Investment in Equity Method Affiliate

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

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 Enbridge, Inc. 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, Enbridge, Inc. may, under certain circumstances, have the right to purchase the Partnership’s interest in SESH at fair market value, subject to certain exceptions.

At September 30, 2020, the Partnership estimated the fair value of its investment in SESH was below the carrying value and concluded the decline in value was other than temporary due to the expiration of a transportation contract and the current status of renewal negotiations. As a result, the Partnership recorded a $225 million impairment on its investment in SESH for the three and nine months ended September 30, 2020, which is included in Equity in earnings (losses) of equity method

affiliate, net in the Partnership’s Condensed Consolidated Statements of Income. The impairment analysis of the Partnership’s investment in SESH compared the estimated fair value of the investment to its carrying value. The fair value of the investment was determined using multiple valuation methodologies under both the market and income approaches. Due to the significant unobservable estimates and assumptions required, the Partnership concluded that the fair value estimate should be classified as a Level 3 measurement within the fair value hierarchy. The basis difference for our investment in SESH has been assigned to its property, plant and equipment and will be amortized over its approximately 50-year remaining useful life. See Note 1 for further information concerning the method used to evaluate and measure the impairment on the Partnership’s investment in SESH.

The Partnership shares operations of SESH with Enbridge, Inc. 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. The Partnership billed SESH $3 million and $2 million during the three months ended September 30, 2020 and 2019, respectively, and $11 million and $12 million during the nine months ended September 30, 2020 and 2019, respectively, associated with these service agreements.

The Partnership includes equity in earnings of equity method affiliate, net under the Other Income (Expense) caption in the Condensed Consolidated Statements of Income. The following table presents the amount of Equity in earnings of equity method affiliate recognized, Impairment of equity method affiliate investment and Distributions from equity method affiliate received.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(In millions)
Equity in earnings of equity method affiliate	$	3	$	5	$	14	$	12
Impairment of equity method affiliate investment	(225)		—		(225)		—
Equity in earnings (losses) of equity method affiliate, net	$	(222)	$	5	$	(211)	$	12
Distributions from equity method affiliate (1)	$	4	$	4	$	23	$	20

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(1)Distributions from equity method affiliate includes a $14 million and $12 million return on investment and a $9 million and $8 million return of investment for the nine months ended September 30, 2020 and 2019, respectively.

The following table includes the summarized financial information of SESH.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(In millions)
Income Statements:
Revenues	$	24	$	27	$	79	$	81
Operating income	11		15		40		37
Net income	6		10		27		24