ACQUISITION AND DIVESTITURE ACTIVITY

6 Months Ended

Jun. 30, 2017

We consolidate assets acquired and liabilities assumed as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date. We did not complete any acquisitions during the six months ended June 30, 2017 or 2016. At June 30, 2017, the purchase price allocations for the acquisitions of Ventika in December 2016 and IEnova Pipelines (formerly known as GdC) in September 2016 were preliminary and subject to completion. Adjustments to the fair value estimates may occur as various valuations and assessments are finalized, primarily related to tax assets, liabilities and other attributes.

ACQUISITION

Sempra Renewables

On July 10, 2017, Sempra Renewables paid $124 million in cash for an asset acquisition of a solar project located near Fresno, California, which is currently under construction. We expect to place the project into service in phases during the fourth quarter of 2017 and the first half of 2018 and, when fully constructed, it will be capable of producing up to 200 MW of solar power. The solar project is fully contracted under four long-term PPAs, with an average contract term of 18 years.

ASSETS HELD FOR SALE

We classify assets as held for sale when management approves and commits to a formal plan to actively market an asset for sale and we expect the sale to close within the next 12 months. Upon classifying an asset as held for sale, we record the asset at the lower of its carrying value or its estimated fair value reduced for selling costs.

Sempra Mexico

Termoeléctrica de Mexicali

In February 2016, management approved a plan to market and sell Sempra Mexico’s TdM, a 625-MW natural gas-fired power plant located in Mexicali, Baja California, Mexico, as we discuss in Note 3 of the Notes to Consolidated Financial Statements in the Annual Report. As a result, we stopped depreciating the plant and classified it as held for sale.

In connection with the sales process, Sempra Mexico received new market information indicating that the fair value of TdM at June 30, 2017 is lower than previously estimated. As a result, and after further analysis, Sempra Mexico further reduced the carrying value of TdM by recognizing a noncash impairment charge of $71 million in the three months and six months ended June 30, 2017, recorded in Impairment Losses on Sempra Energy’s Condensed Consolidated Statements of Operations. We discuss non-recurring fair value measures and the associated accounting impact on TdM in Note 8.

In connection with TdM’s classification as held for sale, we recognized a $3 million and $8 million tax benefit for the three months and six months ended June 30, 2017, respectively, and $3 million and $32 million in tax expense for the three months and six months ended June 30, 2016, respectively, related to a deferred Mexican income tax liability related to the excess of carrying value over the tax basis. As the Mexican income tax on this outside basis difference is based on current carrying value, foreign exchange rates and inflation, such amount could change in future periods until the date of sale. We are actively pursuing the sale of TdM, which we expect to be completed in the second half of 2017.

At June 30, 2017, the carrying amounts of the major classes of assets and related liabilities held for sale associated with TdM are as follows:



ASSETS HELD FOR SALE AT JUNE 30, 2017
(Dollars in millions)
	Termoeléctrica de Mexicali
Inventories	$	10
Other current assets	19
Property, plant and equipment, net	55
Other noncurrent assets	25
Total assets held for sale	$	109

Accounts payable	$	11
Other current liabilities	4
Asset retirement obligations	5
Other noncurrent liabilities	27
Total liabilities held for sale	$	47

DIVESTITURE

Sempra LNG & Midstream

Investment in Rockies Express Pipeline LLC

In March 2016, Sempra LNG & Midstream entered into an agreement to sell its 25-percent interest in Rockies Express for cash consideration of $440 million, subject to adjustment at closing. The transaction closed in May 2016 for total cash proceeds of $443 million.

At the date of the agreement, the carrying value of Sempra LNG & Midstream’s investment in Rockies Express was $484 million. Following the execution of the agreement, Sempra LNG & Midstream measured the fair value of its equity method investment at $440 million, and recognized a $44 million ($27 million after-tax) impairment in Equity Earnings (Losses), Before Income Tax, on the Sempra Energy Condensed Consolidated Statement of Operations in the first quarter of 2016. We discuss non-recurring fair value measures and the associated accounting impact on our investment in Rockies Express in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report.