. The Partnership incurred approximately $1 million of expenses related to the offering, which is shown as an offset to the proceeds. In connection with the closing of the private placement, the Partnership redeemed approximately $363 million of notes scheduled to mature in 2017 payable to a wholly-owned subsidiary of CenterPoint Energy.

Pursuant to the Partnership Agreement, the Series A Preferred Units:
rank senior to the Partnership’s common units with respect to the payment of distributions and distribution of assets upon liquidation, dissolution and winding up;
have no stated maturity;
are not subject to any sinking fund; and
will remain outstanding indefinitely unless repurchased or redeemed by the Partnership or converted into its common units in connection with a change of control.

Holders of the Series A Preferred Units receive a quarterly cash distribution on a non-cumulative basis if and when declared by the General Partner, and subject to certain adjustments, equal to an annual rate of: 10% on the stated liquidation preference of $25.00 from the date of original issue to, but not including, the five year anniversary of the original issue date; and thereafter a percentage of the stated liquidation preference equal to the sum of the three-month LIBOR plus 8.5%.

At any time on or after five years after the original issue date, the Partnership may redeem the Series A Preferred Units, in whole or in part, from any source of funds legally available for such purpose, by paying $25.50 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of redemption, whether or not declared. In addition, the Partnership (or a third-party with its prior written consent) may redeem the Series A Preferred Units following certain changes in the methodology employed by ratings agencies, changes of control or fundamental transactions as set forth in the Partnership

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Agreement. If, upon a change of control or certain fundamental transactions, the Partnership (or a third-party with its prior written consent) does not exercise this option, then the holders of the Series A Preferred Units have the option to convert the Series A Preferred Units into a number of common units per Series A Preferred Unit as set forth in the Partnership Agreement. The Series A Preferred Units are also required to be redeemed in certain circumstances if they are not eligible for trading on the New York Stock Exchange.

Holders of Series A Preferred Units have no voting rights except for limited voting rights with respect to potential amendments to the Partnership Agreement that have a material adverse effect on the existing terms of the Series A Preferred Units, the issuance by the Partnership of certain securities, approval of certain fundamental transactions and as required by law.

Upon the transfer of any Series A Preferred Unit to a non-affiliate of CenterPoint Energy, the Series A Preferred Units will automatically convert into a new series of preferred units (the Series B Preferred Units) on the later of the date of transfer and the second anniversary of the date of issue. The Series B Preferred Units will have the same terms as the Series A Preferred Units except that unpaid distributions on the Series B Preferred Units will accrue on a cumulative basis until paid.

On February 18, 2016, the Partnership entered into a registration rights agreement with CenterPoint Energy, pursuant to which, among other things, the Partnership gave CenterPoint Energy certain rights to require the Partnership to file and maintain a registration statement with respect to the resale of the Series A Preferred Units and any other series of preferred units or common units representing limited partner interests in the Partnership that are issuable upon conversion of the Series A Preferred Units.

2016 Equity Issuance

On November 29, 2016, the Partnership closed a public offering of 10,000,000 common units at a price to the public of $14.00 per common unit. In connection with the offering, the Partnership, the underwriters and an affiliate of ArcLight entered into an underwriting agreement that provided an option for the underwriters to purchase up to an additional 1,500,000 common units, with 75,719 common units to be sold by the Partnership and 1,424,281 to be sold by the affiliate of ArcLight. The underwriters exercised the option to purchase all of the additional common units, and the Partnership received proceeds (net of underwriting discounts, structuring fees and offering expenses) of $137 million from the offering.


(5) Assessing Impairment of Long-lived Assets (including Intangible Assets)

The Partnership periodically evaluates long-lived assets, including property, plant and equipment, and specifically identifiable intangibles other than goodwill, when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets, as compared to the carrying value of the assets. The Partnership recorded no impairments to long-lived assets in the three months ended March 31, 2017 or 2016. Based upon review of forecasted undiscounted cash flows, none of the asset groups were at risk of failing step one of the impairment test. Commodity price declines, throughput declines, cost increases, regulatory or political environment changes, and other changes in market conditions could reduce forecast undiscounted cash flows.


(6) Investment in Equity Method Affiliate
 
The Partnership uses the equity method of accounting for investments in entities in which it has an ownership interest between 20% and 50% and exercises significant influence.
 
SESH is owned 50% by Spectra Energy Partners, LP and 50% by the Partnership. Pursuant to the terms of the SESH LLC Agreement, if, at any time, CenterPoint Energy has a right to receive less than 50% of our distributions through its interest in the Partnership and its economic interest in Enable GP, or does not have the ability to exercise certain control rights, Spectra Energy Partners, LP may, under certain circumstances, have the right to purchase the Partnership’s interest in SESH at fair market value, subject to certain exceptions.

The Partnership shares operations of SESH with Spectra Energy Partners, LP under service agreements. The Partnership is responsible for the field operations of SESH. SESH reimburses each party for actual costs incurred, which are billed based upon a combination of direct charges and allocations. During the three months ended March 31, 2017 and 2016, the Partnership billed SESH $5 million and $4 million, respectively, associated with these service agreements.


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Equity in Earnings of Equity Method Affiliate:
 
Three Months Ended 
 March 31,
 
2017

2016
 
(In millions)
SESH
$
7

 
$
7


Distributions from Equity Method Affiliate:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
SESH (1)
$
11

 
$
20

____________________
(1)
Distributions from equity method affiliate includes a $7 million and $7 million return on investment and a $4 million and $13 million return of investment for the three months ended March 31, 2017 and 2016, respectively.


Summarized financial information of SESH:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Income Statements:
 
 
 
Revenues
$
28

 
$
29

Operating income
$
17

 
$
19

Net income
$
13

 
$
14


 
(7) Debt
 
The following table presents the Partnership’s outstanding debt as of March 31, 2017 and December 31, 2016.
 
March 31, 2017
 
December 31, 2016
 
Outstanding Principal
 
Premium (Discount)
 
Total Debt
 
Outstanding Principal
 
Premium (Discount)
 
Total Debt
 
(In millions)
Revolving Credit Facility
$

 
$

 
$

 
$
636

 
$

 
$
636

2015 Term Loan Agreement
450

 

 
450

 
450

 

 
450

2019 Notes
500

 

 
500

 
500

 

 
500

2024 Notes
600

 
(1
)
 
599

 
600

 
(1
)
 
599

2027 Notes
700

 
(3
)
 
697

 

 

 

2044 Notes
550

 

 
550

 
550

 

 
550

EOIT Senior Notes
250

 
17

 
267

 
250

 
18

 
268

Total debt
$
3,050

 
$
13

 
$
3,063

 
$
2,986

 
$
17

 
$
3,003

Less: Unamortized debt expense (1)
 
 
 
 
16

 
 
 
 
 
10

Total long-term debt
 
 
 
 
$
3,047

 
 
 
 
 
$
2,993

____________________
(1)
As of March 31, 2017 and December 31, 2016, there was an additional $4 million and $5 million, respectively, of unamortized debt expense related to the Revolving Credit Facility included in Other long-term assets, not included above.


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Revolving Credit Facility

On June 18, 2015, the Partnership amended and restated its Revolving Credit Facility that matures on June 18, 2020. As of March 31, 2017, there were no principal advances and $3 million in letters of credit outstanding under the $1.75 billion Revolving Credit Facility due June 18, 2020.

The Revolving Credit Facility provides that outstanding borrowings bear interest at LIBOR and/or an alternate base rate, at the Partnership’s election, plus an applicable margin. The applicable margin is based on the Partnership’s applicable credit ratings. As of March 31, 2017, the applicable margin for LIBOR-based borrowings under the Revolving Credit Facility was 1.50% based on the Partnership’s credit ratings. In addition, the Revolving Credit Facility requires the Partnership to pay a fee on unused commitments. The commitment fee is based on the Partnership’s applicable credit rating from the rating agencies. As of March 31, 2017, the commitment fee under the Revolving Credit Facility was 0.20% per annum based on the Partnership’s credit ratings. The commitment fee is recorded as interest expense in the Partnership’s Condensed Consolidated Statements of Income.

Commercial Paper

The Partnership has a commercial paper program, pursuant to which the Partnership is authorized to issue up to $1.4 billion of commercial paper. The commercial paper program is supported by our Revolving Credit Facility, and outstanding commercial paper effectively reduces our borrowing capacity thereunder. There was no amount outstanding under our commercial paper program at each of March 31, 2017 and December 31, 2016. On February 2, 2016, Standard & Poor’s Ratings Services lowered its credit rating on the Partnership from an investment grade rating to a non-investment grade rating. The short-term rating on the Partnership was also reduced from an investment grade rating to a non-investment grade rating. As a result of the downgrade, the Partnership repaid its outstanding borrowings under the commercial paper program upon maturity and did not issue any additional commercial paper.

Term Loan Agreement

On July 31, 2015, the Partnership entered into a Term Loan Agreement, providing for an unsecured three-year $450 million term loan agreement (2015 Term Loan Agreement). The entire $450 million principal amount of the 2015 Term Loan Agreement was borrowed by the Partnership on July 31, 2015. The 2015 Term Loan Agreement contains an option, which may be exercised up to two times, to extend the term of the 2015 Term Loan Agreement, in each case, for an additional one-year term. The 2015 Term Loan Agreement provides an option to prepay, without penalty or premium, the amount outstanding, or any portion thereof, in a minimum amount of $1 million, or any multiple of $0.5 million in excess thereof. As of March 31, 2017, there was $450 million outstanding under the 2015 Term Loan Agreement.

The 2015 Term Loan Agreement provides that outstanding borrowings bear interest at LIBOR and/or an alternate base rate, at the Partnership’s election, plus an applicable margin. The applicable margin is based on our applicable credit ratings. As of March 31, 2017, the applicable margin for LIBOR-based borrowings under the 2015 Term Loan Agreement was 1.375% based on the Partnership’s credit ratings. As of March 31, 2017, the weighted average interest rate of the 2015 Term Loan Agreement was 2.15%.

The 2015 Term Loan Agreement contains substantially the same covenants as the Revolving Credit Facility.

Senior Notes

On March 9, 2017, the Partnership completed the public offering of $700 million 4.400% Senior Notes due 2027 (2027 Notes). The Partnership received net proceeds of approximately $691 million. The proceeds were used for general partnership purposes, including to repay amounts outstanding under the Revolving Credit Facility. The 2027 Notes had an unamortized discount of $3 million and unamortized debt expense of $6 million at March 31, 2017, resulting in an effective interest rate of 4.58% during the three months ended March 31, 2017.

In addition to the 2027 Notes, as of March 31, 2017, the Partnership’s debt included the 2019 Notes, 2024 Notes and 2044 Notes, which had $1 million of unamortized discount and $10 million of unamortized debt expense at March 31, 2017, resulting in effective interest rates of 2.58%, 4.02% and 5.08%, respectively, during the three months ended March 31, 2017.

As of March 31, 2017, the Partnership’s debt included EOIT’s $250 million 6.25% senior notes due March 2020 (the EOIT Senior Notes). The EOIT Senior Notes had $17 million of unamortized premium at March 31, 2017, resulting in an effective interest rate of 3.86%, during the three months ended March 31, 2017. These senior notes do not contain any financial covenants other than a limitation on liens. This limitation on liens is subject to certain exceptions and qualifications.

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 As of March 31, 2017, the Partnership and EOIT were in compliance with all of their debt agreements, including financial covenants.

 
(8) Derivative Instruments and Hedging Activities
 
The Partnership is exposed to certain risks relating to its ongoing business operations. The primary risk managed using derivative instruments is commodity price risk. The Partnership is also exposed to credit risk in its business operations.
 
Commodity Price Risk
 
The Partnership has used forward physical contracts, commodity price swap contracts and commodity price option features to manage the Partnership’s commodity price risk exposures in the past. Commodity derivative instruments used by the Partnership are as follows:
NGL put options, NGL futures and swaps, and WTI crude oil futures and swaps for condensate sales are used to manage the Partnership’s NGL and condensate exposure associated with its processing agreements;
natural gas futures and swaps are used to manage the Partnership’s natural gas exposure associated with its gathering, processing and transportation and storage assets; and
natural gas futures and swaps, natural gas options and natural gas commodity purchases and sales are used to manage the Partnership’s natural gas exposure associated with its storage and transportation contracts and asset management activities.

Normal purchases and normal sales contracts are not recorded in Other Assets or Liabilities in the Condensed Consolidated Balance Sheets and earnings are recognized and recorded in the period in which physical delivery of the commodity occurs. Management applies normal purchases and normal sales treatment to: (i) commodity contracts for the purchase and sale of natural gas used in or produced by the Partnership’s operations and (ii) commodity contracts for the purchase and sale of NGLs produced by the Partnership’s gathering and processing business.
 
The Partnership recognizes its non-exchange traded derivative instruments as Other Assets or Liabilities in the Condensed Consolidated Balance Sheets at fair value with such amounts classified as current or long-term based on their anticipated settlement. Exchange traded transactions are settled on a net basis daily through margin accounts with a clearing broker and, therefore, are recorded at fair value on a net basis in Other Current Assets in the Condensed Consolidated Balance Sheets.
 
As of March 31, 2017 and December 31, 2016, the Partnership had no derivative instruments that were designated as cash flow or fair value hedges for accounting purposes.

Credit Risk
 
The Partnership is exposed to certain credit risks relating to its ongoing business operations. Credit risk includes the risk that counterparties that owe the Partnership money or energy will breach their obligations. If the counterparties to these arrangements fail to perform, the Partnership may seek or be forced to enter into alternative arrangements. In that event, the Partnership’s financial results could be adversely affected, and the Partnership could incur losses.
 
Derivatives Not Designated As Hedging Instruments
 
Derivative instruments not designated as hedging instruments for accounting purposes are utilized in the Partnership’s asset management activities. For derivative instruments not designated as hedging instruments, the gain or loss on the derivative is recognized currently in earnings.

Quantitative Disclosures Related to Derivative Instruments
 
The majority of natural gas physical purchases and sales not designated as hedges for accounting purposes are priced based on a monthly or daily index, and the fair value is subject to little or no market price risk. Natural gas physical sales volumes exceed natural gas physical purchase volumes due to the marketing of natural gas volumes purchased via the Partnership’s processing contracts, which are not derivative instruments.


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As of March 31, 2017 and December 31, 2016, the Partnership had the following derivative instruments that were not designated as hedging instruments for accounting purposes:

 
March 31, 2017
 
December 31, 2016
  
Gross Notional Volume
 
Purchases
 
Sales
 
Purchases
 
Sales
Natural gas— TBtu(1)
 
 
 
 
 
 
 
Financial fixed futures/swaps
5

 
24

 
2

 
29

Financial basis futures/swaps
5

 
25

 
2

 
30

Physical purchases/sales
1

 
45

 
1

 
25

Crude oil (for condensate)— MBbl(2)
 
 
 
 
 
 
 
Financial Futures/swaps

 
390

 

 
540

Natural gas liquids— MBbl(3)
 
 
 
 
 
 
 
Financial Futures/swaps

 
1,563

 
60

 
1,133

____________________
(1)
As of March 31, 2017, 95.9% of the natural gas contracts had durations of one year or less and 4.1% had durations of more than one year and less than two years. As of December 31, 2016, 100.0% of the natural gas contracts had durations of one year or less.
(2)
As of March 31, 2017 and December 31, 2016, 100% of the crude oil (for condensate) contracts had durations of one year or less.
(3)
As of March 31, 2017, 51.1% of the natural gas liquids contracts had durations of one year or less and 48.9% had durations of more than one year and less than two years. As of December 31, 2016, 100% of the natural gas liquid contracts had durations of one year or less.

Balance Sheet Presentation Related to Derivative Instruments
 
The fair value of the derivative instruments that are presented in the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 that were not designated as hedging instruments for accounting purposes are as follows:
 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
 
Fair Value
Instrument
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
(In millions)
Natural gas
 
 
 
 
 
 
 
Financial futures/swaps
Other Current/Other
 
$
2

 
$
8

 
$
2

 
$
22

Physical purchases/sales
Other Current/Other
 
1

 

 

 
1

Crude oil (for condensate)
 
 
 
 
 
 
 
 
 
Financial futures/swaps
Other Current/Other
 
1

 
1

 

 
3

Natural gas liquids
 
 
 
 
 
 
 
 
 
Financial Futures/swaps
Other Current/Other
 

 
3

 

 
8

Total gross derivatives (1)
 
 
$
4

 
$
12

 
$
2

 
$
34

_____________________
(1)
See Note 9 for a reconciliation of the Partnership’s total derivatives fair value to the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016.


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Income Statement Presentation Related to Derivative Instruments
 
The following table presents the effect of derivative instruments on the Partnership’s Condensed Consolidated Statements of Income for the three months ended March 31, 2017 and 2016:

  
Amounts Recognized in Income
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Natural gas
 
 
 
Financial futures/swaps gains (losses)
$
11

 
$
10

Physical purchases/sales gains (losses)
5

 
(4
)
Crude oil (for condensate)
 
 
 
Financial futures/swaps gains (losses)
3

 
1

Natural gas liquids
 
 
 
Financial futures/swaps gains (losses)
2

 
(4
)
Total
$
21

 
$
3


For derivatives not designated as hedges in the tables above, amounts recognized in income for the periods ended March 31, 2017 and 2016, if any, are reported in Product sales.

The following table presents the components of gain (loss) on derivative activity in the Partnership’s Condensed Consolidated Statements of Income for the three months ended March 31, 2017 and 2016:

 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Change in fair value of derivatives
$
24

 
$
(8
)
Realized gain (loss) on derivatives
(3
)
 
11

Gain on derivative activity
$
21

 
$
3


 Credit-Risk Related Contingent Features in Derivative Instruments
 
Based upon the Partnership’s senior unsecured debt rating with Moody’s Investors Services or Standard & Poor’s Ratings Services, the Partnership could be required to provide credit assurances to third parties, which could include letters of credit or cash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position. As of March 31, 2017, under these obligations, $1 million of cash collateral has been posted. Based on positions as of March 31, 2017, approximately $1 million of additional collateral may be required to be posted by the Partnership.


(9) Fair Value Measurements
 
Certain assets and liabilities are recorded at fair value in the Condensed Consolidated Balance Sheets and are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities are as follows:
 
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Instruments classified as Level 1 include natural gas futures, swaps and options transactions for contracts traded on the NYMEX and settled through a NYMEX clearing broker.
 
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices

19


that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. Instruments classified as Level 2 include over-the-counter NYMEX natural gas swaps, natural gas basis swaps and natural gas purchase and sales transactions in markets such that the pricing is closely related to the NYMEX pricing, and over-the-counter WTI crude oil swaps for condensate sales.
 
Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect the Partnership’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Partnership develops these inputs based on the best information available, including the Partnership’s own data.
 
The Partnership utilizes the market approach in determining the fair value of its derivative positions by using either NYMEX or WTI published market prices, independent broker pricing data or broker/dealer valuations. The valuations of derivatives with pricing based on NYMEX published market prices may be considered Level 1 if they are settled through a NYMEX clearing broker account with daily margining. Over-the-counter derivatives with NYMEX or WTI based prices are considered Level 2 due to the impact of counterparty credit risk. Valuations based on independent broker pricing or broker/dealer valuations may be classified as Level 2 only to the extent they may be validated by an additional source of independent market data for an identical or closely related active market. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, contracts are valued using internally developed methodologies that consider historical relationships among various quoted prices in active markets that result in management’s best estimate of fair value. These contracts are classified as Level 3.
 
The Partnership determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period. For the period ended March 31, 2017, there were no transfers between levels.
 
The impact to the fair value of derivatives due to credit risk is calculated using the probability of default based on Standard & Poor’s Ratings Services and/or internally generated ratings. The fair value of derivative assets is adjusted for credit risk. The fair value of derivative liabilities is adjusted for credit risk only if the impact is deemed material.

Estimated Fair Value of Financial Instruments

The fair values of all accounts receivable, notes receivable, accounts payable, commercial paper and other such financial instruments on the Condensed Consolidated Balance Sheets are estimated to be approximately equivalent to their carrying amounts due to their short term nature and have been excluded from the table below. The following table summarizes the fair value and carrying amount of the Partnership’s financial instruments as of March 31, 2017 and December 31, 2016.
 
 
March 31, 2017
 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
(In millions)
Long-Term Debt
 
 
 
 
 
 
 
Revolving Credit Facility (Level 2)
$

 
$

 
$
636

 
$
636

2015 Term Loan Agreement (Level 2)
450

 
450

 
450

 
450

2019 Notes (Level 2)
500

 
495

 
500

 
490

2024 Notes (Level 2)
599

 
584

 
599

 
564

2027 Notes (Level 2)
697

 
695

 

 

2044 Notes (Level 2)
550

 
503

 
550

 
467

EOIT Senior Notes (Level 2)
267

 
268

 
268

 
260


The fair value of the Partnership’s Revolving Credit Facility, 2015 Term Loan Agreement, EOIT Senior Notes, 2019 Notes, 2024 Notes, 2027 Notes and 2044 Notes is based on quoted market prices and estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy.
 
Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 

20


Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). As of March 31, 2017, no material fair value adjustments or fair value measurements were required for these non-financial assets or liabilities.

Contracts with Master Netting Arrangements
 
Fair value amounts recognized for forward, interest rate swap, option and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement may be offset. The reporting entity’s choice to offset or not must be applied consistently. A master netting arrangement exists if the reporting entity has multiple contracts, whether for the same type of conditional or exchange contract or for different types of contracts, with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for forward, interest rate swap, option and other conditional or exchange contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the Condensed Consolidated Balance Sheets. The Partnership has presented the fair values of its derivative contracts under master netting agreements using a net fair value presentation.
 
The following tables summarize the Partnership’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016:
 
March 31, 2017
Commodity Contracts
 
Gas Imbalances (1)
 
Assets
 
Liabilities
 
Assets (2)
 
Liabilities (3)
 
(In millions)
Quoted market prices in active market for identical assets (Level 1)
$
2

 
$
7

 
$

 
$

Significant other observable inputs (Level 2)
2

 
2

 
23

 
9

Unobservable inputs (Level 3)

 
3

 

 

Total fair value
4

 
12

 
23

 
9

Netting adjustments

 

 

 

Total
$
4

 
$
12

 
$
23

 
$
9


December 31, 2016
Commodity Contracts
 
Gas Imbalances (1)
 
Assets
 
Liabilities
 
Assets (2)
 
Liabilities (3)
 
(In millions)
Quoted market prices in active market for identical assets (Level 1)
$
2

 
$
22

 
$

 
$

Significant other observable inputs (Level 2)

 
4

 
41

 
30

Unobservable inputs (Level 3)

 
8

 

 

Total fair value
2

 
34

 
41

 
30

Netting adjustments

 

 

 

Total
$
2

 
$
34

 
$
41

 
$
30

______________________
(1)
The Partnership uses the market approach to fair value its gas imbalance assets and liabilities at individual, or where appropriate an average of, current market indices applicable to the Partnership’s operations, not to exceed net realizable value. Gas imbalances held by EOIT are valued using an average of the Inside FERC Gas Market Report for Panhandle Eastern Pipe Line Co. (Texas, Oklahoma Mainline), ONEOK (Oklahoma) and ANR Pipeline (Oklahoma) indices. There were no netting adjustments as of March 31, 2017 and December 31, 2016.
(2)
Gas imbalance assets exclude fuel reserves for under retained fuel due from shippers of $1 million and zero at March 31, 2017 and December 31, 2016, respectively, which fuel reserves are based on the value of natural gas at the time the imbalance was created and which are not subject to revaluation at fair market value.
(3)
Gas imbalance liabilities exclude fuel reserves for over retained fuel due to shippers of $9 million and $5 million at March 31, 2017 and December 31, 2016, respectively, which fuel reserves are based on the value of natural gas at the time the imbalance was created and which are not subject to revaluation at fair market value.


21


Changes in Level 3 Fair Value Measurements

The following table provides a reconciliation of changes in the fair value of our Level 3 commodity contracts between the periods presented.
 
Commodity Contracts
 
Natural gas liquids
 financial futures/swaps
 
(In millions)
Balance as of December 31, 2016
$
(8
)
Gains included in earnings
2

Settlements
3

Balance as of March 31, 2017
$
(3
)

Quantitative Information on Level 3 Fair Value Measurements

The Partnership utilizes the market approach to measure the fair value of our commodity contracts. The significant unobservable inputs used in this approach to fair value are longer dated price quotes. Our sensitivity to these longer dated forward curve prices are presented in the table below. Significant changes in any of those inputs in isolation would result in significantly different fair value measurements, depending on our short or long position in contracts.

 
March 31, 2017
Product Group
Fair Value
 
Forward Curve Range
 
(In millions)
 
(Per gallon)
Natural gas liquids
$
(3
)
 
$0.285 - $0.855


(10) Supplemental Disclosure of Cash Flow Information

The following table provides information regarding supplemental cash flow information:

 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Payments:
 
 
 
Interest, net of capitalized interest
$
14

 
$
15

Income taxes, net of refunds

 
1

Non-cash transactions:


 


Accounts payable related to capital expenditures
20

 
42


The following table reconciles cash and cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash on the Condensed Consolidated Statement of Cash Flows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Cash and cash equivalents
$
17

 
$
38

Restricted cash
14

 

Cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows
$
31

 
$
38



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Table of Contents


(11) Related Party Transactions
 
The material related party transactions with CenterPoint Energy, OGE Energy and their respective subsidiaries are summarized below. There were no material related party transactions with other affiliates.
 
Transportation and Storage Agreements

Transportation and Storage Agreements with CenterPoint Energy
 
EGT provides the following services to CenterPoint Energy’s LDCs in Arkansas, Louisiana, Oklahoma and Northeast Texas: (1) firm transportation with seasonal contract demand, (2) firm storage, (3) no notice transportation with associated storage and (4) maximum rate firm transportation. The first three services are in effect through March 31, 2021, and will remain in effect from year to year thereafter unless either party provides 180 days’ written notice prior to the contract termination date. The maximum rate firm transportation is in effect through March 31, 2018. MRT provides firm transportation and firm storage services to CenterPoint Energy’s LDCs under agreements that are in effect through May 15, 2018, but will continue year to year thereafter unless either party provides twelve months’ written notice prior to the contract termination date.

Transportation and Storage Agreement with OGE Energy
 
EOIT provides no-notice load-following transportation and storage services to OGE Energy. On March 17, 2014, EOIT entered into a transportation agreement with OGE Energy, with a primary term of May 1, 2014 through April 30, 2019. Following the primary term, the agreement will remain in effect from year to year thereafter unless either party provides notice of termination to the other party at least 180 days prior to the commencement of the succeeding annual period.

On December 6, 2016, EOIT entered into a transportation agreement with OGE Energy, with a primary term expected to begin in late 2018 and extend for 20 years. In connection with the agreement, an approximately 80 mile pipeline will be built to serve OGE Energy’s Muskogee Power Plant.

Gas Sales and Purchases Transactions

The Partnership sells natural gas volumes to affiliates of CenterPoint Energy and OGE Energy or purchases natural gas volumes from affiliates of CenterPoint Energy through a combination of forward, monthly and daily transactions. The Partnership enters into these physical natural gas transactions in the normal course of business based upon relevant market prices.

The Partnership’s revenues from affiliated companies accounted for 6% and 9% of total revenues during the three months ended March 31, 2017 and 2016, respectively. Amounts of revenues from affiliated companies included in the Partnership’s Condensed Consolidated Statements of Income are summarized as follows:
 
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Gas transportation and storage service revenue — CenterPoint Energy
$
33

 
$
33

Natural gas product sales — CenterPoint Energy

 
1

Gas transportation and storage service revenue — OGE Energy
9

 
9

Natural gas product sales — OGE Energy 

 
1

Total revenues — affiliated companies
$
42

 
$
44


Amounts of natural gas purchased from affiliated companies included in the Partnership’s Condensed Consolidated Statements of Income are summarized as follows:
 

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Table of Contents

 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Cost of natural gas purchases — CenterPoint Energy
$

 
$

Cost of natural gas purchases — OGE Energy
3

 
2

Total cost of natural gas purchases — affiliated companies
$
3

 
$
2


Corporate services and seconded employee expense

As of March 31, 2017, the Partnership had certain employees who are participants under OGE Energy’s defined benefit and retiree medical plans, who will remain seconded to the Partnership, subject to certain termination rights of the Partnership and OGE Energy. The Partnership’s reimbursement of OGE Energy for employee costs arising out of OGE Energy’s defined benefit and retiree medical plans is fixed at $5 million in 2017 and at actual cost subject to a cap of $5 million in 2018 and thereafter, in the event of continued secondment.
 
Under the terms of the MFA, the Partnership receives services and support functions from each of CenterPoint Energy and OGE Energy under service agreements for an initial term that ended on April 30, 2016. The service agreements automatically extend year-to-year at the end of the initial term, unless terminated by the Partnership with at least 90 days’ notice prior to the end of any extension. Additionally, the Partnership may terminate these service agreements at any time with 180 days’ notice, if approved by the Board of Enable GP. The Partnership reimburses CenterPoint Energy and OGE Energy for these services up to annual caps, which for 2017 are $3 million and $4 million, respectively.

On November 1, 2016, the Partnership entered into a new lease with an affiliate of CenterPoint Energy pursuant to which the Partnership leases office space in Shreveport, Louisiana. The term of the lease was effective on October 1, 2016 and extends through December 31, 2019. The Partnership expects to incur approximately $3 million in rent and maintenance expenses through the end of the initial term of the lease. Prior to October 1, 2016, CenterPoint Energy provided the office space in Shreveport, Louisiana, under the services agreement. As of March 31, 2017, CenterPoint Energy continues to provide office and data center space to the Partnership in Houston, Texas, under the services agreement.

Amounts charged to the Partnership by affiliates for seconded employees and corporate services, included primarily in Operation and maintenance and General and administrative expenses in the Partnership’s Condensed Consolidated Statements of Income are as follows:
 
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Corporate Services — CenterPoint Energy
$
1

 
$
2

Seconded Employee Costs — OGE Energy
7

 
9

Corporate Services — OGE Energy
1

 
2

Total corporate services and seconded employees expense
$
9

 
$
13


Series A Preferred Units

On February 18, 2016, the Partnership completed the private placement, with CenterPoint Energy, of 14,520,000 Series A Preferred Units representing limited partner interests in the Partnership for a cash purchase price of $25.00 per Series A Preferred Unit, resulting in proceeds of $362 million, net of issuance costs. See Note 4 for further discussion of the Series A Preferred Units.

Notes payable

On February 18, 2016, in connection with the private placement of the Series A Preferred Units, the Partnership redeemed $363 million of notes payable—affiliated companies payable to a subsidiary of CenterPoint Energy.

The Partnership recorded affiliated interest expense to CenterPoint Energy on notes payable—affiliated companies of zero and $1 million during the three months ended March 31, 2017 and 2016, respectively.


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Table of Contents


(12) Commitments and Contingencies
 
The Partnership is involved in legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. Some of these proceedings involve substantial amounts. The Partnership regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. The Partnership does not expect the disposition of these matters to have a material adverse effect on its financial condition, results of operations or cash flows.


(13) Equity Based Compensation

The following table summarizes the Partnership’s compensation expense for the three months ended March 31, 2017 and 2016 related to performance units, restricted units, and phantom units for the Partnership’s employees and independent directors:

 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In millions)
Performance units
$
3

 
$
1

Restricted units

 
1

Phantom units
1

 

Total compensation expense
$
4

 
$
2


Units Outstanding

The Partnership periodically grants performance units, restricted units, and phantom units to certain employees under the Enable Midstream Partners, LP Long Term Incentive Plan. A summary of the activity for the Partnership’s performance units, restricted units, and phantom units applicable to the Partnership’s employees at March 31, 2017 and changes during 2017 are shown in the following table.

 
Performance Units
 
Restricted Units
 
Phantom Units
  
Number
of Units (1)
 
Weighted Average Grant-Date Fair Value, Per Unit
 
Number
of Units
 
Weighted Average Grant-Date Fair Value, Per Unit
 
Number
of Units
 
Weighted Average Grant-Date Fair Value, Per Unit
 
(In millions, except unit data)
Units Outstanding at December 31, 2016
1,969,107

 
$
15.27

 
392,995

 
$
20.74

 
643,604

 
$
8.49

Granted
468,626

 
19.27

 

 

 
376,385

 
16.26

Vested

 

 

 

 

 

Forfeited
(18,217
)
 
15.20

 
(3,194
)
 
21.54

 
(3,580
)
 
8.12

Units Outstanding at March 31, 2017
2,419,516

 
$
16.05

 
389,801

 
$
20.74

 
1,016,409

 
$
11.37

Aggregate Intrinsic Value of Units Outstanding at March 31, 2017

$
40

 
 
 
$
7

 
 
 
$
17

 
 
_____________________
(1)
Performance units outstanding as of March 31, 2017 include 336,322 units from the annual grant, which were approved by the Board of Directors in 2014. The results of the performance units were certified by the Compensation Committee in February 2017, at a 91.5% payout based on the level of achievement of a performance goal established by the Board of Directors over a performance period of April 11, 2014 through December 31, 2016. Additional information related to the performance goal is described in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014. The reduction in outstanding units for a payout percentage of an amount other than 100% is not reflected above until the vesting date.


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Table of Contents

Unrecognized Compensation Cost

A summary of the Partnership’s unrecognized compensation cost for its non-vested performance units, restricted units, and phantom units, and the weighted-average periods over which the compensation cost is expected to be recognized are shown in the following table.
 
March 31, 2017
 
Unrecognized Compensation Cost
(In millions)
 
Weighted Average to be Recognized
(In years)
Performance Units
$
21

 
1.78
Restricted Units
2

 
0.79
Phantom Units
9

 
2.30
Total
$
32

 
 

As of March 31, 2017, there were 8,487,330 units available for issuance under the long term incentive plan.


(14) Reportable Segments
 
The Partnership’s determination of reportable segments considers the strategic operating units under which it manages sales, allocates resources and assesses performance of various products and services to customers in differing regulatory environments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies excerpt in the Partnership’s audited 2016 consolidated financial statements included in the Annual Report. The Partnership uses operating income as the measure of profit or loss for its reportable segments.
 
The Partnership’s assets and operations are organized into two reportable segments: (i) gathering and processing, which primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers, and (ii) transportation and storage, which provides interstate and intrastate natural gas pipeline transportation and storage service primarily to our producer, power plant, LDC and industrial end-user customers.

26

Table of Contents

 
Financial data for reportable segments are as follows:
 
Three Months Ended March 31, 2017
Gathering  and
Processing
 
Transportation
and Storage(1)
 
Eliminations
 
Total
 
(In millions)
Product sales
$
351

 
$
153

 
$
(118
)
 
$
386

Service revenue
140

 
141

 
(1
)
 
280

Total Revenues
491

 
294

 
(119
)
 
666

Cost of natural gas and natural gas liquids
286

 
140

 
(118
)
 
308

Operation and maintenance, General and administrative
70

 
45

 
(1
)
 
114

Depreciation and amortization
56

 
32

 

 
88

Taxes other than income tax
9

 
7

 

 
16

Operating income
$
70

 
$
70

 
$

 
$
140

Total assets
$
7,460

 
$
4,966

 
$
(1,265
)
 
$
11,161

Capital expenditures
$
51

 
$
10

 
$

 
$
61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016
Gathering and
Processing
 

Transportation
and Storage(1)
 
Eliminations
 
Total
 
(In millions)
Product sales
$
208

 
$
106

 
$
(69
)
 
$
245

Service revenue
125

 
140

 
(1
)
 
264

Total Revenues
333

 
246

 
(70
)
 
509

Cost of natural gas and natural gas liquids
165

 
99

 
(69
)
 
195

Operation and maintenance, General and administrative
75

 
41

 
(1
)
 
115

Depreciation and amortization
49

 
32

 

 
81

Taxes other than income tax
8

 
7

 

 
15

Operating income
$
36

 
$
67

 
$

 
$
103

Total assets as of December 31, 2016
$
7,453

 
$
4,963

 
$
(1,204
)
 
$
11,212

Capital expenditures
$
121

 
$
9

 
$

 
$
130

_____________________
(1)
See Note 6 for discussion regarding ownership interests in SESH and related equity earnings included in the transportation and storage segment for the three months ended March 31, 2017 and 2016.



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included herein and our audited consolidated financial statements for the year ended December 31, 2016, included in our Annual Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Please read “Forward-Looking Statements.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.


27

Table of Contents

Overview

Enable Midstream Partners, LP is a Delaware limited partnership formed in May 2013 by CenterPoint Energy, OGE Energy and ArcLight to own, operate and develop midstream energy infrastructure assets strategically located to serve our customers. We completed our IPO in April 2014, and we are traded on the NYSE under the symbol “ENBL.” Our general partner is owned by CenterPoint Energy and OGE Energy. In this report, the terms “Partnership” and “Registrant” as well as the terms “our,” “we,” “us” and “its,” are sometimes used as abbreviated references to Enable Midstream Partners, LP together with its consolidated subsidiaries.

Our assets and operations are organized into two reportable segments: (i) gathering and processing and (ii) transportation and storage. Our gathering and processing segment primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers. Our transportation and storage segment provides interstate and intrastate natural gas pipeline transportation and storage services primarily to our producer, power plant, LDC and industrial end-user customers.
 
Our natural gas gathering and processing assets are primarily located in Oklahoma, Texas, Arkansas and Louisiana and serve natural gas production in the Anadarko, Arkoma and Ark-La-Tex Basins. Our crude oil gathering assets are located in North Dakota and serve crude oil production in the Bakken Shale formation of the Williston Basin. Our natural gas transportation and storage assets consist primarily of an interstate pipeline system extending from western Oklahoma and the Texas Panhandle to Louisiana, an interstate pipeline system extending from Louisiana to Illinois, an intrastate pipeline system in Oklahoma and our investment in SESH, a pipeline extending from Louisiana to Alabama.

We expect our business to continue to be affected by the key trends included in our Annual Report. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

Our primary business objective is to increase the cash available for distribution to our unitholders over time while maintaining our financial flexibility. Our business strategies for achieving this objective include capitalizing on organic growth opportunities associated with our strategically located assets and growing through accretive acquisitions and disciplined development. As part of these efforts, we continuously engage in discussions with new and existing customers regarding the development of potential projects to develop new midstream assets to support their needs as well as discussions with potential counterparties regarding opportunities to purchase or invest in complementary assets in new operating areas or midstream business lines. These growth, acquisition and development efforts often involve assets which, if acquired or constructed, could have a material effect on our financial condition and results of operations.

Typically, we do not announce a transaction until after we have executed a definitive agreement. However, in certain cases in order to protect our business interests or for other reasons, we may defer public announcement of a transaction until closing or a later date. Past experience has demonstrated that the pace of discussions and negotiations regarding potential transactions is unpredictable and can advance or terminate in a short period of time.


Recent Developments
 
Issuance of Senior Notes

On March 9, 2017, the Partnership completed the public offering of $700 million 4.400% Senior Notes due 2027 (2027 Notes). The Partnership received net proceeds of approximately $691 million. The proceeds were used for general partnership purposes, including to repay amounts outstanding under the Revolving Credit Facility.

Commercial and Construction Update

Project Wildcat rich gas takeaway solution

The Partnership has entered into an agreement to deliver approximately 400 MMcf/d of rich natural gas from the Anadarko Basin to north Texas, providing a new market outlet for growing Anadarko Basin production. Project Wildcat is expected to provide access to the Texas intrastate natural gas markets, including the Tolar Hub, by contracting with an affiliate of Energy Transfer Partners, LP for 400 MMcf/d of firm processing capacity at the Godley Plant in Johnson County, Texas. The project is expected to be in service by the end of the second quarter of 2018. Even with the 400 MMcf/d of processing capacity provided by this project, the Partnership anticipates that there will be a need to resume construction of the previously announced Wildhorse Plant, though likely not before 2018.

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Table of Contents


EGT Expansion Project

In March 2017, EGT conducted a non-binding open season to solicit commitments for the Cana and STACK Expansion (CaSE) project, a system expansion providing firm transportation service for growing Anadarko Basin production. The project’s foundation shipper, Newfield Exploration Company, has entered into a 205,000 Dth/d firm natural gas transportation agreement with EGT. The 10-year contract is expected to start at an initial capacity of 45,000 Dth/d in early 2018 and grow to the full contracted capacity by the fourth quarter of 2018.

CenterPoint Strategic Review

In July 2016, CenterPoint Energy and its wholly owned subsidiary, CenterPoint Energy Resources Corp. (CERC), provided a notice under Enable’s Fourth Amended and Restated Agreement of Limited Partnership and Enable GP’s Third Amended and Restated Limited Liability Company Agreement (the First Notice) to OGE Energy of CenterPoint Energy’s intention to solicit offers from unrelated third parties to acquire all or a portion of the common units and subordinated units of Enable owned by CERC and all of the membership interests of Enable GP owned by CERC. In January 2017, CenterPoint Energy and CERC provided a second notice (the Second Notice) to OGE Energy of CenterPoint Energy’s solicitation of offers from unrelated third parties to acquire all or any portion of the common units and subordinated units of Enable owned by CERC and all of the membership interests of the general partner of Enable owned by CERC.

In August 2016, in response to the First Notice, and again in February 2017, in response to the Second Notice, respectively, OGE Energy submitted to CenterPoint Energy proposals (the Proposals) to acquire, in conjunction with a third party, all of CERC’s membership interests in Enable GP and all of the common units and subordinated units of Enable owned by CERC. In February 2017, CenterPoint Energy stated that it continues to evaluate strategic alternatives for its investment in us, including evaluating OGE Energy’s Proposals, evaluating a spin-off, continuing discussions with third parties regarding other sales or dispositions of CenterPoint Energy’s interests and, if none of these options achieve its strategic objectives, maintaining its investment in us.


Results of Operations
 
The following tables summarize the key components of our results of operations for the three months ended March 31, 2017 and 2016.

Three Months Ended March 31, 2017
Gathering and
Processing
 
Transportation
and Storage
 
Eliminations
 
Enable
Midstream
Partners, LP
 
(In millions)
Product sales
$
351

 
$
153

 
$
(118
)
 
$
386

Service revenue
140

 
141

 
(1
)
 
280

Total Revenues
491

 
294

 
(119
)
 
666

Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
286

 
140

 
(118
)
 
308

Gross margin (1)
205

 
154

 
(1
)
 
358

Operation and maintenance, General and administrative
70

 
45

 
(1
)
 
114

Depreciation and amortization
56

 
32

 

 
88

Taxes other than income tax
9

 
7

 

 
16

Operating income
$
70

 
$
70

 
$

 
$
140

Equity in earnings of equity method affiliate
$

 
$
7

 
$

 
$
7


29

Table of Contents

Three Months Ended March 31, 2016
Gathering and
Processing
 
Transportation
and Storage
 
Eliminations
 
Enable
Midstream
Partners, LP
 
(In millions)
Product sales
$
208

 
$
106

 
$
(69
)
 
$
245

Service revenue
125

 
140

 
(1
)
 
264

Total Revenues
333

 
246

 
(70
)
 
509

Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
165

 
99

 
(69
)
 
195

Gross margin (1)
168

 
147

 
(1
)
 
314

Operation and maintenance, General and administrative
75

 
41

 
(1
)
 
115

Depreciation and amortization
49
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