ACQUISITION AND DIVESTITURE ACTIVITY

3 Months Ended

Mar. 31, 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 three months ended March 31, 2017 or 2016. At March 31, 2017, the purchase price allocations for the acquisitions of Ventika, S.A.P.I. de C.V. and Ventika II, S.A.P.I. de C.V. in December 2016 and Gasoductos de Chihuahua S. de R.L. de C.V. in September 2016 were preliminary and subject to completion. Adjustments to the fair value estimates may occur as the process conducted for various valuations and assessments is finalized, primarily related to tax assets, liabilities and other attributes.

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

In February 2016, management approved a plan to market and sell Sempra Mexico’s Termoeléctrica de Mexicali (TdM), a 625-megawatt (MW) natural gas-fired power plant located in Mexicali, Baja California, Mexico. As a result, we stopped depreciating the plant and classified it as held for sale. We considered the estimated fair value of the plant, less costs to sell, and determined that no additional adjustments to carrying value are required at March 31, 2017. We are actively pursuing the sale of TdM, which we expect to be completed in the second half of 2017.

In connection with classifying TdM as held for sale, we recognized a $5 million income tax benefit and $29 million in income tax expense for the three months ended March 31, 2017 and 2016, respectively, for a deferred Mexican income tax liability related to the excess of carrying value over the tax basis. As the Mexican income tax on this 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.

At March 31, 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 MARCH 31, 2017
(Dollars in millions)
	Termoeléctrica de Mexicali
Cash	$	1
Inventories	11
Other current assets	31
Deferred income taxes	9
Property, plant and equipment, net	120
Other noncurrent assets	24
Total assets held for sale	$	196

Accounts payable	$	6
Other current liabilities	4
Asset retirement obligations	4
Other noncurrent liabilities	26
Total liabilities held for sale	$	40

DIVESTITURE

Sempra LNG & Midstream

Investment in Rockies Express Pipeline LLC (Rockies Express)

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, 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 10 of the Notes to Consolidated Financial Statements in the Annual Report.