RECENT INVESTMENT ACTIVITY

3 Months Ended

Mar. 31, 2016

NOTE 3. ACQUISITION AND DIVESTITURE ACTIVITY

We consolidate assets and liabilities acquired as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date.

Acquisition

Sempra Renewables

In March 2015, Sempra Renewables invested $8 million to acquire a 100-percent interest in the Black Oak Getty Wind project, a 78-megawatt (MW) wind farm under development in Stearns County, Minnesota. The wind farm has a 20-year power purchase agreement with Minnesota Municipal Power Agency that will commence upon commercial operation in late 2016.

POTENTIAL 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). GdC develops and operates energy infrastructure in Mexico. 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), which upon closing would increase its interest from 50 percent to 100 percent. The assets involved in the acquisition included three natural gas pipelines, an ethane pipeline, and a liquid petroleum gas pipeline and associated storage terminal. The transaction excluded the Los Ramones Norte pipeline that is owned under a separate joint venture with GdC, PEMEX, BlackRock and First Reserve, keeping IEnova’s interest in the pipeline at the current 25 percent.

In December 2015, Mexico’s Comisión Federal de Competencia Económica (COFECE or Mexican Competition Commission) objected to the transaction based upon previous antitrust rulings on PEMEX’s indirect ownership of two of the assets, the TDF S. de R.L. de C.V. liquid petroleum gas pipeline and the San Fernando natural gas pipeline, included in the acquisition as proposed. COFECE specified that these assets must be offered by PEMEX in a competitive bidding process as a prerequisite for approval of any transaction involving these two assets. COFECE’s decision did not object to IEnova’s acquisition of the assets on a market concentration basis. The parties are in the process of restructuring the transaction so that PEMEX can proceed with a bidding process on these two assets in accordance with the COFECE ruling. IEnova will have the right to approve the winning bidder as a new partner. Any restructured transaction will require negotiation of satisfactory terms for the revised transaction, and will also be subject to IEnova and PEMEX board approvals and satisfactory completion of the Mexican antitrust review, and may require further approvals from Mexican authorities.

ASSETS HELD FOR SALE, POWER PLANT

Sempra Mexico

ASSETS HELD FOR SALE, POWER PLANT
(Dollars in millions)
		March 31, 2016
Cash and cash equivalents		$	1
Inventories			8
Other current assets			29
Other assets			15
Property, plant and equipment, net			250
Total assets held for sale		$	303

Accounts payable		$	1
Other current liabilities			7
Deferred income taxes			16
Asset retirement obligations			4
Other liabilities			15
Total liabilities held for sale(1)		$	43
(1)	Included in Other Current Liabilities on the Sempra Energy Condensed Consolidated Balance Sheet.

We considered the estimated fair value of the plant, less costs to sell, and determined that no adjustment to carrying value was required. In estimating fair value, we used both a market approach and discounted cash flow valuation techniques. In the event that the estimated sales price, less transaction costs, is less than the carrying value, or updated market information indicates fair value may be less than carrying value, we would recognize a loss in our results of operations at that time. We expect to complete the sale in the second half of 2016.

PENDING DIVESTITURE

Sempra Natural Gas

On March 29, 2016, Sempra Natural Gas entered into an agreement to sell its 25-percent interest in Rockies Express Pipeline LLC (Rockies Express) to a subsidiary of Tallgrass Development, LP for cash consideration of approximately $440 million, subject to adjustment at closing. The transaction is subject to customary closing conditions. Sempra Natural Gas expects the transaction to close in the second quarter of 2016.

At the date of the agreement, the carrying value of Sempra Natural Gas’ investment in Rockies Express was $484 million. Sempra Natural Gas measured the fair value of its equity method investment at $440 million, and recognized a $44 million ($27 million after-tax) impairment in Equity (Losses) Earnings, Before Income Tax, on the Sempra Energy Condensed Consolidated Statement of Operations for the three months ended March 31, 2016. We discuss non-recurring fair value measures and the associated accounting impact on our investment in Rockies Express in Note 8.