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ACQUISTION AND DIVESTITURE ACTIVITY | 3 Months Ended
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Mar. 31, 2018
Business Combinations [Abstract] |
Acquistion and divestiture activity | ACQUISITION AND DIVESTITURE ACTIVITY We consolidate assets acquired and liabilities assumed as of the purchase date and include earnings from acquisitions in consolidated earnings after the purchase date. ACQUISITIONS Sempra Texas Utility After satisfying all conditions precedent, including final approval from the PUCT, on March 9, 2018, Sempra Energy completed the acquisition of an indirect, 100-percent interest in Oncor Holdings, which owned 80.03 percent of Oncor, and other EFH assets and liabilities unrelated to Oncor, pursuant to the Merger Agreement with EFH. Oncor is a regulated electric transmission and distribution business that operates the largest transmission and distribution system in Texas. This acquisition expands our regulated earnings base, while serving as a platform for future growth in the Texas energy market and U.S. Gulf Coast region. Under the Merger Agreement, we paid Merger Consideration of $9.45 billion in cash and an additional $31 million representing an adjustment for dividends and payments pursuant to a tax sharing agreement with Oncor and Oncor Holdings. Also on March 9, 2018, in a separate transaction, Sempra Energy, through its interest in Oncor Holdings, acquired an additional 0.22 percent of the outstanding membership interests in Oncor for approximately $26 million in cash bringing Sempra Energy’s indirect ownership in Oncor to 80.25 percent. The membership interests were previously held by OMI. TTI, an investment vehicle indirectly owned by third parties unaffiliated with Oncor Holdings or Sempra Energy, continues to own 19.75 percent of Oncor’s outstanding membership interests. Pursuant to the Merger Agreement, the reorganized EFH (renamed Sempra Texas Holdings Corp.) has been merged with an indirect subsidiary of Sempra Energy, with Sempra Texas Holdings Corp. continuing as the surviving company and an indirect, wholly owned subsidiary of Sempra Energy. Sempra Texas Holdings Corp. wholly owns EFIH (renamed Sempra Texas Intermediate Holding Company LLC), which holds our 100-percent interest in Oncor Holdings. Sempra Texas Intermediate Holding Company LLC is included in our newly formed Sempra Texas Utility reportable segment. Other assets and liabilities unrelated to Oncor that were acquired with Sempra Texas Holdings Corp. have been subsumed into our parent organization, Parent and other. Due to the structural and operational ring-fencing measures in place that prevent us from having the power to direct the significant activities of Oncor Holdings and Oncor, upon consummation of the Merger, we account for our 100-percent ownership interest in Oncor Holdings as an equity method investment. See Note 6 for additional information about our equity method investment in Oncor Holdings and related ring-fencing measures. The Sempra Texas Utility reportable segment is comprised as follows:
The foregoing is a simplified ownership structure that does not show all the subsidiaries of, or other equity interests owned by, these entities.
In anticipation of the Merger, in January 2018, we completed registered public offerings of our common stock (including shares offered pursuant to forward sale agreements), mandatory convertible preferred stock and long-term debt, as we discuss in Notes 1 and 7 herein and in Note 18 of the Notes to Consolidated Financial Statements in the Annual Report. These offerings provided total initial net proceeds of approximately $7.0 billion for partial funding of the Merger Consideration, of which approximately $800 million was used to temporarily pay down commercial paper, pending the closing of the Merger. On March 8, 2018, to fund a portion of the Merger Consideration, we settled approximately $900 million of forward sales under the forward sale agreements entered into in connection with the public offering of common stock in January 2018 by delivery of 8,556,630 shares of newly issued Sempra Energy common stock, as we discuss in Note 1. We raised the remaining portion of the Merger Consideration through issuances of approximately $2.6 billion in commercial paper with a weighted-average maturity of 47 days and a weighted-average interest rate of 2.2 percent per annum. The total purchase price paid is comprised of the following:
▪ | $9,450 million of Merger Consideration;
▪ | $31 million adjustment for dividends and payments pursuant to a tax sharing agreement with Oncor and Oncor Holdings;
▪ | $26 million paid in a separate transaction to acquire an additional 0.22 percent of the outstanding membership interests in Oncor from OMI; and
▪ | $59 million of transaction costs included in the basis of our investment in Oncor Holdings.
We accounted for the Merger as an asset acquisition, as the equity method investment in Oncor Holdings represents substantially all of the fair value of the gross assets acquired. The following table sets forth the allocation of the total purchase price paid to the identifiable assets acquired and liabilities assumed:
PURCHASE PRICE ALLOCATION |  |
(Dollars in millions)
Assets acquired: |
Accounts receivable – other, net |  | $ | 1 |
Due from unconsolidated affiliates |  | 46 |
Investment in Oncor Holdings |  | 9,161 |
Deferred income tax assets |  | 353 |
Other noncurrent assets |  | 109 |
Total assets acquired |  | 9,670 |
Liabilities assumed: |  |
Other current liabilities |  | 23 |
Pension and other postretirement benefit plan obligations |  | 21 |
Deferred credits and other |  | 60 |
Total liabilities assumed |  | 104 |
Net assets acquired |  | $ | 9,566 |
Total purchase price paid |  | $ | 9,566 |
The fair value of the equity method investment in Oncor Holdings is primarily attributable to Oncor’s business. Therefore, we considered the underlying assets and liabilities of Oncor when determining the fair value of our equity method investment. As a regulated entity, Oncor’s rates are set and approved by the PUCT, and are designed to recover the cost of providing service and the opportunity to earn a reasonable return on its investments. Accordingly, Oncor applies the guidance under the provisions of U.S. GAAP governing rate-regulated operations. Under U.S. GAAP, regulation is viewed as being a characteristic (restriction) of a regulated entity’s assets and liabilities, and the impact of regulation is considered a fundamental input to measuring the fair value of Oncor’s assets and liabilities. Under this premise, we concluded that the carrying values of all recoverable assets and liabilities are representative of their fair values. Deferred income tax assets acquired have been recognized based on the facts and circumstances that existed as of the acquisition date related to the resolution of claims in EFH’s emergence from bankruptcy. Should the final resolution of these claims result in a change in deferred income tax assets allocated to us, an adjustment will be made to the purchase price allocation. Sempra Mexico On February 28, 2018, Sempra Mexico completed the asset acquisition of Fisterra Midstream Mexico, S. de R.L. de C.V. for a purchase price of $5 million. Substantially all of the fair value of the gross assets acquired is attributable to a self-supply permit that allows generators to compete directly with CFE’s retail tariffs and, thus, have access to PPAs with a competitive pricing position. IEnova will invest $130 million to develop, construct and operate the Don Diego Solar Complex, a 125-MW solar facility in Sonora, Mexico. IEnova entered into a 15-year, U.S. dollar denominated PPA with various subsidiaries of El Puerto de Liverpool, S.A.B. de C.V. for a portion of the capacity. We expect operations to commence in the second half of 2019. 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 TdM’s classification as held for sale, we recognized a $5 million income tax benefit for the three months ended March 31, 2017 for a deferred Mexican income tax liability related to the excess of the tax basis over carrying value. We continue to actively pursue the sale of TdM, which we expect to be completed in 2018. At March 31, 2018, 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, 2018 |
(Dollars in millions) |
|  | Termoeléctrica de Mexicali |
Inventories |  | $ | 10 |  |
Other current assets |  | 64 |  |
Property, plant and equipment, net |  | 55 |  |
Other noncurrent assets |  | 6 |  |
Total assets held for sale |  | $ | 135 |  |
Accounts payable |  | $ | 2 |  |
Other current liabilities |  | 38 |  |
Asset retirement obligations |  | 5 |  |
Other noncurrent liabilities |  | 7 |  |
Total liabilities held for sale |  | $ | 52 |  |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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