Unconsolidated Investments

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

The Company's unconsolidated investments consist of the following for the periods presented below (in millions):



					Percentage of Ownership
	September 30,		December 31,		September 30,		December 31,
	2019		2018		2019		2018
Belle River	$	32	$	—	22	%	—	%
North Kent	22		—		35	%	—	%
South Kent ⁽¹⁾	—		5		50	%	50	%
Grand ⁽²⁾	—		5		45	%	45	%
Armow	104		116		50	%	50	%
Pattern Development	123		144		29	%	29	%
Unconsolidated investments	$	281	$	270


⁽¹⁾	Refer to "Suspension of Equity Method Accounting" for details.


⁽²⁾	As of September 30, 2019, our investment balance was less than $1 million.

Acquisition of Belle River

On August 2, 2019, Belle River LP Holdings LP (New BR LP), on behalf of the Company and PSP Investments, as a noncontrolling interest, entered into and consummated a Purchase and Sale Agreement with Pattern Energy Group LP to acquire its 42.5% interest in Belle River, 100% interest in Pattern Belle River GP Holdings Inc. and certain other assets including a loan receivable for $37 million. Belle River is a joint venture wind farm development which operates under a 20-year PPA and commenced commercial operation in September 2017. Of the $37 million purchase price, the Company paid $16 million for a 21.7% ownership interest in Belle River and $2 million for the loan receivable while PSP Investments contributed $17 million for a 20.8% ownership in Belle River and $2 million for the loan receivable. The $4 million loan receivable is recorded in other assets on the consolidated balance sheet of the Company.

On the acquisition date, the Company determined the fair value of the identifiable assets and assumed liabilities in accordance with ASC 805, Business Combinations (ASC 805). The resulting fair values were compared to the assets and liabilities recorded in Belle River, and a basis difference of $7 million, which was primarily attributable to the power purchase agreement was determined. The Company will amortize the basis difference attributable to the PPA over its contractual life.

New BR LP, which is consolidated by the Company, accounts for its investment in Belle River under the equity method of accounting because it has significant influence over Belle River. The Company's owned capacity in Belle River is 22 MW.

Acquisition of North Kent

On August 2, 2019, the Company entered into and consummated a Purchase and Sale Agreement (NK PSA) with Pattern Energy Group LP to acquire its 100% interest in Pattern North Kent Wind 1 GP Holdings Inc. and North Kent Wind 1 LP Holdings LP (New NK LP) and certain other assets including a loan receivable for $26 million. Per the NK PSA, the Company indirectly acquired New NK LP's 35% interest in North Kent. North Kent is a joint venture wind farm development which operates under a 20-year PPA and commenced commercial operation in February 2018. Of the $26 million purchase price, the Company paid $3 million for a loan receivable that is recorded in other assets on the consolidated balance sheet of the Company.

On the acquisition date, the Company determined the fair value of the identifiable assets and assumed liabilities in accordance with ASC 805. The resulting fair values were compared to the assets and liabilities recorded in North Kent, and a basis difference of $13 million, which was primarily attributable to the power purchase agreement was determined. The Company will amortize the basis difference attributable to the PPA over its contractual life.

New NK LP, which is consolidated by the Company, accounts for its investment in North Kent under the equity method of accounting because it has significant influence over North Kent. The Company's owned capacity in North Kent is 35 MW.

Pattern Development

Under the Second Amended and Restated Agreement of Limited Partnership of Pattern Development, the Company has the right but not the obligation to invest up to $300 million to Pattern Development. As of September 30, 2019, the Company has funded $190 million in aggregate and holds an approximately 29% ownership interest in Pattern Development. The Company is a noncontrolling investor in Pattern Development, but has significant influence over Pattern Development. Accordingly, the investment is accounted for under the equity method of accounting.

Suspension of Equity Method Accounting

When the Company receives distributions in excess of the carrying value of its investment, and the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support the Company will: 1) suspend recognition of equity method earnings (losses); 2) record such excess distributions as earnings (loss) in unconsolidated investments, net in the period the distributions occur; and 3) suspend equity in earnings (losses) or equity in other comprehensive income of unconsolidated investments, if applicable.

During the third quarter 2019, the Company's unconsolidated investment in South Kent was in suspension. As of September 30, 2019, the Company's unconsolidated investment for South Kent was zero. In accordance with ASC 323, Investments - Equity Method and Joint Ventures, the Company suspended recognition of South Kent's equity method earnings until such time when South Kent's cumulative equity method earnings exceeds cumulative distributions received and cumulative equity method earnings (losses). As the Company has no explicit or implicit commitment to fund losses at the unconsolidated investments, the Company recorded distributions received in excess of the carrying amount of its unconsolidated investments as gains. For the three and nine months ended September 30, 2019, earnings in unconsolidated investments, net as reported on the consolidated statements of operations attributable to South Kent included $5 million and $10 million, respectively, in distributions received in excess of the carrying amount of the Company's investment.

During the suspension period, the Company maintains a memo ledger that records the components of the suspended activity. As of September 30, 2019, the memo ledger balance was made up of distributions received of $10 million in excess of the carrying amount of the Company's unconsolidated investment in South Kent and earnings of $2 million in excess of the carrying amount.

Basis Amortization of Unconsolidated Investments

The cost of the Company’s investment in the net assets of unconsolidated investments was higher than the fair value of the Company’s equity interest in the underlying net assets of its unconsolidated investments. The basis differences were primarily attributable to property, plant and equipment, PPAs, and equity method goodwill. The Company amortizes the basis difference attributable to property, plant and equipment, and PPAs over their useful life and contractual life, respectively. The Company does not amortize equity method goodwill. For the three and nine months ended September 30, 2019, the Company recorded basis difference amortization for its unconsolidated investments of $2 million and $5 million, respectively, and for the same periods in 2018, the Company recorded basis difference amortization of $3 million and $8 million, respectively, in earnings (loss) in unconsolidated investments, net on the consolidated statements of operations.

Summarized Financial Data for Equity Method Investees

The following table presents summarized statements of operations information for the three and nine months ended September 30, 2019 and 2018 for the Company's equity method investees (in millions). Results for the three and nine months ended September 30, 2019 include Belle River and North Kent, which were acquired in August 2019.



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Revenue	$	47		$	65		$	208		$	245
Cost of revenue	30			29			98			89
Operating expenses	37			20			117			74
Other expense	23			18			73			58
Net income (loss)	$	(43	)	$	(2	)	$	(80	)	$	24