Investment in Unconsolidated Affiliates

6 Months Ended

Jun. 30, 2019

Equity Method Investments and Joint Ventures Disclosure [Text Block]

Investment in Unconsolidated Affiliates

The Company's investment in Enable is considered to be a variable interest entity because the owners of the equity at risk in this entity have disproportionate voting rights in relation to their obligations to absorb the entity's expected losses or to receive its expected residual returns. However, the Company is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable; therefore, the Company accounts for its investment in Enable using the equity method of accounting. Under the equity method, the investment will be adjusted each period for contributions made, distributions received and the Company's share of the investee's comprehensive income as adjusted for basis differences. The Company's maximum exposure to loss related to Enable is limited to the Company's equity investment in Enable at June 30, 2019 as presented in Note 13. The Company evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline.

The Company considers distributions received from Enable, which do not exceed cumulative equity in earnings subsequent to the date of investment, to be a return on investment and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows. The Company considers distributions received from Enable in excess of cumulative equity in earnings subsequent to the date of investment to be a return of investment and are classified as investing activities in the Condensed Consolidated Statements of Cash Flows.

Investment in Unconsolidated Affiliates and Related Party Transactions

In 2013, the Company, CenterPoint and the ArcLight group formed Enable as a private limited partnership, and the Company and the ArcLight group indirectly contributed 100 percent of the equity interests in Enogex LLC to Enable. The Company determined that its contribution of Enogex LLC to Enable met the requirements of being in substance real estate and recorded the contribution at historical cost. The formation of Enable was considered a business combination, and CenterPoint was the acquirer of Enogex Holdings for accounting purposes. Under this method, the fair value of the consideration paid by CenterPoint for Enogex Holdings was allocated to the assets acquired and liabilities assumed based on their fair value. Enogex Holdings' assets, liabilities and equity were accordingly adjusted to estimated fair value, resulting in an increase to Enable's equity of $2.2 billion. Since the contribution of Enogex LLC to Enable was recorded at historical cost, the effects of the amortization and depreciation expense associated with the fair value adjustments on Enable's results of operations have been eliminated in the Company's recording of its equity in earnings of Enable. As prior real estate sales accounting guidance was superseded by ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets," the Company recognizes

gains or losses on sales or dilution events in the Company's investment in Enable within the Company's earnings, net of proportional basis difference recognition.

At June 30, 2019, the Company owned 111.0 million common units, or 25.5 percent, of Enable's outstanding common units. On June 28, 2019, Enable's common unit price closed at $13.71. The Company recorded equity in earnings of unconsolidated affiliates of $35.8 million and $29.3 million for the three months ended June 30, 2019 and 2018, respectively, and $66.5 million and $63.2 million for the six months ended June 30, 2019 and 2018, respectively. Equity in earnings of unconsolidated affiliates includes the Company's share of Enable's earnings adjusted for the amortization of the basis difference of the Company's original investment in Enogex LLC and its underlying equity in the net assets of Enable. The basis difference is being amortized, beginning in 2013, over the average life of the assets to which the basis difference is attributed, which is approximately 30 years. Equity in earnings of unconsolidated affiliates is also adjusted for the elimination of the Enogex Holdings fair value adjustments, as described above. These amortizations may also include gain or loss on dilution, net of proportional basis difference recognition.

Summarized unaudited financial information for 100 percent of Enable is presented below at June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018.



	June 30,		December 31,
Balance Sheet	2019		2018
(In millions)
Current assets	$	376	$	449
Non-current assets	$	12,033	$	11,995
Current liabilities	$	1,270	$	1,615
Non-current liabilities	$	3,580	$	3,211



	Three Months Ended				Six Months Ended
	June 30,				June 30,
Income Statement	2019		2018		2019		2018
(In millions)
Total revenues	$	735	$	805	$	1,530	$	1,553
Cost of natural gas and NGLs	$	317	$	444	$	695	$	819
Operating income	$	167	$	126	$	332	$	265
Net income	$	115	$	86	$	228	$	191

The following table reconciles the Company's equity in earnings of unconsolidated affiliates for the three and six months ended June 30, 2019 and 2018.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2019			2018			2019			2018
Enable net income	$	114.8		$	86.4		$	228.0		$	191.0
Differences due to timing of OGE Energy and Enable accounting close	—			—			0.1			—
Enable net income used to calculate OGE Energy's equity in earnings	$	114.8		$	86.4		$	228.1		$	191.0
OGE Energy's percent ownership at period end	25.5		%	25.6		%	25.5		%	25.6		%
OGE Energy's portion of Enable net income	$	29.3		$	22.2		$	58.2		$	49.0
Amortization of basis difference and dilution recognition (A)	6.5			7.1			8.3			14.2
Equity in earnings of unconsolidated affiliates	$	35.8		$	29.3		$	66.5		$	63.2

(A) Includes loss on dilution, net of proportional basis difference recognition.

The following table reconciles the difference between OGE Energy's investment in Enable and its underlying equity in the net assets of Enable (basis difference) from December 31, 2018 to June 30, 2019.



(In millions)
Basis difference at December 31, 2018	$	680.3
Amortization of basis difference (A)	(13.5		)
Basis difference at June 30, 2019	$	666.8

(A) Includes proportional basis difference recognition due to dilution.

On August 2, 2019, Enable announced a quarterly dividend distribution of $0.33050 per unit on its outstanding common units, which is an increase from the previous quarter's dividend distribution of $0.31800 per unit. If cash distributions to Enable's unitholders exceed $0.330625 per unit in any quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash Enable distributes in excess of that amount. The Company is entitled to 60 percent of those "incentive distributions." In certain circumstances, the general partner has the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable's cash distributions at the time of the exercise of this reset election.

Distributions received from Enable were $35.3 million and $70.6 million during both the three months ended and both the six months ended June 30, 2019 and 2018, respectively.

Related Party Transactions

The Company charges operating costs to OG&E and Enable based on several factors, and operating costs directly related to OG&E and/or Enable are assigned as such. Operating costs incurred for the benefit of OG&E are allocated either as overhead based primarily on labor costs or using the "Distrigas" method, which is a three-factor formula that uses an equal weighting of payroll, net operating revenues and gross property, plant and equipment.

The Company and Enable

The Company and Enable are currently parties to several agreements whereby the Company provides specified support services to Enable, such as certain information technology, payroll and benefits administration. Under these agreements, the Company charged operating costs to Enable of $0.1 million and $0.2 million during the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.3 million during the six months ended June 30, 2019 and 2018, respectively.

Pursuant to a seconding agreement, the Company provides seconded employees to Enable to support Enable's operations. As of June 30, 2019, 85 employees that participate in the Company's defined benefit and retirement plans are seconded to Enable. The Company billed Enable for reimbursement of $4.0 million and $5.2 million during the three months ended June 30, 2019 and 2018, respectively, and $16.4 million and $16.8 million during the six months ended June 30, 2019 and 2018, respectively, under the seconding agreement for employment costs. If the seconding agreement was terminated, and those employees were no longer employed by the Company, and lump sum payments were made to those employees, the Company would recognize a settlement or curtailment of the pension/retiree health care charges, which would increase expense at the Company by $12.0 million. Settlement and curtailment charges associated with the Enable seconded employees are not reimbursable to the Company by Enable. The seconding agreement can be terminated by mutual agreement of the Company and Enable or solely by the Company upon 120 days' notice.

The Company had accounts receivable from Enable for amounts billed for support services, including the cost of seconded employees, of $1.2 million as of June 30, 2019 and $1.7 million as of December 31, 2018, which are included in Accounts Receivable in the Company's Condensed Consolidated Balance Sheets.

OG&E and Enable

As discussed in the Company's 2018 Form 10-K, Enable provides gas transportation services to OG&E pursuant to an agreement that grants Enable the responsibility of delivering natural gas to OG&E's generating facilities and performing an imbalance service. With this imbalance service, in accordance with the cash-out provision of the contract, OG&E purchases gas from Enable when Enable's deliveries exceed OG&E's pipeline receipts. Enable purchases gas from OG&E when OG&E's pipeline receipts exceed Enable's deliveries. The following table summarizes related party transactions between OG&E and Enable during the three and six months ended June 30, 2019 and 2018.



	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2019			2018		2019			2018
Operating revenues:
Electricity to power electric compression assets	$	3.8		$	3.6	$	7.6		$	7.6
Cost of sales:
Natural gas transportation services	$	9.3		$	8.8	$	24.1		$	17.5
Natural gas (sales) purchases	$	(3.3	)	$	2.2	$	(4.3	)	$	2.5