Acquisitions

12 Months Ended

Dec. 31, 2019

ACQUISITIONS

Electric Segment Acquisition

Effective September 12, 2019, DTE Sustainable Generation closed on the purchase of an 89 MW renewable energy project located in Michigan from Heritage Sustainable Energy in support of DTE Energy's renewable energy goals. Direct transaction costs primarily related to advisory fees were immaterial and are included in Operation and maintenance in DTE Energy's Consolidated Statements of Operations. The fair value of consideration provided for the acquisition was approximately $175 million, of which $174 million has been paid in cash.

The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values as shown below:



	(In millions)
Contract intangibles	$	109
Property, plant, and equipment, net	60
Working capital	6
Total	$	175

The intangible assets recorded pertain to existing customer contracts and were estimated by applying the income approach, based on discounted projected cash flows attributable to the existing agreements. The contract intangible assets are amortized on a straight-line basis with useful lives ranging from 11 years to 13 years, which is based on the remaining number of years the assets are expected to economically contribute to the business. The pro forma financial information has not been presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.

In conjunction with the above acquisition, DTE Sustainable Generation closed on a purchase and sale agreement with Heritage Sustainable Energy in January 2020 to acquire an additional renewable energy project for approximately $33 million paid in cash.

The acquired projects are non-utility operations and related revenues are classified accordingly as Operating Revenues - Non-utility operations within DTE Energy's Consolidated Statements of Operations and the Electric segment results of operations. Refer to Note 23 to the Consolidated Financial Statements, "Segment and Related Information."

Gas Storage and Pipelines Segment Acquisitions

Generation Pipeline Acquisition

Effective September 20, 2019, NEXUS closed on the purchase of Generation Pipeline, LLC, a pipeline system regulated by the Public Utilities Commission of Ohio. The 23-mile pipeline system supplies gas to industrial customers in the Toledo, OH area, has existing interconnects with ANR Pipeline Company and Panhandle Eastern Pipeline Company, and is located four miles from NEXUS. Total consideration paid for the acquired entity was approximately $163 million, of which DTE Energy's portion was 50%. DTE Energy accounts for its ownership interest in NEXUS under the equity method, which now includes equity in earnings related to Generation Pipeline, LLC.

Blue Union and LEAP Acquisition

On December 4, 2019, DTE Energy closed on the purchase of midstream natural gas assets in support of its strategy to continue to grow and earn competitive returns for shareholders. DTE Energy purchased 100 percent of M5 Louisiana Gathering, LLC and its wholly owned subsidiaries from Momentum Midstream and Indigo Natural Resources. The acquisition includes the Blue Union and LEAP assets which provide natural gas gathering and other midstream services to producers located primarily in Louisiana.

The fair value of the consideration provided for the entities acquired was $2.74 billion and includes $2.36 billion paid in cash and an estimated $378 million of contingent consideration to be paid upon completion of a gathering pipeline in the second half of 2020. The contingent payment will range from $0 million to $385 million, with no payment due until the pipeline is completed. As of December 31, 2019, the liability for the contingent consideration payment and the related accretion expense of $1 million is included in a separate line in the Consolidated Statements of Financial Position. The acquisition was financed through the issuance of Equity Units, common stock, and Senior Notes. See Notes 12 and 15 to the Consolidated Financial Statements, "Common Stock and Earnings Per Share" and "Long-Term Debt," respectively, for more information. The acquired assets are part of DTE Energy's non-utility Gas Storage and Pipelines segment.

The acquisition was accounted for using the acquisition method of accounting for business combinations. The allocation of the purchase price included in the Consolidated Statements of Financial Position is preliminary and may be revised up to one year from the date of acquisition due to adjustments in the estimated fair value of the assets acquired and the liabilities assumed. The purchase price is subject to (i) final working capital settlement adjustments, and (ii) resolution of any indemnification claims that might be deducted from the $100 million of cash consideration paid and held in escrow. As such, DTE Energy cannot estimate the potential amount of the additional revisions to the purchase price allocation in 2020. The excess purchase price over the fair value of net assets acquired totaled approximately $171 million and was classified as goodwill. The factors contributing to the recognition of goodwill are based on various strategic benefits that are expected to be realized from the Blue Union and LEAP acquisition. The acquisition will provide DTE Energy with a platform for midstream growth and access to further investment opportunities in the Haynesville basin. The goodwill is expected to be deductible for income tax purposes.

The preliminary allocation of the purchase price is based on estimated fair values of the Blue Union and LEAP assets acquired and liabilities assumed at the date of acquisition, December 4, 2019. The components of the preliminary purchase price allocation are as follows:



	(In millions)
Assets
Cash	$	62
Accounts receivable	31
Property, plant, and equipment, net	1,035
Goodwill	171
Customer relationship intangibles	1,473
Other current assets	1
	$	2,773
Liabilities
Accounts payable	$	26
Acquisition related deferred payment	378
Other current liabilities	2
Asset retirement obligations	9
	$	415
Total cash consideration	$	2,358

The intangible assets recorded as a result of the acquisition pertain to existing customer relationships, which were valued at approximately $1.47 billion as of the acquisition date. The fair value of the intangible assets acquired was estimated by applying the income approach. The income approach is based upon discounted projected future cash flows attributable to the existing contracts and agreements. The fair value measurement is based on significant unobservable inputs, including management estimates and assumptions, and thus represents a Level 3 measurement, pursuant to the applicable accounting guidance. Key estimates and inputs include revenue and expense projections and discount rates based on the risks associated with the entities. The intangible assets are amortized on a straight-line basis over a period of 40 years, which is based on the number of years the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts with a weighted-average amortization life of 13 years and expected renewal rates, based on the estimated volume and production lives of gas resources in the region. See Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies," for more information.

DTE Energy has incurred $18 million of direct transaction costs for the year ended December 31, 2019. These costs are primarily related to advisory fees and are included in Operation and maintenance in DTE Energy's Consolidated Statements of Operations. Additionally, DTE Energy has incurred $49 million of issuance costs related to the acquisition financing, of which $10 million are included in Mortgage bonds, notes, and other, and $39 million are included in Common Stock in DTE Energy's Consolidated Statements of Financial Position.

DTE Energy's 2019 Consolidated Statements of Operations include Operating Revenues — Non-utility operations of $15 million and Net Income of $3 million associated with the acquired entities for the one-month period following the acquisition date, excluding the $18 million transaction costs described above. The pro forma financial information has not been presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.