UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 1, 2015
Dominion Midstream Partners, LP
(Exact name of registrant as specified in its charter)
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| Delaware |
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001-36684 |
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46-5135781 |
| (State or Other Jurisdiction of
Incorporation or Organization) |
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(Commission
File Number) |
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(I.R.S. Employer
Identification No.) |
120 Tredegar Street
Richmond, Virginia 23219
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (804) 819-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
| ¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE
As reported in a Current Report on Form 8-K filed by Dominion Midstream Partners, LP (the Partnership) on April 1, 2015 (the Original Filing), the
Partnership closed the acquisition of Dominion Carolina Gas Transmission, LLC (DCGT) from Dominion MLP Holding Company II, Inc., a wholly owned subsidiary of Dominion Resources, Inc., on April 1, 2015. This amendment is being filed to amend
Item 9.01 Financial Statements and Exhibits of the Original Filing to provide certain financial statements of DCGT and to provide the unaudited pro forma financial information of the Partnership in connection with this acquisition.
No other modification to the Original Filing is being made by this amendment.
| Item 9.01. |
Financial Statements and Exhibits. |
| (a) |
Financial Statements of Business Acquired |
Audited financial statements of DCGT as of and for the years
ended December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014, together with the related notes to the financial statements, a copy of which is filed as Exhibit 99.1 hereto and incorporated herein
by reference.
| (b) |
Pro Forma Financial Information |
Unaudited pro forma consolidated financial statements of the
Partnership as of and for the year ended December 31, 2014, a copy of which is filed as Exhibit 99.2 hereto and incorporated herein by reference.
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| Exhibit
Number |
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Description |
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| 23 |
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Consent of Deloitte & Touche LLP |
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| 99.1 |
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Audited financial statements of Dominion Carolina Gas Transmission, LLC as of and for the years ended December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014 |
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| 99.2 |
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Unaudited pro forma consolidated financial statements of Dominion Midstream Partners, LP as of and for the year ended December 31, 2014 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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DOMINION MIDSTREAM PARTNERS, LP |
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By: |
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Dominion Midstream GP, LLC, its
general partner |
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| Date: June 5, 2015 |
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By: |
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/s/ Mark O. Webb |
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Name: |
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Mark O. Webb |
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Title: |
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Vice President and General Counsel |
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-199501 on Form S-8 of our report dated June 5, 2015, relating to the
financial statements of Dominion Carolina Gas Transmission, LLC as of December 31, 2014 and 2013 and for the three years ended December 31, 2014, appearing in this Current Report on Form 8-K/A of Dominion Midstream Partners, LP.
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| /s/ Deloitte & Touche LLP |
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| Richmond, Virginia |
| June 5, 2015 |
Exhibit 99.1
GLOSSARY OF TERMS
The following
abbreviations or acronyms used in these financial statements are defined below:
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| Abbreviation or Acronym |
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Definition |
| AFUDC |
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Allowance for funds used during construction |
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| ARO |
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Asset retirement obligation |
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| DCGT |
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Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation) |
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| Dominion |
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The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Dominion Midstream GP, LLC and its subsidiaries) or operating segments or the entirety of Dominion Resources, Inc. and its
consolidated subsidiaries, including Dominion MLP Holding Company II, Inc. |
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| Dominion Midstream |
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The legal entity, Dominion Midstream Partners, LP, its consolidated subsidiary Cove Point GP Holding Company, LLC, or the entirety of Dominion Midstream Partners, LP, and its consolidated subsidiaries |
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| DRS |
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Dominion Resources Services, Inc. |
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| Dth |
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Dekatherm |
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| FERC |
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Federal Energy Regulatory Commission |
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| GAAP |
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U.S. generally accepted accounting principals |
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| IRS |
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Internal Revenue Service |
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| NGA |
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Natural Gas Act of 1938, as amended |
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| SCANA |
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SCANA Corporation |
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| U.S. |
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United States of America |
1
INDEX TO FINANCIAL STATEMENTS
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Page
Number |
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| DOMINION CAROLINA GAS TRANSMISSION, LLC (Successor by statutory conversion to and formerly known as Carolina Gas Transmission
Corporation) |
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| Audited Financial Statements |
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| Report of Independent Accountants |
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3 |
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| Statements of Income for the Years Ended December 31, 2014, 2013 and 2012 |
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4 |
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| Balance Sheets at December 31, 2014 and 2013 |
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5 |
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| Statements of Equity for the Years Ended December 31, 2014, 2013 and 2012 |
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7 |
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| Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 |
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8 |
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| Notes to Financial Statements |
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9 |
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2
INDEPENDENT AUDITORS’ REPORT
Dominion Carolina Gas Transmission, LLC
Richmond, Virginia
We have audited the accompanying financial
statements of Dominion Carolina Gas Transmission, LLC (the “Company”), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of income, equity, and cash flows for the three years ended
December 31, 2014, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud
or error.
Auditors’ Responsibility
Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing
procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the three years ended December 31, 2014 in
accordance with accounting principles generally accepted in the United States of America.
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| /s/ Deloitte & Touche LLP |
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| Richmond, Virginia |
| June 5, 2015 |
3
DOMINION CAROLINA GAS TRANSMISSION, LLC
STATEMENTS OF INCOME
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| Year Ended December 31, |
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2014 |
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2013 |
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2012 |
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| (millions) |
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| Operating Revenue(1) |
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$ |
64.9 |
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$ |
62.1 |
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$ |
56.4 |
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| Operating Expenses |
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| Other operations and maintenance: |
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| Affiliated suppliers |
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8.5 |
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8.5 |
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9.0 |
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| Other |
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15.4 |
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13.7 |
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13.2 |
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| Depreciation and amortization |
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8.5 |
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8.5 |
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7.8 |
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| Other taxes |
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5.4 |
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4.8 |
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4.2 |
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| Total operating expenses |
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37.8 |
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35.5 |
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34.2 |
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| Income from operations |
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27.1 |
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26.6 |
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22.2 |
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| Other income |
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0.7 |
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— |
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— |
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| Interest and related charges(1) |
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4.2 |
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3.2 |
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3.1 |
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| Income from operations before income taxes |
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23.6 |
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23.4 |
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19.1 |
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| Income tax expense |
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8.9 |
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9.9 |
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6.7 |
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| Net Income |
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$ |
14.7 |
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$ |
13.5 |
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$ |
12.4 |
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| (1) |
See Note 13 for amounts attributable to related parties. |
The accompanying notes are an integral
part of DCGT’s Financial Statements.
4
DOMINION CAROLINA GAS TRANSMISSION, LLC
BALANCE SHEETS
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| At December 31, |
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2014 |
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2013 |
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| (millions) |
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| ASSETS |
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| Current Assets |
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| Cash and cash equivalents |
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$ |
0.4 |
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$ |
0.3 |
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| Customer receivables |
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1.3 |
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1.0 |
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| Other receivables |
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0.8 |
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0.9 |
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| Affiliated receivables |
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4.5 |
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4.7 |
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| Affiliated advances |
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2.7 |
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5.2 |
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| Prepayments(1) |
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3.2 |
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0.8 |
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| Materials and supplies |
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2.7 |
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1.9 |
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| Regulatory assets |
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0.9 |
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1.6 |
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| Deferred income taxes |
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— |
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0.1 |
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| Total current assets |
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16.5 |
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16.5 |
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| Property, Plant and Equipment |
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| Property, plant and equipment |
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368.4 |
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334.9 |
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| Accumulated depreciation and amortization |
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(96.1 |
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(90.5 |
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| Total property, plant and equipment, net |
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272.3 |
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244.4 |
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| Deferred Charges and Other Assets |
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| Goodwill |
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20.2 |
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20.2 |
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| Intangible assets, net |
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4.1 |
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5.7 |
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| Regulatory assets |
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7.0 |
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4.5 |
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| Other |
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0.2 |
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— |
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| Total deferred charges and other assets |
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31.5 |
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30.4 |
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| Total assets |
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$ |
320.3 |
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$ |
291.3 |
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| (1) |
See Note 13 for amounts attributable to related parties. |
The accompanying notes are an integral
part of DCGT’s Financial Statements.
5
DOMINION CAROLINA GAS TRANSMISSION, LLC
BALANCE SHEETS (CONTINUED)
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| At December 31, |
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2014 |
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2013 |
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| (millions) |
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| LIABILITIES AND EQUITY |
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| Current Liabilities |
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| Accounts payable |
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$ |
1.0 |
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$ |
0.8 |
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| Payables to affiliates |
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5.5 |
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5.2 |
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| Accrued interest, payroll and taxes(1) |
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7.2 |
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7.0 |
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| Deferred income taxes |
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3.2 |
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— |
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| Regulatory liabilities |
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2.9 |
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2.8 |
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| Other(1) |
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3.9 |
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2.4 |
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| Total current liabilities |
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23.7 |
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18.2 |
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| Affiliated Long-Term Debt |
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100.0 |
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85.0 |
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| Deferred Credits and Other Liabilities |
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| Deferred income taxes and investment tax credits |
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45.9 |
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45.8 |
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| Pension and other postretirement benefit liabilities(1) |
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12.5 |
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8.8 |
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| Regulatory liabilities |
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37.9 |
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40.8 |
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| Other |
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2.5 |
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1.3 |
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| Total deferred credits and other liabilities |
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98.8 |
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96.7 |
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| Total liabilities |
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222.5 |
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199.9 |
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| Commitments and Contingencies (see Note 11) |
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| Common Shareholders’ Equity |
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| Common stock(2) |
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— |
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— |
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| Other paid-in capital |
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79.6 |
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78.6 |
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| Retained earnings |
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18.2 |
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12.8 |
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| Total equity |
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97.8 |
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91.4 |
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| Total liabilities and equity |
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$ |
320.3 |
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$ |
291.3 |
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| (1) |
See Note 13 for amounts attributable to related parties. |
| (2) |
1,000 common shares at $40 par value per share were authorized, issued and outstanding at December 31, 2014 and 2013. |
The accompanying notes are an integral part of DCGT’s Financial Statements.
6
DOMINION CAROLINA GAS TRANSMISSION, LLC
STATEMENTS OF EQUITY
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Common Stock |
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Shares |
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Amount |
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Other Paid-in
Capital |
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Retained
Earnings |
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Total |
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| (millions, except for shares) |
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| December 31, 2011 |
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1,000 |
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$ |
— |
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$ |
77.7 |
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$ |
2.8 |
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$ |
80.5 |
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| Net income |
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|
— |
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|
|
— |
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|
|
— |
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|
|
12.4 |
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12.4 |
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| Dividends to SCANA |
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— |
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— |
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— |
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(7.0 |
) |
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|
(7.0 |
) |
| Equity contribution from SCANA |
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— |
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|
— |
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|
0.1 |
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|
— |
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0.1 |
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| December 31, 2012 |
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1,000 |
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|
— |
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|
77.8 |
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8.2 |
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86.0 |
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| Net income |
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— |
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|
— |
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|
— |
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13.5 |
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13.5 |
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| Dividends to SCANA |
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— |
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|
— |
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|
— |
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(8.9 |
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|
(8.9 |
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| Equity contribution from SCANA |
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|
— |
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|
|
— |
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|
0.8 |
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|
— |
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|
0.8 |
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| December 31, 2013 |
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|
1,000 |
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|
|
— |
|
|
|
78.6 |
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|
|
12.8 |
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|
91.4 |
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|
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|
|
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| Net income |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14.7 |
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|
|
14.7 |
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| Dividends to SCANA |
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|
— |
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|
|
— |
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|
|
— |
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|
(9.3 |
) |
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|
(9.3 |
) |
| Equity contribution from SCANA |
|
|
— |
|
|
|
— |
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|
|
1.0 |
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|
|
— |
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|
|
1.0 |
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|
|
|
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| December 31, 2014 |
|
|
1,000 |
|
|
$ |
— |
|
|
$ |
79.6 |
|
|
$ |
18.2 |
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|
$ |
97.8 |
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|
|
The accompanying notes are an integral part of DCGT’s Financial Statements.
7
DOMINION CAROLINA GAS TRANSMISSION, LLC
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
| Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
14.7 |
|
|
$ |
13.5 |
|
|
$ |
12.4 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
8.5 |
|
|
|
8.5 |
|
|
|
7.8 |
|
| Deferred income taxes and investment tax credits |
|
|
3.4 |
|
|
|
4.0 |
|
|
|
8.5 |
|
| Other |
|
|
(0.8 |
) |
|
|
— |
|
|
|
— |
|
| Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
| Customer and other receivables |
|
|
(0.2 |
) |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
| Affiliated receivables |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
(1.6 |
) |
| Materials and supplies |
|
|
(0.8 |
) |
|
|
— |
|
|
|
(0.2 |
) |
| Prepayments |
|
|
(2.4 |
) |
|
|
0.4 |
|
|
|
(0.2 |
) |
| Accounts payable |
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
0.2 |
|
| Accounts payable to affiliates |
|
|
(0.3 |
) |
|
|
0.8 |
|
|
|
0.7 |
|
| Accrued interest, payroll and taxes |
|
|
0.2 |
|
|
|
1.8 |
|
|
|
(1.9 |
) |
| Other operating assets and liabilities |
|
|
0.5 |
|
|
|
(6.3 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash provided by operating activities |
|
|
23.2 |
|
|
|
21.8 |
|
|
|
22.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Plant construction and other property additions |
|
|
(32.8 |
) |
|
|
(16.6 |
) |
|
|
(28.3 |
) |
| Advance to affiliate, net |
|
|
2.5 |
|
|
|
(5.2 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(30.3 |
) |
|
|
(21.8 |
) |
|
|
(28.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance (repayment) of affiliated current borrowings, net |
|
|
— |
|
|
|
(20.9 |
) |
|
|
13.6 |
|
| Issuance of affiliated long-term debt |
|
|
15.0 |
|
|
|
85.0 |
|
|
|
— |
|
| Repayment of affiliated long-term debt |
|
|
— |
|
|
|
(55.0 |
) |
|
|
— |
|
| Repayment of long-term debt |
|
|
— |
|
|
|
(1.3 |
) |
|
|
(1.2 |
) |
| Common dividend payments to SCANA |
|
|
(8.8 |
) |
|
|
(8.3 |
) |
|
|
(6.5 |
) |
| Equity contribution from SCANA |
|
|
1.0 |
|
|
|
0.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash provided by financing activities |
|
|
7.2 |
|
|
|
0.3 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase in cash and cash equivalents |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
— |
|
| Cash and cash equivalents at beginning of year |
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents at end of year |
|
$ |
0.4 |
|
|
$ |
0.3 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and related charges, excluding capitalized amounts |
|
$ |
4.7 |
|
|
$ |
3.2 |
|
|
$ |
3.4 |
|
| Income taxes |
|
|
8.6 |
|
|
|
4.6 |
|
|
|
0.5 |
|
| Significant noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accrued capital expenditures |
|
|
2.1 |
|
|
|
1.9 |
|
|
|
2.8 |
|
The accompanying notes are an integral part of DCGT’s Financial Statements.
8
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
DCGT operates as an open access, transportation-only interstate pipeline company in South Carolina and southeastern
Georgia. As of December 31, 2014, DCGT’s natural gas system consisted of nearly 1,500 miles of transmission pipeline of up to 24 inches in diameter. DCGT’s system transports gas to its customers from the transmission systems of
Southern Natural Gas Company at Port Wentworth, Georgia and Aiken County, South Carolina; Southern LNG, Inc. at Elba Island, near Savannah, Georgia; and Transcontinental Gas Pipe Line Company, LLC in Cherokee and Spartanburg counties in South
Carolina. All of DCGT’s operations are regulated by the FERC.
DCGT’s customers include South Carolina Electric & Gas
Company (which uses natural gas for electricity generation and for gas distribution to retail customers), SCANA Energy Marketing, Inc. (which markets natural gas to industrial and “sale for resale” customers, primarily in the Southeast),
municipalities, county gas authorities, federal and state agencies, marketers, power generators and industrial customers primarily engaged in the manufacturing or processing of ceramics, paper, metal, and textiles.
DCGT’s pipeline system is essentially fully subscribed with a contracted pipeline capacity of 719,763 Dth. Approximately 6% of the
capacity has a 2016 expiration date, and 94% of this capacity is contracted through 2017 or beyond. DCGT has several growth projects to expand its system which are expected to increase its contracted capacity by 142,130 Dth for a total of 861,893
Dth by the end of 2017. All expansion projects are supported by long term contracts with terms ranging from 10 to 30 years.
Prior to
January 31, 2015, DCGT was a wholly owned subsidiary of SCANA. On January 31, 2015, SCANA completed the sale of 100% of the equity interests of DCGT to Dominion for approximately $495.3 million, subject to working capital adjustments. At
that time, DCGT employees became employees of DRS or Dominion Payroll Company, Inc. On March 24, 2015, DCGT converted to a limited liability company under the laws of South Carolina and changed its name from Carolina Gas Transmission
Corporation to DCGT. On April 1, 2015, Dominion Midstream acquired DCGT from Dominion for total consideration of approximately $495.3 million, subject to working capital adjustments.
Basis of Presentation
These financial statements were
prepared using SCANA’s historical basis in the assets and liabilities of DCGT and include all revenues, costs, assets and liabilities attributed to DCGT. DCGT’s financial statements include costs for certain general, administrative and
corporate expenses assigned by SCANA to DCGT on the basis of direct and allocated methods in accordance with DCGT’s services agreement with SCANA. Where costs incurred cannot be determined by specific identification, the costs are allocated
based on the proportional level of effort devoted by SCANA resources that is attributable to DCGT, determined by reference to number of employees, salaries and wages and other similar measures for the relevant SCANA department. Management believes
the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
DCGT evaluated
subsequent events through June 5, 2015, the date these financial statements were issued.
NOTE 2. SIGNIFICANT
ACCOUNTING POLICIES
General
DCGT makes certain estimates and assumptions in preparing its financial statements in accordance with GAAP. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses and cash flows for the periods presented. Actual results may differ from
those estimates.
DCGT reports certain contracts and instruments at fair value. The carrying values of customer, other and affiliated
receivables, payables to affiliates and accounts payable are estimated to be substantially the same as their fair values at December 31, 2014 and 2013.
Through 2014, DCGT participated in a tax sharing agreement with SCANA. See Note 4 for further information on accounting for income taxes.
Through January 31, 2015, DCGT participated in certain pension and other postretirement benefit plans sponsored by SCANA. See Note 10 for
further information on these plans.
Operating Revenue
Operating revenue is recorded on the basis of services rendered or contracts settled. Actual volumes transported are billed and recorded at each year end;
therefore, no accrued unbilled revenue is recorded.
The primary types of sales and service activities reported as operating revenue are
as follows:
| |
• |
|
Gas transportation revenue consists of regulated natural gas transmission services; and |
| |
• |
|
Other revenue consists primarily of proceeds from the monetization of a customer bankruptcy claim which are being amortized into operating revenue from November 2006 through February 2024. |
9
Income Taxes
Prior to January 31, 2015, DCGT was a wholly owned subsidiary of SCANA and its business activities were included in the consolidated U.S. federal and
certain state income tax returns of SCANA. Under a joint consolidated income tax allocation agreement, each of the SCANA subsidiary’s current and deferred tax expense is computed on a stand-alone basis. Deferred tax assets and liabilities are
recorded for the tax effects of all significant temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such rates through
charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers of SCANA’s regulated subsidiaries; otherwise, they are charged or credited to income tax expense. DCGT establishes
a valuation allowance when it is more-likely-than-not that all, or a portion, of a deferred tax asset will not be realized. Also, under provisions of the income tax allocation agreement, tax benefits of the parent holding company are distributed in
cash to tax paying affiliates, including DCGT, in the form of capital contributions.
DCGT recognizes positions taken, or expected to be
taken, in income tax returns that are more-likely-than-not to be realized, assuming that the position will be examined by tax authorities with full knowledge of all relevant information.
If it is not more-likely-than-not that a tax position, or some portion thereof, will be sustained, the related tax benefits are not recognized
in the financial statements. Unrecognized tax benefits may result in an increase in income taxes payable, a reduction of income tax refunds receivable or changes in deferred taxes. Also, when uncertainty about the deductibility of an amount is
limited to the timing of such deductibility, the increase in income taxes payable (or reduction in tax refunds receivable) is accompanied by a decrease in deferred tax liabilities. Except when such amounts are presented net with amounts receivable
from or amounts prepaid to tax authorities, noncurrent income taxes payable related to unrecognized tax benefits are classified in other deferred credits and other liabilities on the Balance Sheets and current payables are included in accrued
interest, payroll and taxes on the Balance Sheets. There were no unrecognized tax benefits in 2014, 2013 and 2012.
DCGT recognizes
interest accrued related to unrecognized tax benefits within interest expense and recognizes tax penalties within other expenses. There were no interest or penalties in 2014, 2013 and 2012.
Investment tax credits are deferred in the year qualifying property is placed in service and amortized over the service lives of the
properties giving rise to the credits.
Cash and Cash Equivalents
For purposes of the Balance Sheets and Statements of Cash Flows, cash and cash equivalents include cash on hand, cash in banks and temporary investments
purchased with an original maturity of three months or less.
Property, Plant and Equipment
Property, plant and equipment, including additions and replacements is recorded at original cost, consisting of labor and materials and other direct and
indirect costs such as asset retirement costs, capitalized interest and, for operations subject to cost-of-service rate regulation, AFUDC and overhead costs. The cost of repairs and maintenance, including minor additions and replacements, is charged
to expense as it is incurred.
In 2014, DCGT capitalized AFUDC to property, plant and equipment of $1.1 million. In 2013 and 2012, AFUDC
amounts capitalized were less than $0.1 million.
For property subject to cost-of-service rate regulation, the undepreciated cost of such
property, less salvage value, is generally charged to accumulated depreciation at retirement. Cost of removal collections from utility customers not representing AROs are recorded as regulatory liabilities. For property subject to cost-of-service
rate regulation that will be retired or abandoned significantly before the end of its useful life, the net carrying value is reclassified from plant-in-service when it becomes probable it will be retired or abandoned.
Depreciation of property, plant and equipment is computed on the straight-line method based on projected service lives. Depreciation rates on
utility property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| (percent) |
|
|
|
|
|
|
|
|
|
| Transmission |
|
|
1.85 |
|
|
|
1.84 |
|
|
|
1.75 |
|
| General and other |
|
|
10.66 |
|
|
|
13.19 |
|
|
|
14.74 |
|
Long-Lived and Intangible Assets
DCGT performs an evaluation for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets or intangible
assets with finite lives may not be recoverable. A long-lived or intangible asset is written down to fair value if the sum of its expected future undiscounted cash flows is less than its carrying amount. Intangible assets with finite lives are
amortized over their estimated useful lives.
10
Regulatory Assets and Liabilities
For regulated businesses subject to FERC cost-of-service rate regulation, regulatory practices that assign costs to accounting periods may differ from
accounting methods generally applied by nonregulated companies. When it is probable that the FERC will permit the recovery of current costs through future rates charged to customers, these costs that otherwise would be expensed by nonregulated
companies are deferred as regulatory assets. Likewise, regulatory liabilities are recognized when it is probable that the FERC will require customer refunds through future rates or when revenue is collected from customers for expenditures that have
yet to be incurred. Generally, regulatory assets and liabilities are amortized into income over the period authorized by the FERC.
DCGT
evaluates whether or not recovery of its regulatory assets through future rates is probable and makes various assumptions in its analyses. The expectations of future recovery are generally based on orders issued by the FERC or historical experience,
as well as discussions with the FERC. If recovery of a regulatory asset is determined to be less than probable, it will be written off in the period such assessment is made.
Materials and Supplies
Materials and supplies are valued
primarily using the weighted-average cost method.
Natural Gas Imbalances
Natural gas imbalances occur when the physical amount of natural gas delivered from, or received by, a pipeline system differs from the contractual amount of
natural gas delivered or received. DCGT values these imbalances due to, or from, shippers and operators at an appropriate index price at period end, subject to the terms of its tariff for regulated entities. Imbalances are settled in cash.
Imbalances due to DCGT from customers and other parties, such as upstream pipelines, are reported as customer receivables and other receivables in the Balance Sheets, respectively. Imbalances that DCGT owes to other parties are reported as accounts
payable in the Balance Sheets.
Goodwill
DCGT
evaluates goodwill for impairment annually as of January 1 and whenever an event occurs or circumstances change in the interim that would more-likely-than-not reduce the fair value of its reporting unit below its carrying value.
NOTE 3. OPERATING REVENUE
Operating revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
| Gas transportation |
|
$ |
61.8 |
|
|
$ |
58.9 |
|
|
$ |
53.6 |
|
| Other |
|
|
3.1 |
|
|
|
3.2 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating revenue |
|
$ |
64.9 |
|
|
$ |
62.1 |
|
|
$ |
56.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4. INCOME TAXES
Prior to January 31, 2015, DCGT, a C-corporation, was a wholly owned subsidiary of SCANA and its business activities were included in the consolidated
U.S. federal and certain state income tax returns of SCANA. DCGT’s current income taxes were based on taxable income or loss, determined on a separate company basis, and, where applicable, settled in accordance with the principles of
SCANA’s intercompany tax sharing agreement.
Judgment and the use of estimates are required in developing the provision for income
taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws involves uncertainty, since tax authorities may interpret the laws differently. DCGT is routinely audited by federal and state tax authorities. Ultimate
resolution of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to tax-related assets and liabilities could be material.
In December 2014, U.S. federal legislation was enacted that provides an extension of the 50% bonus depreciation allowance for qualifying
capital expenditures incurred through 2014.
DCGT became a disregarded entity for income tax purposes when it converted to a single member
limited liability company on March 24, 2015 and was treated as a taxable division of its corporate parent, Dominion MLP Holding Company II, Inc. Effective April 1, 2015, DCGT is treated as a component of Dominion Midstream, a pass-through
entity for U.S. federal and state income tax purposes that is generally not subject to income taxes.
11
The income tax (benefit) provision is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
| Current: |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
|
$ |
5.0 |
|
|
$ |
5.3 |
|
|
$ |
(1.6 |
) |
| State |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current expense |
|
|
5.5 |
|
|
|
5.9 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
| Federal |
|
|
3.2 |
|
|
|
3.5 |
|
|
|
8.2 |
|
| State |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total deferred expense |
|
|
3.4 |
|
|
|
4.0 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total income tax expense |
|
$ |
8.9 |
|
|
$ |
9.9 |
|
|
$ |
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The statutory U.S. federal income tax rate reconciles to the effective income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| U.S. statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
| Increases/(reductions) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
| State taxes, net of federal benefit |
|
|
2.1 |
|
|
|
3.0 |
|
|
|
0.6 |
|
| Regulatory asset write-off(1) |
|
|
— |
|
|
|
4.8 |
|
|
|
— |
|
| Other, net |
|
|
0.5 |
|
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effective tax rate |
|
|
37.6 |
% |
|
|
42.2 |
% |
|
|
35.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents $1.3 million of future income taxes payable for which recovery has not been included in existing customer rates. |
Deferred income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
| At December 31, |
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
| Deferred income taxes: |
|
|
|
|
|
|
|
|
| Total deferred income tax assets |
|
$ |
— |
|
|
$ |
0.1 |
|
| Total deferred income tax liabilities |
|
|
48.8 |
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
| Total net deferred income tax liabilities |
|
$ |
48.8 |
|
|
$ |
45.4 |
|
|
|
|
|
|
|
|
|
|
| Total deferred income taxes: |
|
|
|
|
|
|
|
|
| Plant and equipment, primarily depreciation method and basis differences |
|
$ |
54.6 |
|
|
$ |
51.3 |
|
| Deferred state income taxes |
|
|
4.2 |
|
|
|
3.9 |
|
| Federal benefit of deferred state income taxes |
|
|
(1.5 |
) |
|
|
(1.4 |
) |
| Monetization of bankruptcy claim(1) |
|
|
(9.1 |
) |
|
|
(10.1 |
) |
| Intercompany deferred gain(2) |
|
|
3.5 |
|
|
|
3.9 |
|
| Pension and other postretirement benefits |
|
|
(2.1 |
) |
|
|
(1.6 |
) |
| Other |
|
|
(0.8 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
| Total net deferred income tax liabilities |
|
$ |
48.8 |
|
|
$ |
45.4 |
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents the monetization of a customer bankruptcy claim which is being amortized into operating revenue through February 2024. |
| (2) |
Upon the acquisition of DCGT from SCANA by Dominion on January 31, 2015, this deferred gain was recognized for tax purposes. |
The IRS has completed examinations of SCANA’s federal returns through 2004. Federal returns through 2007 are closed by statute. The IRS
is currently examining open federal returns through 2012. With few exceptions, SCANA is no longer subject to South Carolina income tax examinations by tax authorities for years prior to 2010.
NOTE 5. PROPERTY, PLANT
AND EQUIPMENT
Major classes of property, plant and equipment and their respective balances for DCGT are as follows:
|
|
|
|
|
|
|
|
|
| At December 31, |
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
| Transmission |
|
$ |
329.8 |
|
|
$ |
308.5 |
|
| General and other |
|
|
12.5 |
|
|
|
15.1 |
|
| Plant under construction |
|
|
26.1 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
| Total property, plant and equipment |
|
$ |
368.4 |
|
|
$ |
334.9 |
|
|
|
|
|
|
|
|
|
|
12
NOTE 6. GOODWILL AND INTANGIBLE
ASSETS
Goodwill
There have been
no changes in DCGT’s carrying amount of goodwill as presented below:
|
|
|
|
|
| |
|
Total |
|
| (millions) |
|
|
|
| Balance at December 31, 2012(1) |
|
$ |
20.2 |
|
| No events affecting goodwill |
|
|
— |
|
|
|
|
|
|
| Balance at December 31, 2013(1) |
|
$ |
20.2 |
|
| No events affecting goodwill |
|
|
— |
|
|
|
|
|
|
| Balance at December 31, 2014(1) |
|
$ |
20.2 |
|
|
|
|
|
|
| (1) |
Goodwill amounts do not contain any accumulated impairment losses. |
Other Intangible Assets
DCGT’s other intangible assets are subject to amortization over their estimated useful lives. DCGT’s amortization expense for intangible assets was
$1.8 million, $1.9 million and $2.0 million for 2014, 2013 and 2012, respectively. In 2014, DCGT acquired $0.2 million of intangible assets, primarily representing software, with an estimated weighted-average amortization period of approximately 5
years. In 2013, DCGT acquisitions of intangible assets were less than $0.1 million. The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, |
|
2014 |
|
|
2013 |
|
| |
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Software |
|
$ |
17.4 |
|
|
$ |
14.4 |
|
|
$ |
17.2 |
|
|
$ |
13.2 |
|
| Other |
|
|
6.0 |
|
|
|
4.9 |
|
|
|
6.0 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
23.4 |
|
|
$ |
19.3 |
|
|
$ |
23.2 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual amortization expense for these intangible assets is estimated to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| DCGT |
|
$ |
1.8 |
|
|
$ |
1.4 |
|
|
$ |
0.6 |
|
|
$ |
0.3 |
|
|
$ |
0.1 |
|
13
NOTE 7. REGULATORY ASSETS AND
LIABILITIES
Regulatory assets and liabilities include the following:
|
|
|
|
|
|
|
|
|
| At December 31, |
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
| Regulatory assets: |
|
|
|
|
|
|
|
|
| Transportation deferred account(1) |
|
$ |
0.9 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
| Regulatory assets-current |
|
|
0.9 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
| Unrecognized pension and other postretirement benefit costs(2) |
|
|
6.9 |
|
|
|
3.5 |
|
| Transportation deferred account(1) |
|
|
0.1 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
| Regulatory assets-non-current |
|
|
7.0 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
| Total regulatory assets |
|
$ |
7.9 |
|
|
$ |
6.1 |
|
|
|
|
|
|
|
|
|
|
| Regulatory liabilities: |
|
|
|
|
|
|
|
|
| Customer bankruptcy settlement(3) |
|
$ |
2.8 |
|
|
$ |
2.8 |
|
| Other |
|
|
0.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Regulatory liabilities-current |
|
|
2.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
| Customer bankruptcy settlement(3) |
|
|
23.3 |
|
|
|
26.1 |
|
| Provision for future cost of removal and AROs(4) |
|
|
14.5 |
|
|
|
14.5 |
|
| Other |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
| Regulatory liabilities-non-current |
|
|
37.9 |
|
|
|
40.8 |
|
|
|
|
|
|
|
|
|
|
| Total regulatory liabilities |
|
$ |
40.8 |
|
|
$ |
43.6 |
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents the deferral of differences between amounts received and actual costs incurred for gas imbalances and gas retained or used, which are subject to annual filings with the FERC under DCGT’s gas tariff.
|
| (2) |
Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered through future rates generally over the expected remaining service period of plan participants.
|
| (3) |
Represents the balance of proceeds from the monetization of a bankruptcy claim which is being amortized into operating revenue through February 2024. |
| (4) |
Rates charged to customers by DCGT include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement. |
At December 31, 2014, approximately $0.9 million of regulatory assets represented past expenditures on which DCGT does not currently earn a return. These
expenditures are expected to be recovered within one year.
NOTE 8. REGULATORY MATTERS
The FERC regulates the transportation and sale for resale of natural gas in interstate commerce under the NGA and the Natural Gas Policy Act of 1978, as
amended. Under the NGA, the FERC has authority over rates, terms and conditions of services offered by DCGT. The FERC also has jurisdiction over siting, construction and operation of DCGT’s interstate natural gas pipeline facilities.
In the second quarter of 2013, DCGT executed binding precedent agreements for the Edgemoor project. The project will provide 45,000 Dths per
day of firm transportation service from an existing interconnect with Transcontinental Gas Pipe Line Company, LLC in Cherokee County, South Carolina to customers in Calhoun and Lexington Counties, South Carolina. The FERC approved the Edgemoor
project in February 2015 and construction commenced in March 2015. The project is expected to be placed into service in the first quarter of 2016.
In April 2014, DCGT executed a binding precedent agreement for the Columbia to Eastover project. The project will provide 15,800 Dths per day
of firm transportation service from an existing interconnect with Southern Natural Gas Company, LLC in Aiken County, South Carolina and provide for a receipt point change of 2,200 Dths per day under an existing contract from an existing interconnect
with Transcontinental Gas Pipe Line Company, LLC in Cherokee County, South Carolina for a total 18,000 Dths per day to a new delivery point for the International Paper Company at its pulp and paper mill known as the Eastover Plant in Richland
County, South Carolina. In May 2015, DCGT filed an application to request FERC authorization to construct and operate the project facilities, which are expected to be in service in the second quarter of 2016.
In connection with Dominion’s acquisition of DCGT on January 31, 2015, Dominion agreed to a rate moratorium which precludes DCGT
from filing a Section 4 NGA general rate case to establish base rates that would be effective prior to January 1, 2018.
14
NOTE 9. AFFILIATED LONG-TERM DEBT
In 2014, DCGT issued two notes payable to SCANA for the principal amounts of $5.0 million and $10.0 million. In 2013, DCGT issued a note payable to
SCANA for the principal amount of $85.0 million. Each note bears interest at a fixed rate per annum. Interest on all notes is payable semi-annually in arrears, and all principal and accrued interest is due and payable at the maturity dates listed
below. Interest charges related to DCGT’s borrowings from SCANA were $4.5 million, $3.1 million and $3.0 million for the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014 and 2013, accrued interest
payable to SCANA was $0.4 million recorded in accrued interest, payroll and taxes on the Balance Sheets. Affiliated long-term debt amounts outstanding and fixed interest rates at each Balance Sheet date include the following:
|
|
|
|
|
|
|
|
|
| At December 31, |
|
2014 |
|
|
2013 |
|
| (millions, except percentages) |
|
|
|
|
|
|
| 5.0% Note due November 2023 |
|
|
85.0 |
|
|
|
85.0 |
|
| 4.0% Notes due June 2024 |
|
|
15.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Total long-term debt |
|
|
100.0 |
|
|
|
85.0 |
|
|
|
|
|
|
|
|
|
|
The debt instruments described above are reported at historical cost. At December 31, 2014 and 2013, the
fair value of DCGT’s outstanding debt is equal to carrying value. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The fair values were calculated
using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2.
As a result of the acquisition of DCGT by Dominion effective January 31, 2015, DCGT ceased to be a wholly-owned subsidiary of SCANA, and
each note payable to SCANA as described above was subject to mandatory redemption at the redemption price equal to the principal amount of the note plus accrued interest through the redemption date. The outstanding notes payable were settled through
an equity contribution from SCANA to DCGT for the principal amounts totaling $100 million.
NOTE 10. EMPLOYEE
BENEFIT PLANS
DCGT participated in retirement benefit plans sponsored by SCANA, which provide certain retirement
benefits to eligible active employees, retirees and qualifying dependents of DCGT. Under the terms of its benefit plans, SCANA reserves the right to change, modify or terminate the plans. From time to time in the past, benefits have changed, and
some of these changes have reduced benefits. On January 31, 2015, upon Dominion’s acquisition of DCGT, DCGT employees ceased accruing benefits under SCANA’s retirement benefit plans, and DCGT employees became eligible to participate
in Dominion’s retirement benefit plans effective February 1, 2015. At January 31, 2015, amounts payable by DCGT to SCANA related to SCANA’s plans were settled through an equity contribution.
Defined Benefit Plans
DCGT participated in SCANA’s
noncontributory defined benefit pension plan, which covers substantially all regular, full-time employees hired before January 1, 2014. SCANA’s policy has been to fund the plan as permitted by applicable federal income tax regulations, as
determined by an independent actuary.
SCANA’s pension plan provides benefits under a cash balance formula for employees hired before
January 1, 2000 who elected that option and for all eligible employees hired subsequently. Under the cash balance formula, benefits accumulate as a result of compensation credits and interest credits. Employees hired before January 1, 2000
who elected to remain under the final average pay formula earn benefits based on years of credited service and the employee’s average annual base earnings received during the last three years of employment.
In addition to pension benefits, DCGT participated in SCANA’s unfunded postretirement health care and life insurance programs which
provide benefits to certain active and retired employees. Retirees hired before January 1, 2011 share in a portion of their medical care cost. Employees hired after December 31, 2010 are responsible for the full costs of retiree medical
benefits elected by them. The costs of postretirement benefits other than pensions are accrued during the years the employees render the services necessary to be eligible for these benefits.
The same benefit formula applies to all SCANA subsidiaries participating in the parent sponsored plans, and with regard to the pension plan,
there are no legally separate asset pools. The postretirement benefit plans are accounted for as multiple employer plans. The information presented below reflects DCGT’s portion of the obligations, assets, funded status, and other information
reported for the parent sponsored plans as a whole. The tabular data presented reflects the use of various cost assignment methodologies and participation assumptions based on DCGT’s past and current employees and its share of plan assets.
Funded Status
The measurement date used to
determine pension and other postretirement benefit obligations is December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| December 31, |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value of plan assets |
|
$ |
10.8 |
|
|
$ |
10.6 |
|
|
$ |
— |
|
|
$ |
— |
|
| Benefit obligation |
|
|
(18.3 |
) |
|
|
(15.3 |
) |
|
|
(5.3 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Funded status |
|
$ |
(7.5 |
) |
|
$ |
(4.7 |
) |
|
$ |
(5.3 |
) |
|
$ |
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The accumulated benefit obligation for pension benefits was $17.7 million at the end of 2014 and
$14.8 million at the end of 2013. The accumulated pension benefit obligation differs from the projected pension benefit obligation above in that it reflects no assumptions about future compensation levels.
Significant assumptions used to determine the above benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| Annual discount rate used to determine benefit obligation |
|
|
4.20 |
% |
|
|
5.03 |
% |
|
|
4.30 |
% |
|
|
5.19 |
% |
| Assumed annual rate of future salary increases for projected benefit obligation |
|
|
3.00 |
|
|
|
3.00 |
|
|
|
3.00 |
|
|
|
3.75 |
|
A 7.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2014.
The rate was assumed to decrease gradually to 5.0% for 2020 and to remain at that level thereafter.
Amounts recognized on the Balance
Sheets represent liabilities to SCANA associated with the plans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| December 31, |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(0.3 |
) |
|
$ |
(0.2 |
) |
| Noncurrent liability |
|
|
(7.5 |
) |
|
|
(4.7 |
) |
|
|
(5.0 |
) |
|
|
(4.1 |
) |
Amounts recognized in regulatory assets as of December 31, 2014 and 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| December 31, |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Net actuarial loss |
|
$ |
5.1 |
|
|
$ |
2.4 |
|
|
$ |
1.6 |
|
|
$ |
0.8 |
|
| Prior service cost |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
5.3 |
|
|
$ |
2.7 |
|
|
$ |
1.6 |
|
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from SCANA’s pension plan trust in 2014 were approximately $64.0 million, of which
approximately $1.1 million is attributable to DCGT under multiple employer accounting. With regard to other postretirement benefits, approximately $0.4 million in benefits were paid from DCGT assets in 2014, net of participant contributions.
Investment Policies and Strategies
The assets of
the pension plan are invested in accordance with the objectives of (1) fully funding the obligations of the pension plan, (2) overseeing the plan’s investments in an asset-liability framework that considers the funding surplus (or
deficit) between assets and liabilities, and overall risk associated with assets as compared to liabilities, and (3) maintaining sufficient liquidity to meet benefit payment obligations on a timely basis. The pension plan was closed to new
entrants effective January 1, 2014. In addition, during 2013, SCANA adopted a dynamic investment strategy for the management of the pension plan assets. The strategy will lead to a reduction in equities and an increase in long duration fixed
income allocations over time with the intention of reducing volatility of funded status and pension costs in connection with the amendments to the plan.
The pension plan operates with several risk and control procedures, including ongoing reviews of liabilities, investment objectives, levels of
diversification, investment managers and performance expectations. The total portfolio is constructed and maintained to provide prudent diversification with regard to the concentration of holdings in individual issues, corporations, or industries.
Transactions involving certain types of investments are prohibited. These include, except where utilized by a hedge fund manager, any
form of private equity; commodities or commodity contracts (except for unleveraged stock or bond index futures and currency futures and options); ownership of real estate in any form other than publicly traded securities; short sales, warrants or
margin transactions, or any leveraged investments; and natural resource properties. Investments made for the purpose of engaging in speculative trading are also prohibited.
The pension plan asset allocation at December 31, 2014 and 2013 and the target allocation for 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Percentage of Plan Assets |
|
| |
|
Target Allocation |
|
|
At December 31, |
|
| Asset Category |
|
2015 |
|
|
2014 |
|
|
2013 |
|
| Equity securities |
|
|
58 |
% |
|
|
57 |
% |
|
|
59 |
% |
| Fixed income |
|
|
33 |
|
|
|
34 |
|
|
|
32 |
|
| Hedge funds |
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
16
For 2015, the expected long-term rate of return on assets will be 7.5%. In developing the
expected long-term rate of return assumptions, management evaluates the pension plan’s historical cumulative actual returns over several periods, considers the expected active returns across various asset classes and assumes an asset allocation
of 58% with equity managers, 33% with fixed income managers and 9% with hedge fund managers. Management regularly reviews such allocations and periodically rebalances the portfolio when considered appropriate. Additional rebalancing may occur
subject to funded status improvements as part of the dynamic investment strategy adopted for 2013.
Fair Value Measurements
Assets held by the pension plan are measured at fair value as described below. Assets are classified in their entirety based on the lowest level of input that
is significant to the fair value measurement. Level 1 is a fair value measurement using unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 is a fair value measurement using observable inputs other than those for
Level 1, including quoted prices for similar (not identical) assets or liabilities or inputs that are derived from observable market data by correlation or other means. Level 3 is a fair value measurement using unobservable inputs, including
situations where there is little, if any, market activity for the asset or liability. At December 31, 2014 and 2013, fair value measurements, and the level within the fair value hierarchy in which the measurements fall, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements at Reporting Date |
|
| December 31, 2014 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| Preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Mutual funds |
|
|
— |
|
|
|
7,829 |
|
|
|
— |
|
|
|
7,829 |
|
| Short-term investment vehicles |
|
|
— |
|
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
| U.S. Treasury securities |
|
|
— |
|
|
|
75 |
|
|
|
— |
|
|
|
75 |
|
| Corporate debt securities |
|
|
— |
|
|
|
1,080 |
|
|
|
— |
|
|
|
1,080 |
|
| Loans secured by mortgages |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Municipals |
|
|
— |
|
|
|
192 |
|
|
|
— |
|
|
|
192 |
|
| Limited partnerships |
|
|
— |
|
|
|
403 |
|
|
|
— |
|
|
|
403 |
|
| Multi-strategy hedge funds |
|
|
— |
|
|
|
— |
|
|
|
1,014 |
|
|
|
1,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
9,829 |
|
|
$ |
1,014 |
|
|
$ |
10,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements at Reporting Date |
|
| December 31, 2013 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock |
|
$ |
4,053 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,053 |
|
| Preferred stock |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
| Mutual funds |
|
|
243 |
|
|
|
3,482 |
|
|
|
— |
|
|
|
3,725 |
|
| Short-term investment vehicles |
|
|
— |
|
|
|
238 |
|
|
|
— |
|
|
|
238 |
|
| U.S. Treasury securities |
|
|
— |
|
|
|
401 |
|
|
|
— |
|
|
|
401 |
|
| Corporate debt securities |
|
|
— |
|
|
|
650 |
|
|
|
— |
|
|
|
650 |
|
| Loans secured by mortgages |
|
|
— |
|
|
|
152 |
|
|
|
— |
|
|
|
152 |
|
| Municipals |
|
|
— |
|
|
|
45 |
|
|
|
— |
|
|
|
45 |
|
| Limited partnerships |
|
|
14 |
|
|
|
411 |
|
|
|
— |
|
|
|
425 |
|
| Multi-strategy hedge funds |
|
|
— |
|
|
|
— |
|
|
|
931 |
|
|
|
931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,317 |
|
|
$ |
5,379 |
|
|
$ |
931 |
|
|
$ |
10,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014, assets with fair value measurements classified as Level 1 were insignificant. There
were no transfers of fair value amounts into or out of Levels 1, 2 or 3 during 2014 or 2013.
The pension plan values common stock,
preferred stock and certain mutual funds, where applicable, using unadjusted quoted prices from a national stock exchange, such as NYSE and NASDAQ, where the securities are actively traded. Other mutual funds, common collective trusts and limited
partnerships are valued using the observable prices of the underlying fund assets based on trade data for identical or similar securities or from a national stock exchange for similar assets or broker quotes. Short-term investment vehicles are funds
that invest in short-term fixed income instruments and are valued using observable prices of the underlying fund assets based on trade data for identical or similar securities. Government agency securities are valued using quoted market prices or
based on models using observable inputs from market sources such as external prices or spreads or benchmarks thereto. Corporate debt securities and municipals are valued based on recently executed transactions, using quoted market prices, or based
on models using observable inputs from market sources such as
17
external prices or spreads or benchmarks thereto. Loans secured by mortgages are valued using observable prices based on trade data for identical or comparable instruments. Hedge funds represent
investments in a hedge fund of funds partnership that invests directly in multiple hedge fund strategies that are not traded on exchanges and do not trade on a daily basis. The fair value of this multi-strategy hedge fund is estimated based on the
net asset value of the underlying hedge fund strategies using consistent valuation guidelines that account for variations that may impact their fair value. The estimated fair value is the price at which redemptions and subscriptions occur.
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements |
|
| |
|
Level 3 |
|
| |
|
2014 |
|
|
2013 |
|
| (thousands) |
|
|
|
|
|
|
| Beginning balance |
|
$ |
931 |
|
|
$ |
770 |
|
| Unrealized gains included in changes in net assets |
|
|
83 |
|
|
|
161 |
|
| Purchases, issuances, and settlements |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Ending balance |
|
$ |
1,014 |
|
|
$ |
931 |
|
|
|
|
|
|
|
|
|
|
Expected Cash Flows
The total benefits expected to be paid from the pension plan trust (including benefits related to all employers participating in the multiple employer plan) or
from DCGT’s assets (excluding benefits related to other employers participating in the plan) for the other postretirement benefits plan (net of participant contributions), respectively, are as follows:
Expected Benefit Payments
|
|
|
|
|
|
|
|
|
| |
|
Pension
Benefits from
Pension Trust |
|
|
Other
Postretirement
Benefits |
|
| (thousands) |
|
|
|
|
|
|
| 2015 |
|
$ |
63,404 |
|
|
$ |
339 |
|
| 2016 |
|
|
64,548 |
|
|
|
366 |
|
| 2017 |
|
|
65,632 |
|
|
|
388 |
|
| 2018 |
|
|
66,061 |
|
|
|
409 |
|
| 2019 |
|
|
65,162 |
|
|
|
431 |
|
| 2020-2024 |
|
|
338,365 |
|
|
|
2,420 |
|
Pension Plan Contributions
The pension trust is adequately funded under current regulations. No contributions have been required since 1997, and as a result of closing
the plan to new entrants and freezing benefit accruals in the future, DCGT does not anticipate making significant contributions to the pension plan for the foreseeable future.
Net Periodic Benefit Cost
Net periodic pension
cost related to the defined benefit pension plan was $0.1 million, $0.5 million and $0.4 million in 2014, 2013 and 2012, respectively, recorded in other operations and maintenance expense in the Statements of Income. Net periodic benefit cost
related to the other postretirement plan was $0.4 million, $0.5 million and $0.5 million in 2014, 2013 and 2012, respectively, recorded in other operations and maintenance expense in the Statements of Income.
DCGT records net periodic benefit cost utilizing beginning of the year assumptions. Disclosures required for these plans are set forth in the
following tables.
Other changes in plan assets and benefit obligations recognized in regulatory assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Current year actuarial (gain) loss |
|
$ |
2.7 |
|
|
$ |
(3.6 |
) |
|
$ |
0.8 |
|
|
$ |
(1.2 |
) |
| Amortization of actuarial losses |
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
| Amortization of prior service cost |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
| Prior service cost (credit) |
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total recognized in regulatory assets |
|
$ |
2.6 |
|
|
$ |
(4.2 |
) |
|
$ |
0.8 |
|
|
$ |
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Significant Assumptions Used in Determining Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| Discount rate |
|
|
5.03 |
% |
|
|
4.10%/5.07 |
% |
|
|
5.19 |
% |
|
|
4.19 |
% |
| Expected return on plan assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
| Rate of compensation increase |
|
|
3.00 |
% |
|
|
3.75%/3.00 |
% |
|
|
3.75 |
% |
|
|
3.75 |
% |
| Health care cost trend rate |
|
|
n/a |
|
|
|
n/a |
|
|
|
7.40 |
% |
|
|
7.80 |
% |
| Ultimate health care cost trend rate |
|
|
n/a |
|
|
|
n/a |
|
|
|
5.00 |
% |
|
|
5.00 |
% |
| Year achieved |
|
|
n/a |
|
|
|
n/a |
|
|
|
2020 |
|
|
|
2020 |
|
Net periodic benefit cost for the period through September 1, 2013, was determined using a 4.10% discount
rate, and net periodic benefit cost after that date was determined using a 5.07% discount rate. Similarly, estimated rates of compensation increase were changed in connection with the September 1, 2013 re-measurement.
The actuarial loss and prior service cost to be amortized from accumulated regulatory assets into net periodic benefit cost in 2015 are
insignificant.
Defined Contribution Plan
DCGT
participated in the SCANA-sponsored defined contribution plan in which eligible employees may defer up to 75% of eligible earnings subject to certain limits and may diversify their investments. Employee deferrals are fully vested and nonforfeitable
at all times. DCGT recognized expense of $0.6 million, $0.5 million and $0.5 million in other operations and maintenance expense in the Statements of Income during 2014, 2013 and 2012, respectively, as employer matching contributions to these plans.
NOTE 11. COMMITMENTS AND CONTINGENCIES
As a result of issues generated in the ordinary course of business, DCGT is involved in legal proceedings before various courts and is periodically subject to
governmental examinations (including by the FERC), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as
to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for DCGT to estimate a range of possible loss. For such matters that DCGT cannot estimate, a statement to this
effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that DCGT is able to estimate a range of possible loss. For legal proceedings and governmental
examinations for which DCGT is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Estimated ranges of loss are inclusive of legal
fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any accrued liability is recorded on a gross basis with a
receivable also recorded for any probable insurance recoveries. Any estimated range of possible loss may not represent DCGT’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change
from time to time and actual results may vary significantly from the current estimate. Management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on DCGT’s financial position,
liquidity or results of operations.
Environmental Matters
DCGT is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These
laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.
Lease Commitments
DCGT leases various facilities,
vehicles and equipment under operating lease arrangements, the majority of which include terms of one year or less, require payments on a monthly or annual basis, and can be canceled at any time. Rental expense for DCGT totaled $1.2 million, $1.3
million and $1.3 million for 2014, 2013 and 2012, respectively. Rent expense is included within Other operations and maintenance expense in the Statements of Income. See Note 13 for further information on leases with related parties.
NOTE 12. CREDIT RISK
Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit
policies are maintained, including the evaluation of counterparty financial condition and collateral requirements. In addition, counterparties may make available collateral, including letters of credit, payment guarantees, or cash deposits.
19
DCGT maintains a provision for credit losses based on factors surrounding the credit risk of its
customers, historical trends and other information. At December 31, 2014 and 2013, the provision for credit losses was less than $0.1 million. Management believes, based on credit policies and the December 31, 2014 provision for credit
losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.
In 2014, DCGT provided service to approximately 70 customers with approximately 98% of its revenue being provided through firm transportation
contracts. The two largest customers, both subsidiaries of SCANA, comprised approximately 76%, 78% and 83% of the total revenue for the years ended December 31, 2014, 2013 and 2012, respectively, with its largest customer representing
approximately 57%, 60% and 65% of such amounts in 2014, 2013 and 2012, respectively.
NOTE 13. RELATED
PARTY TRANSACTIONS
Prior to Dominion’s acquisition of DCGT on January 31, 2015, DCGT engaged in related party
transactions primarily with other SCANA subsidiaries (affiliates). Subsequent to January 31, 2015, SCANA and its subsidiaries are no longer considered affiliates, and Dominion and its subsidiaries are deemed affiliates.
DCGT’s receivable and payable balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the
nature of the underlying transactions. DCGT participated in certain SCANA benefit plans as described in Note 10. DCGT had affiliated long-term debt payable to SCANA as described in Note 9. A discussion of the remaining significant related party
transactions follows.
Transactions with Affiliates
Through January 31, 2015, DCGT operated under a service agreement with SCANA Services, Inc., which provided administrative, management and
other services to SCANA and its subsidiaries as a subsidiary service company. DCGT reimbursed SCANA Services, Inc. for the cost of providing such administrative, management and other services appropriate for DCGT’s operations.
In addition, DCGT provided transportation services to affiliates and affiliates provided management services to DCGT. The affiliated
transactions are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| (millions) |
|
|
|
|
|
|
|
|
|
| Sales of natural gas transportation services to affiliates |
|
$ |
49.0 |
|
|
$ |
48.7 |
|
|
$ |
46.9 |
|
| Services provided by SCANA(1)(2) |
|
|
11.8 |
|
|
|
9.0 |
|
|
|
11.4 |
|
| Services provided to affiliates by DCGT |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
| (1) |
Includes $4.3 million, $1.6 million and $3.6 million of capitalized expenditures for the years ended December 31, 2014, 2013 and 2012, respectively. |
| (2) |
DCGT determined that it is not the most closely associated entity with SCANA Services, Inc., an affiliated variable interest entity, and therefore it is not the primary beneficiary. SCANA Services, Inc. provides
accounting, legal, finance and certain administrative and technical services to all SCANA subsidiaries, including DCGT. DCGT did not have an obligation to absorb more than its allocated share of SCANA Services, Inc. costs. |
Advance to Affiliate
At December 31, 2014 and 2013,
DCGT had advanced $2.7 million and $5.2 million to SCANA in connection with DCGT’s participation in the SCANA money pool. Amounts are included in Affiliated advances in the Balance Sheets for all years presented. Interest on short term advances
was less than $0.1 million for the years ended December 31, 2014, 2013 and 2012.
Income Taxes
Prior to the acquisition of DCGT by Dominion effective January 31, 2015, DCGT had a tax sharing agreement with SCANA as described in Note 2. At
December 31, 2014 and 2013, income taxes payable to SCANA were $0.2 million and $0.9 million, respectively, recorded in accrued interest, payroll and taxes on the Balance Sheets. At December 31, 2014, prepaid income taxes to SCANA were
$2.4 million recorded in prepayments on the Balance Sheets.
Leases
DCGT leases its operating facility and two tower locations from SCANA. Rent expense for the operating facility is allocated to DCGT based on the relative
number of DCGT employees to total SCANA employees occupying the facility. For the years ended December 31, 2014, 2013 and 2012, DCGT recorded affiliated rent expense of $1.0 million, $1.1 million and $1.2 million, respectively. Amounts are
included within Other operations and maintenance expense in the Statements of Income.
20
Dividends
DCGT pays dividends to SCANA as determined by SCANA based on DCGT’s net income and/or available cash each year. During 2014, 2013 and 2012, DCGT paid cash
dividends to SCANA of $8.8 million, $8.3 million and $6.5 million, respectively. At December 31, 2014 and 2013, dividends payable to SCANA were $2.7 million and $2.2 million, respectively, recorded in payables to affiliates on the Balance
Sheets.
Agreements with Dominion Affiliates
On
February 1, 2015, DCGT entered into the following agreements with Dominion subsidiaries, deemed affiliates at that date.
| |
• |
|
DCGT entered into a services agreement with DRS. DRS provides administrative, management and other services to Dominion and its subsidiaries as a subsidiary service company. |
| |
• |
|
DCGT entered into a services agreement with Dominion Payroll Company, Inc. Dominion Payroll Company, Inc. provides human resources and operations services to Dominion and its subsidiaries as a subsidiary service
company. |
21
Exhibit 99.2
GLOSSARY OF TERMS
The following
abbreviations or acronyms used in these pro forma financial statements are defined below:
|
|
|
| Abbreviation or Acronym |
|
Definition |
| AFUDC |
|
Allowance for funds used during construction |
|
|
| ARO |
|
Asset retirement obligation |
|
|
| CPCN |
|
Certification of Public Convenience and Necessity |
|
|
| DCGT |
|
Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation) |
|
|
| Dominion |
|
The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Dominion Midstream GP, LLC and its subsidiaries) or operating segments or the entirety of Dominion Resources, Inc. and its
consolidated subsidiaries, including Dominion MLP Holding Company II, Inc. |
|
|
| Dominion Midstream |
|
The legal entity, Dominion Midstream Partners, LP, its consolidated subsidiary Cove Point GP Holding Company, LLC, or the entirety of Dominion Midstream Partners, LP, and its consolidated subsidiaries |
|
|
| Dth |
|
Dekatherm |
|
|
| FERC |
|
Federal Energy Regulatory Commission |
|
|
| GAAP |
|
U.S. generally accepted accounting principals |
|
|
| IDR |
|
Incentive distribution right |
|
|
| IRS |
|
Internal Revenue Service |
|
|
| NGA |
|
Natural Gas Act of 1938, as amended |
|
|
| SCANA |
|
SCANA Corporation |
|
|
| U.S. |
|
United States of America |
1
INDEX TO PRO FORMA FINANCIAL STATEMENTS
|
|
|
|
|
| |
|
Page
Number |
|
| DOMINION MIDSTREAM PARTNERS, LP |
|
|
|
|
|
|
| Unaudited Pro Forma Consolidated Financial Statements |
|
|
|
|
|
|
| Introduction |
|
|
3 |
|
|
|
| Unaudited Pro Forma Consolidated Balance Sheet at December 31, 2014 |
|
|
4 |
|
|
|
| Unaudited Pro Forma Consolidated Statement of Income for the Year Ended December 31, 2014 |
|
|
6 |
|
|
|
| Notes to Unaudited Pro Forma Consolidated Financial Statements |
|
|
7 |
|
2
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma Consolidated Financial Statements of Dominion Midstream consist of a Consolidated Balance Sheet at December 31, 2014 and a
Consolidated Statement of Income for the year ended December 31, 2014 which reflect Dominion Midstream’s acquisition of DCGT from Dominion on April 1, 2015. Dominion acquired DCGT on January 31, 2015. The unaudited pro forma
Consolidated Financial Statements included herein have been derived from the audited historical financial statements of DCGT set forth in Exhibit 99.1, and the audited historical financial statements of Dominion Midstream included in its Annual
Report on Form 10-K for the year ended December 31, 2014, as filed.
On April 1, 2015, Dominion Midstream entered into a
Purchase, Sale and Contribution Agreement with Dominion pursuant to which Dominion Midstream purchased from Dominion all of the issued and outstanding membership interests of DCGT in exchange for a senior unsecured promissory note in the initial
amount of $295.3 million payable to Dominion and 5,112,139 common units, valued at $200.0 million, representing limited partner interests in Dominion Midstream issued to Dominion. As a result of the transaction, Dominion Midstream owns 100% of the
membership interests in DCGT and will therefore consolidate DCGT. Because the contribution of DCGT by Dominion to Dominion Midstream is considered to be a reorganization of entities under common control, DCGT’s assets and liabilities are
recorded in Dominion Midstream’s consolidated financial statements at Dominion’s historical cost. Common control began on January 31, 2015, concurrent with Dominion’s acquisition of DCGT from SCANA, which is accounted for using
the acquisition method of accounting. Accordingly, the consolidated financial statements of Dominion Midstream will reflect DCGT’s financial results beginning January 31, 2015.
The pro forma adjustments have been prepared as if the acquisition of DCGT occurred on December 31, 2014 in the case of the unaudited pro
forma Consolidated Balance Sheet and on January 1, 2014 in the case of the unaudited pro forma Consolidated Statement of Income. The unaudited pro forma Consolidated Financial Statements should be read in conjunction with the related notes,
which are included herein, the financial statements and notes included in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed, and the audited historical financial statements and related notes of
DCGT included elsewhere herein.
The unaudited pro forma Consolidated Financial Statements do not necessarily reflect what Dominion
Midstream’s financial position and results of operations would have been if it had owned DCGT during the periods presented. In addition, they are not necessarily indicative of its future results of operations or financial condition. The
assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to Dominion Midstream’s acquisition of DCGT from Dominion and therefore reflect Dominion’s acquisition adjustments to
arrive at its historical cost, (ii) factually supportable, and (iii) with respect to the pro forma Consolidated Statement of Income, expected to have a continuing impact on Dominion Midstream. The actual adjustments may differ from the pro
forma adjustments.
The unaudited pro forma Consolidated Financial Statements give effect to the following transactions:
| |
• |
|
The acquisition of DCGT from Dominion for total consideration of $495.3 million, consisting of the issuance of a two-year $295.3 million senior unsecured promissory note payable to Dominion and 5,112,139 common units of
Dominion Midstream to Dominion. The amount of the promissory note is subject to change to correspond with any working capital adjustments. The number of units was based on the volume weighted average trading price of Dominion Midstream’s common
units for the 10 trading days prior to April 1, 2015, or $39.12 per unit totaling $200.0 million; and |
| |
• |
|
The estimated interest expense that would have been paid had the note payable to Dominion been outstanding during 2014. |
3
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
At December 31, 2014 |
|
| |
|
Dominion
Midstream
Partners, LP
(As Filed) |
|
|
Dominion
Carolina Gas
Transmission,
LLC |
|
|
Pro Forma
Adjustments |
|
|
Dominion Midstream
Partners, LP Pro
Forma |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
175.4 |
|
|
$ |
0.4 |
|
|
$ |
(0.4 |
) (k) |
|
$ |
175.4 |
|
| Customer and other receivables |
|
|
19.9 |
|
|
|
2.1 |
|
|
|
4.5 |
(n) |
|
|
26.5 |
|
| Affiliated receivables |
|
|
6.1 |
|
|
|
4.5 |
|
|
|
(4.5 |
) (n) |
|
|
6.1 |
|
| Affiliated advances |
|
|
— |
|
|
|
2.7 |
|
|
|
(2.7 |
) (k) |
|
|
— |
|
| Prepayments |
|
|
9.5 |
|
|
|
3.2 |
|
|
|
(2.4 |
) (j) |
|
|
10.3 |
|
| Materials and supplies |
|
|
8.7 |
|
|
|
2.7 |
|
|
|
— |
|
|
|
11.4 |
|
| Regulatory assets |
|
|
1.7 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
2.6 |
|
| Other |
|
|
4.7 |
|
|
|
— |
|
|
|
— |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
226.0 |
|
|
|
16.5 |
|
|
|
(5.5 |
) |
|
|
237.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Property, Plant and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment |
|
|
2,203.1 |
|
|
|
368.4 |
|
|
|
12.1 |
(m) |
|
|
2,583.6 |
|
| Accumulated depreciation and amortization |
|
|
(231.2 |
) |
|
|
(96.1 |
) |
|
|
— |
|
|
|
(327.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total property, plant and equipment, net |
|
|
1,971.9 |
|
|
|
272.3 |
|
|
|
12.1 |
|
|
|
2,256.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred Charges and Other Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill |
|
|
45.9 |
|
|
|
20.2 |
|
|
|
231.7 |
(f) |
|
|
297.8 |
|
| Intangible assets, net |
|
|
12.1 |
|
|
|
4.1 |
|
|
|
— |
|
|
|
16.2 |
|
| Regulatory assets |
|
|
2.5 |
|
|
|
7.0 |
|
|
|
(6.9 |
) (i) |
|
|
2.6 |
|
| Other |
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total deferred charges and other assets |
|
|
60.5 |
|
|
|
31.5 |
|
|
|
224.8 |
|
|
|
316.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
2,258.4 |
|
|
$ |
320.3 |
|
|
$ |
231.4 |
|
|
$ |
2,810.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
At December 31, 2014 |
|
| |
|
Dominion
Midstream
Partners, LP
(As Filed) |
|
|
Dominion
Carolina Gas
Transmission,
LLC |
|
|
Pro Forma
Adjustments |
|
|
Dominion Midstream
Partners, LP Pro
Forma |
|
| (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY AND PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
3.3 |
|
|
$ |
1.0 |
|
|
$ |
5.6 |
(e)(n) |
|
$ |
9.9 |
|
| Payables to affiliates |
|
|
2.5 |
|
|
|
5.5 |
|
|
|
(5.5 |
) (n) |
|
|
2.5 |
|
| Accrued interest, payroll and taxes |
|
|
1.5 |
|
|
|
7.2 |
|
|
|
(0.6 |
) (h)(j) |
|
|
8.1 |
|
| Regulatory liabilities |
|
|
3.6 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
6.5 |
|
| Deferred revenue |
|
|
3.9 |
|
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
| Natural gas imbalances |
|
|
2.7 |
|
|
|
— |
|
|
|
— |
|
|
|
2.7 |
|
| CPCN obligation |
|
|
7.9 |
|
|
|
— |
|
|
|
— |
|
|
|
7.9 |
|
| Deferred income taxes |
|
|
— |
|
|
|
3.2 |
|
|
|
(3.2 |
) (l) |
|
|
— |
|
| Other |
|
|
6.4 |
|
|
|
3.9 |
|
|
|
0.1 |
(i)(m) |
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
31.8 |
|
|
|
23.7 |
|
|
|
(3.6 |
) |
|
|
51.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Affiliated Long-term debt |
|
|
— |
|
|
|
100.0 |
|
|
|
195.3 |
(a)(h) |
|
|
295.3 |
|
| Long-term debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Long-term debt |
|
|
— |
|
|
|
100.0 |
|
|
|
195.3 |
|
|
|
295.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred Credits and Other Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred income taxes and investment tax credits |
|
|
— |
|
|
|
45.9 |
|
|
|
(45.9 |
) (c)(l) |
|
|
— |
|
| Pension and other postretirement benefit liabilities |
|
|
4.4 |
|
|
|
12.5 |
|
|
|
(12.5 |
) (i) |
|
|
4.4 |
|
| Regulatory liabilities |
|
|
33.5 |
|
|
|
37.9 |
|
|
|
— |
|
|
|
71.4 |
|
| CPCN obligation |
|
|
36.2 |
|
|
|
— |
|
|
|
— |
|
|
|
36.2 |
|
| Other |
|
|
1.7 |
|
|
|
2.5 |
|
|
|
11.7 |
(m) |
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total deferred credits and other liabilities |
|
|
75.8 |
|
|
|
98.8 |
|
|
|
(46.7 |
) |
|
|
127.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
107.6 |
|
|
|
222.5 |
|
|
|
145.0 |
|
|
|
475.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity and Partners’ Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Predecessor net equity |
|
|
— |
|
|
|
97.8 |
|
|
|
(97.8 |
) (g) |
|
|
— |
|
| Common unitholders - public |
|
|
395.4 |
|
|
|
— |
|
|
|
— |
|
|
|
395.4 |
|
| Common unitholder - Dominion |
|
|
213.7 |
|
|
|
— |
|
|
|
184.2 |
(b)(c)(e) |
|
|
397.9 |
|
| Subordinated unitholder - Dominion |
|
|
466.2 |
|
|
|
— |
|
|
|
— |
|
|
|
466.2 |
|
| General Partner interest - Dominion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Dominion Midstream Partners, LP partners’ equity and capital |
|
|
1,075.3 |
|
|
|
97.8 |
|
|
|
86.4 |
|
|
|
1,259.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Noncontrolling interest |
|
|
1,075.5 |
|
|
|
— |
|
|
|
— |
|
|
|
1,075.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity and partners’ capital |
|
|
2,150.8 |
|
|
|
97.8 |
|
|
|
86.4 |
|
|
|
2,335.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities and equity and partners’ capital |
|
$ |
2,258.4 |
|
|
$ |
320.3 |
|
|
$ |
231.4 |
|
|
$ |
2,810.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
DOMINION MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, 2014 |
|
| |
|
Dominion
Midstream
Partners, LP
(As Filed) |
|
|
Dominion
Carolina Gas
Transmission,
LLC |
|
|
Pro Forma
Adjustments |
|
|
Dominion
Midstream
Partners, LP Pro
Forma |
|
| (millions, except unit and per unit data) |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Revenue |
|
$ |
313.3 |
|
|
$ |
64.9 |
|
|
$ |
— |
|
|
$ |
378.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchased gas |
|
|
59.6 |
|
|
|
— |
|
|
|
— |
|
|
|
59.6 |
|
| Other operations and maintenance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Affiliated suppliers |
|
|
9.4 |
|
|
|
8.5 |
|
|
|
(2.1 |
) (p) |
|
|
15.8 |
|
| Other |
|
|
25.5 |
|
|
|
15.4 |
|
|
|
2.6 |
(o)(p) |
|
|
43.5 |
|
| Depreciation and amortization |
|
|
37.7 |
|
|
|
8.5 |
|
|
|
— |
|
|
|
46.2 |
|
| Other taxes |
|
|
22.4 |
|
|
|
5.4 |
|
|
|
(0.5 |
) (o) |
|
|
27.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
154.6 |
|
|
|
37.8 |
|
|
|
— |
|
|
|
192.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from operations |
|
|
158.7 |
|
|
|
27.1 |
|
|
|
— |
|
|
|
185.8 |
|
| Other income |
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
0.7 |
|
| Interest and related charges |
|
|
— |
|
|
|
4.2 |
|
|
|
(2.7 |
) (d)(h) |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from operations including noncontrolling interest before income taxes |
|
|
158.7 |
|
|
|
23.6 |
|
|
|
2.7 |
|
|
|
185.0 |
|
| Income tax expense |
|
|
51.8 |
|
|
|
8.9 |
|
|
|
(8.9 |
) (c) |
|
|
51.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income including noncontrolling interest |
|
|
106.9 |
|
|
|
14.7 |
|
|
|
11.6 |
|
|
|
133.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: Predecessor income prior to initial public offering on October 20, 2014 |
|
|
80.6 |
|
|
|
— |
|
|
|
— |
|
|
|
80.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income including noncontrolling interest subsequent to initial public offering |
|
|
26.3 |
|
|
|
14.7 |
|
|
|
11.6 |
|
|
|
52.6 |
|
| Less: Net income attributable to noncontrolling interest subsequent to initial public offering |
|
|
16.8 |
|
|
|
— |
|
|
|
— |
|
|
|
16.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income attributable to Dominion Midstream Partners, LP |
|
$ |
9.5 |
|
|
$ |
14.7 |
|
|
$ |
11.6 |
|
|
$ |
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income attributable to partners’ ownership interest subsequent to initial public offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common unitholders’ interest in net income |
|
$ |
4.8 |
|
|
|
|
|
|
|
|
|
|
$ |
16.8 |
|
| Subordinated unitholder’s interest in net income |
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
14.5 |
|
| Net income subsequent to initial public offering per unit (basic and diluted) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common units |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
$ |
0.45 |
|
| Subordinated units |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Limited Partner Units outstanding - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common units |
|
|
31,975,079 |
|
|
|
|
|
|
|
5,112,139 |
(b) |
|
|
37,087,218 |
|
| Subordinated units |
|
|
31,972,789 |
|
|
|
|
|
|
|
— |
|
|
|
31,972,789 |
|
6
DOMINION MIDSTREAM PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma Consolidated Financial Statements of Dominion Midstream have been derived from the audited historical financial statements of DCGT set
forth in Exhibit 99.1 and the audited historical financial statements of Dominion Midstream included in its Annual Report on Form 10-K for the year ended December 31, 2014, as filed. DCGT’s financial statements are comprised of the
operations and related assets of DCGT, which operates as an open access, transportation-only interstate pipeline company in South Carolina and southeastern Georgia. As of December 31, 2014, DCGT’s natural gas system consisted of nearly
1,500 miles of transmission pipeline of up to 24 inches in diameter. DCGT’s system transports gas to its customers from the transmission systems of Southern Natural Gas Company at Port Wentworth, Georgia and Aiken County, South Carolina;
Southern LNG, Inc. at Elba Island, near Savannah, Georgia; and Transcontinental Gas Pipeline Corporation in Cherokee and Spartanburg counties in South Carolina.
On April 1, 2015, Dominion Midstream entered into a Purchase, Sale and Contribution Agreement with Dominion pursuant to which Dominion
Midstream purchased from Dominion all of the issued and outstanding membership interests of DCGT in exchange for a senior unsecured promissory note in the initial amount of $295.3 million payable to Dominion and 5,112,139 common units, valued at
$200.0 million, representing limited partner interests in Dominion Midstream issued to Dominion. As a result of the transaction, Dominion Midstream owns 100% of the membership interests in DCGT and will therefore consolidate DCGT. Because the
contribution of DCGT by Dominion to Dominion Midstream is considered to be a reorganization of entities under common control, DCGT’s assets and liabilities are recorded in Dominion Midstream’s consolidated financial statements at
Dominion’s historical cost. Common control began on January 31, 2015, concurrent with Dominion’s acquisition of DCGT from SCANA, which is accounted for using the acquisition method of accounting. Accordingly, the consolidated
financial statements of Dominion Midstream will reflect DCGT’s financial results beginning January 31, 2015.
The pro forma
adjustments have been prepared as if the acquisition of DCGT occurred on December 31, 2014 in the case of the unaudited pro forma Consolidated Balance Sheet and as of January 1, 2014 in the case of the unaudited pro forma Consolidated
Statement of Income for the year ended December 31, 2014. The adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effects of these transactions will differ from the pro forma
adjustments. However, management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the transaction, and that the pro forma adjustments in the unaudited pro forma Consolidated Financial Statements
give appropriate effect to the assumptions. The effects on the unaudited pro forma Consolidated Financial Statements of the transaction described above are more fully described in Note 3.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in preparing the unaudited pro forma Consolidated Financial Statements are those used by Dominion Midstream as set forth in
the audited historical financial statements and notes of Dominion Midstream included in its Annual Report on Form 10-K for the year ended December 31, 2014, as filed.
NOTE 3. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The following transactions are directly attributable to Dominion Midstream’s acquisition of DCGT from Dominion, a reorganization of entities under common
control whereby Dominion Midstream records the assets and liabilities of DCGT at Dominion’s historical cost. As Dominion’s acquisition of DCGT from SCANA occurred on January 31, 2015, the following adjustments include those necessary
to arrive at an approximation of Dominion’s historical cost.
| (a) |
Issuance of a 2-year, $295.3 million senior unsecured promissory note payable to Dominion as a part of the total consideration for the acquisition. |
| (b) |
Issuance of 5,112,139 common units of Dominion Midstream to Dominion as part of the total consideration for the acquisition. The number of units was based on the volume weighted average trading price of Dominion
Midstream’s common units for the 10 trading days prior to April 1, 2015, or $39.12 per unit totaling $200.0 million. |
| (c) |
Federal and state income taxes are being eliminated to reflect the change in tax status from a limited liability corporation that has been treated as a taxable division of its corporate parent, to that of Dominion
Midstream, a pass-through entity generally not subject to income taxes. Noncurrent deferred tax assets of $15.7 million are reflected against equity in the pro forma Balance Sheet. Income tax expense of $8.9 million is eliminated in the pro forma
Income Statement. |
| (d) |
Reflects the estimated interest expense of $1.8 million associated with the issuance of the 2-year, $295.3 million note payable to Dominion at an annual interest rate of 0.6%. |
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| (e) |
Reflects the accrual of $0.1 million in estimated transaction costs associated with the acquisition of DCGT by Dominion Midstream, including audit, legal and advisory fees. |
| (f) |
Reflects the excess of Dominion’s consideration paid of approximately $495.3 million over the amount of identifiable assets and liabilities assumed in the transaction (goodwill) reflected at Dominion’s
historical basis. For further description, see items (g) through (m). |
| (g) |
Reflects the elimination of SCANA’s historical net investment in DCGT. |
| (h) |
Reflects the settlement of DCGT’s notes payable to SCANA in the amount of $100.0 million and related interest payable to SCANA of $0.4 million at December 31, 2014 through an equity contribution from SCANA.
Interest expense of $4.5 million on these notes payable for the year ended December 31, 2014 will not be incurred going forward and is therefore excluded from the pro forma Consolidated Income Statement. |
| (i) |
Until January 31, 2015, DCGT participated in SCANA’s defined benefit, other post retirement health care and life insurance and defined contribution plans. This adjustment reflects the settlement of $0.3
million and $12.5 million in current and noncurrent liabilities due to SCANA related to these plans which were settled through an equity contribution from SCANA. Additionally, the regulatory asset of $6.9 million associated with these liabilities
was removed. |
| (j) |
Reflects the settlement through equity of $2.4 million in prepayments and $0.2 million in liabilities due to SCANA related to DCGT’s intercompany tax sharing agreement with SCANA, which was terminated on
January 31, 2015. |
| (k) |
Until January 31, 2015, DCGT participated in the SCANA money pool. This adjustment reflects the settlement of $2.7 million in Affiliated advances to SCANA related to the SCANA money pool which was settled through
equity to SCANA. Similarly, SCANA retained existing cash of $0.4 million. |
| (l) |
Reflects the changes in deferred tax assets and liabilities resulting from Dominion’s application of the acquisition method of accounting upon the purchase of DCGT from SCANA on January 31, 2015. Net current and
noncurrent deferred tax liabilities were reduced by $3.2 million and $61.6 million, respectively. |
| (m) |
This pro forma adjustment conforms DCGT’s accounting for AROs to the methodology used by Dominion. The cash flows used to measure Dominion’s pipeline AROs reflect the cost and timing of activities legally
required to retire component sections of pipeline as they are removed from service. The cash flows previously used to measure DCGT’s pipeline AROs are those legally required to retire the entire pipeline system at one point in time. As a result
of this change in accounting methodology, Dominion recorded an increase of $12.1 million to property, plant and equipment and increases of $0.4 million and $11.7 million to current and noncurrent other liabilities, respectively. |
Subsequent to the acquisition of DCGT by Dominion, SCANA is no longer an affiliate of DCGT, DCGT employees became employees of Dominion subsidiaries, and DCGT
entered into agreements with these subsidiaries to provide administrative, management, operations and human resources services. Accordingly, the following adjustments are reflected in the pro form financial statements.
| (n) |
Reflects the reclassification of $4.5 million in Affiliated receivables from SCANA and $5.5 million in Payables to affiliates to SCANA to Customer and other receivables and Accounts payable, respectively.
|
| (o) |
Reflects the reclassification of $0.5 million of payroll taxes from Other taxes to Other operating and maintenance expenses. |
| (p) |
Reflects the reclassification of $2.1 million from Other operations and maintenance expense - affiliated suppliers to Other operations and maintenance expense - other. |
NOTE 4. PRO FORMA NET INCOME PER UNIT
Net income per unit applicable to common units and to subordinated units is computed by dividing the respective limited partners’ interest in net income
attributable to Dominion Midstream, after deducting any incentive distributions, by the weighted average number of common and subordinated units outstanding. Because Dominion Midstream has more than one class of participating securities, the
two-class method is used when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, and IDRs.
Dominion Midstream’s net income is allocated to the limited partners in accordance with their respective partnership percentages, after
giving effect to priority income allocations for incentive distributions, if any, to Dominion, the holder of the IDRs, pursuant to the partnership agreement. The distributions are declared and paid following the close of each quarter. Earnings in
excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to Dominion Midstream’s unitholders are determined in relation to actual distributions declared and are not based on the
net income allocations used in the calculation of earnings per unit. Basic and diluted net income per unit are the same because Dominion Midstream does not have any potentially dilutive common or subordinated units outstanding for the period
presented.
Pro forma net income per limited partner unit is determined by dividing the pro forma net income available to the limited
partners by the weighted average number of common and subordinated units outstanding. Because all newly issued common units associated with the acquisition were assumed to have been outstanding for the entire period presented, the pro forma basic
8
and diluted average number of common and subordinated units outstanding equals the average number of common and subordinated units outstanding as of December 31, 2014, plus the number of
newly issued common units at the closing of the acquisition. At December 31, 2014, the average number of common and subordinated units outstanding was 31,975,079 and 31,972,789, respectively. In connection with the acquisition, 5,112,139
common units were issued to Dominion. The pro forma net income per unit calculations assume that no incentive distributions were made to the general partner.
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