RECENT INVESTMENT ACTIVITY

3 Months Ended

Sep. 30, 2015

Notes to Consolidated Financial Statements [Abstract]

NOTE 3. ACQUISITION AND DIVESTITURE ACTIVITY

PENDING ACQUISITION

Sempra Mexico

IEnova and Petróleos Mexicanos (or PEMEX, the Mexican state-owned oil company), are 50-50 partners in the joint venture Gasoductos de Chihuahua (GdC). On July 31, 2015, IEnova entered into an agreement to purchase PEMEX’s 50-percent interest for $1.325 billion (excluding the assumption of approximately $170 million of net debt), increasing its interest from 50 percent to 100 percent. GdC develops and operates energy infrastructure in Mexico. The assets involved in the acquisition include three natural gas pipelines, an ethane pipeline, and a liquid petroleum gas pipeline and associated storage terminal. The transaction excludes the Los Ramones Norte pipeline that IEnova will continue to develop under a separate joint venture with PEMEX, through which IEnova’s interest in the project will remain at the current 25 percent. IEnova shareholders approved the transaction in September 2015. The transaction is subject to satisfactory completion of the Mexican anti-trust review and other customary closing conditions and is expected to close by the end of 2015.

After financing at the IEnova level, we expect the acquisition to be accretive to Sempra Energy’s diluted earnings per share, based on the joint venture’s strong historical performance. We expect the transaction to have additional benefits, including an ongoing relationship with PEMEX for joint development of new projects in the future; opportunities for asset optimization and expansion into areas such as the transportation and storage of refined products; and a larger platform and presence in Mexico to participate in energy sector reform.

IEnova currently accounts for its 50-percent interest in GdC as an equity method investment. At closing, GdC will become a wholly owned, consolidated subsidiary of IEnova. We anticipate that we will recognize a noncash gain associated with the remeasurement of our equity interest in GdC upon consummation of the transaction, however, as the transaction has not yet closed, we are unable to reasonably estimate the gain at this time.

We expect the acquisition to be funded with a combination of debt and equity at IEnova. Sempra Global has committed to IEnova to provide approximately $1.325 billion of interim financing for the transaction. If IEnova elects to borrow this money, it expects to repay all or a substantial portion of the loan with proceeds from a planned equity offering. IEnova is also arranging to receive bank commitments of up to $1.0 billion to have an alternate source of capital to repay a portion of the interim financing from Sempra Global. Sempra Energy intends to participate in the planned equity offering with proceeds of dividends from IEnova that otherwise would be repatriated to the U.S.

MESQUITE POWER SALE

Sempra Natural Gas

In April 2015, Sempra Natural Gas sold the remaining 625-megawatt (MW) block of the Mesquite Power plant, together with a related power sales contract, for net cash proceeds of $347 million. We recognized a pretax gain on the sale of $61 million ($36 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015. The asset was classified as held for sale at December 31, 2014.

SALE OF EQUITY INTERESTS AND JOINT VENTURE INVESTMENT

During the nine months ended September 30, 2014, Sempra Energy completed the sale of equity interests in various subsidiaries that were previously wholly owned. The following table summarizes the deconsolidation of those subsidiaries, and we discuss each transaction below:

DECONSOLIDATION OF SUBSIDIARIES
(Dollars in millions)
	Energía Sierra Juárez		Copper Mountain Solar 3		Sempra Energy Consolidated
	At July 16, 2014		At March 13, 2014
Proceeds from sale, net of negligible transaction costs	$	26	$	68	$	94
Cash		(2)		(2)		(4)
Other current assets		(11)		―		(11)
Property, plant and equipment, net		(137)		(247)		(384)
Other assets		(16)		(11)		(27)
Accounts payable and accrued expenses		10		82		92
Due to affiliate		39		―		39
Long-term debt, including current portion		82		97		179
Other liabilities		7		3		10
Accumulated other comprehensive income		(5)		(2)		(7)
Gain on sale of equity interests		(19)		(27)		(46)
(Increase) in equity method investments upon deconsolidation	$	(26)	$	(39)	$	(65)

Sempra Mexico

In July 2014, Sempra Mexico completed the sale of a 50-percent interest in the 155-MW first phase of its Energía Sierra Juárez wind project to a wholly owned subsidiary of InterGen N.V. for cash proceeds of $24 million, net of $2 million cash sold. Sempra Mexico recognized a pretax gain on the sale of $19 million ($14 million after-tax) included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2014. The gain on sale included a $7 million after-tax gain attributable to the remeasurement of the retained investment to fair value. Our remaining 50-percent interest in Energía Sierra Juárez is accounted for under the equity method.

Sempra Renewables

In March 2014, Sempra Renewables formed a joint venture with Consolidated Edison Development (Con Edison Development), a non-related party, by selling a 50-percent interest in its 250-MW Copper Mountain Solar 3 solar power facility for $66 million in cash, net of $2 million cash sold. Sempra Renewables recognized a pretax gain on the sale of $27 million ($16 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014. Our remaining 50-percent interest in Copper Mountain Solar 3 is accounted for under the equity method. Based on the nature of the underlying assets, this investment is considered in-substance real estate. Therefore, in accordance with applicable U.S. GAAP, the Copper Mountain Solar 3 equity method investment was measured at historical cost and no portion of the gain was attributable to a remeasurement of the retained investment to fair value.

In May 2014, Sempra Renewables invested $109 million (and an additional $12 million in November 2014, as adjusted for financial position at closing) to become a 50-percent partner with Con Edison Development in four fully operating solar facilities in California. We discuss our investment in the California solar partnership further in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

In March 2015, Sempra Renewables acquired a 100-percent interest in the Black Oak Getty Wind project, a 78-MW wind farm under development in Stearns County, Minnesota. The wind farm has a 20-year power purchase agreement with Minnesota Municipal Power Agency. The total acquisition cost for the project is $8 million.