Acquisitions

9 Months Ended

Sep. 30, 2019

In June 2019, an indirect subsidiary of NEP completed the acquisition from NEER (June 2019 acquisition) of the following:


•	100% of the membership interests in Ashtabula Wind II, LLC, a project company that owns a 120 MW wind generation facility located in North Dakota;


•	100% of the membership interests in Garden Wind, LLC, a project company that owns a 150 MW wind generation facility (Story County II) located in Iowa;


•	100% of the membership interests in White Oak Energy Holdings, LLC, which owns 100% of the membership interests of White Oak Energy LLC, which owns a 150 MW wind generation facility located in Illinois;


•	100% of the Class C membership interests in Rosmar Holdings, LLC (Rosmar), which represent a 49.99% noncontrolling ownership interest in two solar generation facilities, Marshall and Roswell, with a total combined generating capacity of approximately 132 MW located in Minnesota and New Mexico, respectively; and


•	49.99% of the membership interests, representing a controlling ownership interest, in Silver State South Solar, LLC (Silver State), which indirectly owns a 250 MW solar generation facility located in Nevada.

NEER retained ownership interests in Rosmar and Silver State and remains the managing member of Rosmar. Thus, NEP's interest in Rosmar is reflected within investments in equity method investees on the condensed consolidated balance sheets. NEER's remaining interest in Silver State is reflected within noncontrolling interests on the condensed consolidated balance sheets (see Note 10 - Noncontrolling Interests).

The purchase price included approximately $1,020 million in cash consideration, plus working capital of $12 million. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed on June 11, 2019 based on their estimated fair value. All fair value measurements of assets acquired and liabilities assumed were based on significant estimates and assumptions, including Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting risk inherent in future cash flows and future market prices.

The following table summarizes the preliminary amounts recognized by NEP for the estimated fair value of assets acquired and liabilities assumed in the June 2019 acquisition:



	As of June 11, 2019
	(millions)
Total consideration transferred	$	1,032
Identifiable assets acquired and liabilities assumed
Cash	$	4
Accounts receivable, other receivables and prepaid expenses	159
Property, plant and equipment – net	400
Intangible assets – PPAs	1,080
Goodwill	14
Other non-current assets	133
Accounts payable, accrued expenses and other current liabilities	(132		)
Other non-current liabilities	(154		)
Noncontrolling interest	(472		)
Total net identifiable assets, at fair value^(a)	$	1,032

______________________

(a)

Includes a right of use asset of approximately $20 million and operating lease liabilities of approximately $21 million primarily related to a land use agreement that conveys exclusive use of the land for one of the acquired projects, which were calculated based on a discount rate of 4.57% based on the incremental borrowing rate and a remaining lease term of approximately 26 years as of the date of acquisition. At September 30, 2019, NEP expects to make fixed lease payments of approximately $2 million annually over the next five years and $25 million thereafter.

During the three and nine months ended September 30, 2019, NEP recorded adjustments to the preliminary purchase price allocation based on a final valuation report which increased intangible assets - PPAs, goodwill and other non-current liabilities by approximately $30 million, $11 million, and $1 million, respectively, and decreased property, plant and equipment - net and noncontrolling interests by $50 million and $10 million, respectively. Intangible assets - PPAs are amortized into operating revenues on a straight-line basis over the remaining contract terms of the related PPAs. At September 30, 2019, annual amortization of the intangible assets - PPAs is expected to be approximately $39 million in 2019 and $70 million in each of the next four years.

On September 29, 2019, Meade Pipeline Investment, LLC (the Meade purchaser), an indirect subsidiary of NEP, entered into a purchase and sale agreement to acquire all of the ownership interests in Meade Pipeline Co LLC (Meade) for the initial cash consideration of $1.28 billion, subject to working capital and other customary purchase price adjustments, plus estimated future capital contributions of approximately $90 million that are related to the expansion project discussed below. Meade owns a 39.2% ownership interest in the Central Penn Line (CPL), a 185-mile natural gas pipeline that operates in Pennsylvania with capacity to transport and deliver up to approximately 1.7 billion cubic feet (Bcf) of natural gas per day. Meade also owns a 40% ownership interest in an expansion project (the expansion) that is expected to add an estimated 0.6 Bcf per day of natural gas capacity to CPL through the addition of compression at new and existing stations scheduled for commercial operation by mid-2022, subject to receipt of certain regulatory approvals. NEP expects to complete the acquisition of Meade in the fourth quarter of 2019, subject to customary closing conditions and the receipt of certain regulatory approvals.

In December 2018, a subsidiary of NEP completed the acquisition from NEER of NEP Renewables, LLC (NEP Renewables), which indirectly owns ten wind and one solar generation facilities with a combined generating capacity of approximately 1,388 MW.

Supplemental Unaudited Pro forma Results of Operations

NEP’s pro forma results of operations, had the acquisition of NEP Renewables been completed on January 1, 2017, are as follows:



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
	(millions)
Unaudited pro forma results of operations:
Pro forma revenues	$	201	$	701
Pro forma operating income	$	58	$	425
Pro forma net income	$	109	$	378
Pro forma net income attributable to NEP	$	33	$	244

The unaudited pro forma consolidated results of operations include adjustments to:


•	reflect the historical results of NEP Renewables beginning on January 1, 2017;


•	reflect the estimated depreciation and amortization expense based on the estimated fair value of property, plant and equipment - net and the intangible assets - PPAs;


•	reflect allocations of income to noncontrolling interests related to the financing transaction to fund the acquisition; and


•	reflect related income tax effects.

The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the transaction been made at the beginning of the periods presented or the future results of the consolidated operations.