XML 24 R13.htm IDEA: XBRL DOCUMENT v3.20.1
Investment in Unconsolidated Affiliates
 3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
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 March 31, 2020 as presented in Note 12. 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. When indicators exist, the fair value is estimated and compared to the investment carrying value, and if any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value.

The Company determined, in connection with the preparation of the financial statements for the three months ended March 31, 2020, that an other than temporary decline in the value of the Company's investment in Enable had occurred. Further information detailing the results of the impairment analysis and fair value measurement can be found in Notes 4 and 5.

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
At March 31, 2020, the Company owned 111.0 million common units, or 25.5 percent, of Enable's outstanding common units. On March 31, 2020, Enable's common unit price closed at $2.57. The Company recorded equity in losses of unconsolidated affiliates of $746.5 million for the three months ended March 31, 2020 compared to equity in earnings of unconsolidated affiliates of $30.7 million for the three months ended March 31, 2019. Equity in earnings (losses) 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, as well as any impairment the Company records on its investment in 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 (losses) of unconsolidated affiliates is also adjusted for the elimination of the Enogex Holdings fair value adjustments. These amortizations may also include gain or loss on dilution, net of proportional basis difference recognition. For more information concerning the formation of Enable and the Company's accounting for its investment in Enable, see Note 5 within "Item 8. Financial Statements and Supplementary Data" in the Company's 2019 Form 10-K.

The Company evaluates its equity method investment for impairment when factors indicate that a decline in the value of its investment has occurred and the carrying amount of its investment may not be recoverable. An impairment loss, based on the excess of the carrying value over estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. Considerable judgment is used in determining if an impairment loss is other than temporary and the amount of any impairment. At March 31, 2020, the Company estimated the fair value of its investment in Enable was below the book value and concluded the decline in value was not temporary due to the severity of the decline and the recent rapid deterioration, as well as the near term future outlook, of the midstream oil and gas industry. Accordingly, the Company recorded a $780.0 million impairment on its investment in Enable for the three months ended March 31, 2020, which is included in Equity in Earnings of Unconsolidated Affiliates in the Company's 2020 Condensed Consolidated Income Statement. The impairment resulted in an additional layer of basis difference for the Company's investment in Enable that will be amortized over the average life of the assets to which the basis difference is attributed, which is 29 years. Further information concerning the fair value method used to measure the impairment on the Company's investment in Enable can be found in Note 5.
Summarized unaudited financial information for 100 percent of Enable is presented below at March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019.
March 31,December 31,
Balance Sheet20202019
(In millions)
Current assets$333  $389  
Non-current assets$11,784  $11,877  
Current liabilities$391  $780  
Non-current liabilities$4,374  $4,077  

Three Months Ended
March 31,
Income Statement20202019
(In millions)
Total revenues$648  $795  
Cost of natural gas and NGLs$226  $378  
Operating income$146  $165  
Net income$103  $113  

The following table reconciles the Company's equity in earnings (losses) of unconsolidated affiliates for the three months ended March 31, 2020 and 2019.
Three Months Ended
March 31,
(In millions) 20202019
Enable net income$103.0  $113.3  
OGE Energy's percent ownership at period end25.5 %25.5 %
OGE Energy's portion of Enable net income$26.3  $28.9  
Amortization of basis difference and dilution recognition (A)7.2  1.8  
Impairment of OGE Energy's equity method investment in Enable(780.0) —  
Equity in earnings (losses) of unconsolidated affiliates$(746.5) $30.7  
(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, 2019 to March 31, 2020.
(In millions)
Basis difference at December 31, 2019$652.5  
Amortization of basis difference (A)(8.2) 
Impairment of OGE Energy's equity method investment in Enable780.0  
Basis difference at March 31, 2020$1,424.3  
(A) Includes proportional basis difference recognition due to dilution.

On April 1, 2020, Enable announced a 50 percent reduction to its quarterly distribution in order to strengthen its balance sheet and increase its annualized retained cash flow. See "Item 2. Management's Discussion and Analysis - Recent Developments" for further discussion of the Company's response.

On May 5, 2020, Enable announced a quarterly dividend distribution of $0.16525 per unit on its outstanding common units, which is a decrease from the previous quarter's dividend distribution of $0.33050 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 $36.7 million and $35.3 million during the three months ended March 31, 2020 and 2019, 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 during both the three months ended March 31, 2020 and 2019.

Pursuant to a seconding agreement, the Company provides seconded employees to Enable to support Enable's operations. As of March 31, 2020, 80 employees that participate in the Company's defined benefit and retirement plans are seconded to Enable. The Company billed Enable for reimbursement of $6.4 million and $12.4 million during the three months ended March 31, 2020 and 2019, 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 $17.0 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 $3.8 million as of March 31, 2020 and $0.8 million as of December 31, 2019, which are included in Accounts Receivable in the Company's Condensed Consolidated Balance Sheets.

OG&E and Enable

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 months ended March 31, 2020 and 2019.
Three Months Ended
March 31,
(In millions)20202019
Operating revenues:
Electricity to power electric compression assets$3.7  $3.8  
Cost of sales:
Natural gas transportation services$4.7  $14.8  
Natural gas purchases (sales)$0.7  $(1.0)