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Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2020

NOTE 3. ACQUISITIONS AND DISPOSITIONS

Dominion Energy

Disposition of Gas Transmission & Storage Operations to BHE

In July 2020, Dominion Energy entered into an agreement with BHE with a total value of approximately $10 billion, comprised of approximately $4.0 billion of cash consideration (subject to customary closing adjustments) plus the assumption of long-term debt, to sell substantially all of its gas transmission and storage operations, including processing assets, as well as noncontrolling partnership interests in Iroquois, JAX LNG and White River Hub and a controlling interest in Cove Point (consisting of 100% of the general partner interest and 25% of the total limited partner interests). The agreement provides that Dominion Energy retains the assets and obligations of the pension and other postretirement employee benefit plans associated with the operations included in the transaction and relating to services provided through closing. In October 2020, pursuant to a provision in the agreement with BHE, Dominion Energy elected to exclude Dominion Energy Questar Pipeline and certain other affiliated entities from the transaction as approval under the Hart-Scott-Rodino Act had not been obtained by mid-September 2020. Concurrently in October 2020, Dominion Energy

and BHE entered into a separate agreement under which Dominion Energy will sell Dominion Energy Questar Pipeline and certain other affiliated entities to BHE for cash consideration of $1.3 billion and the assumption of related long-term debt.

In November 2020, Dominion Energy completed the GT&S Transaction and received cash proceeds of $2.7 billion. This transaction is structured as an asset sale for tax purposes. Dominion Energy retained a 50% noncontrolling interest in Cove Point that is accounted for as an equity method investment upon closing of the GT&S Transaction as Dominion Energy has the ability to exercise significant influence over, but not control, Cove Point. The retained 50% noncontrolling interest in Cove Point was recognized at its initial fair value of $2.8 billion on the date of close estimated using an income approach and a market approach. The valuation is considered a Level 3 fair value measurement due to the use of significant judgment and unobservable inputs, including projected timing and amount of future cash flows and a discount rate reflecting risks inherent in the future cash flows and market prices. Upon closing the GT&S Transaction, Dominion Energy recognized a gain of $127 million (net of a $1.4 billion write-off of goodwill and a $222 million closing adjustment paid to BHE in December 2020) and an associated tax expense of $336 million, presented in net income (loss) from discontinued operations including noncontrolling interest in Dominion Energy’s Consolidated Statements of Income.

In connection with closing of the GT&S Transaction, Dominion Energy and BHE entered into a transition services agreement under which Dominion Energy will continue to provide specified administrative services to support the operations of the disposed business for up to 24 months after closing. In addition, BHE will provide certain administrative services to Dominion Energy. Dominion Energy recorded revenue of $4 million associated with the transition service agreement in operating revenue in the Consolidated Statements of Income for the year ended December 31, 2020.

Also in November 2020, BHE provided a $1.3 billion deposit to Dominion Energy on the Q-Pipe Transaction. Dominion Energy will be required to repay all or substantially all of this deposit, or issue to BHE an equivalent value in shares of Dominion Energy common stock at Dominion Energy’s option, if the Q-Pipe Transaction does not close by December 30, 2021. Dominion Energy may not solicit or accept offers from alternative buyers for all or a material portion of the Q-Pipe Transaction until after March 31, 2021 and either party may terminate the Q-Pipe Transaction if closing has not occurred on or before June 30, 2021. If the Hart-Scott-Rodino Act approval has not been obtained by June 30, 2021, upon BHE’s request, Dominion Energy will seek an alternative buyer for all or a material portion of the Q-Pipe Transaction. The Q-Pipe Transaction is structured as an asset sale for tax purposes and is expected to close in early 2021, contingent on clearance or approval under the Hart-Scott-Rodino Act, and other customary closing and regulatory conditions. Based on the recorded balances at December 31, 2020, Dominion Energy expects to recognize a pre-tax gain of approximately $450 million ($320 million after tax) upon closing, including the write-off of $191 million of goodwill, but excluding the effects of any closing adjustments.

The operations included in both the GT&S Transaction and the Q-Pipe Transaction are presented in held-for-sale and discontinued operations effective July 2020. As a result, the previously reported amounts have been recast to reflect this presentation and depreciation and amortization ceased on the applicable assets. As Cove Point had previously been consolidated within Dominion Energy’s financial statements, balances associated with Cove Point prior to the closing of the GT&S Transaction are presented within held-for-sale and discontinued operations. See Note 9 for further information regarding Dominion Energy’s equity method investment in Cove Point.

The following table represents selected information regarding the results of operations, which are reported within discontinued operations in Dominion Energy’s Consolidated Statements of Income:

	Year Ended December 31, 2020						Year Ended December 31, 2019				Year Ended December 31, 2018
	GT&S Transaction⁽¹⁾			Q-Pipe Transaction			GT&S Transaction		Q-Pipe Transaction		GT&S Transaction		Q-Pipe Transaction
(millions)
Operating revenue	$	1,710		$	246		$	2,213	$	251	$	2,134	$	247
Operating Expense⁽²⁾⁽³⁾		1,289			96			1,367		131		1,663		135
Other income (loss)		88			1			58		4		68		5
Interest and related charges⁽⁴⁾		372			20			267		20		183		20
Income (loss) before income taxes		137			131			637		104		356		97
Income tax expense (benefit)		334			(9	)		120		23		40		18
Net income (loss) including noncontrolling interests		(197	)		140			517		81		316		79
Noncontrolling interests		106			—			11		—		92		—
Net income (loss) attributable to Dominion Energy	$	(303	)	$	140		$	506	$	81	$	224	$	79

(1)	Operations associated with the GT&S Transaction are through the November 1, 2020 settlement date.

(2)

GT&S Transaction includes a charge of $482 million ($359 million after-tax) recorded in the second quarter of 2020 associated with the probable abandonment of a significant portion of the Supply Header Project as well as the establishment of a $75 million ARO as a result of the cancellation of the Atlantic Coast Pipeline Project. It also includes charges of $219 million ($165 million after-tax) associated with the impairment of certain gathering and processing assets, $127 million ($92 million after-tax) associated with the disallowance of FERC-regulated plant and $37 million ($28 million after-tax) write-off associated with the Eastern Market Access Project all recorded in 2018.

(3)	GT&S Transaction includes gains on sales of assets recorded in 2018 totaling $115 million ($83 million after-tax), associated with the conveyance of Marcellus Shale and Utica and Point Pleasant Shale acreage underneath its natural gas storage fields.

(4)	GT&S Transaction includes a loss of $237 million ($178 million after-tax) recorded in the third quarter of 2020 associated with cash flow hedges of debt-related items that were determined to be probable of not occurring.

The carrying amounts of major classes of assets and liabilities relating to the disposal groups, which are reported as held for sale in Dominion Energy’s Consolidated Balance Sheets, were as follows:

	At December 31, 2020⁽¹⁾		At December 31, 2019
	Q-Pipe Transaction		GT&S Transaction		Q-Pipe Transaction
(millions)
Current assets⁽²⁾	$	47	$	445	$	49
Equity method investments⁽³⁾		35		276		36
Property, plant and equipment, net		1,113		10,764		1,103
Other deferred charges and other assets, including goodwill⁽⁴⁾and intangible assets		224		1,553		225
Current liabilities⁽⁵⁾		30		1,002		37
Long-term debt		426		4,401		425
Other deferred credits and liabilities		154		773		155

(1)	All amounts at December 31, 2020 are classified as current in Dominion Energy’s Consolidated Balance Sheets.

(2)	Includes cash and cash equivalents of $20 million as of December 31, 2019 within the GT&S Transaction and $7 million and $11 million as of December 31, 2020 and December 31, 2019, respectively, within the Q-Pipe Transaction.

(3)	Comprised of equity method investments in Iroquois and JAX LNG within the GT&S Transaction and White River Hub within the Q-Pipe Transaction.

(4)	Includes goodwill of $1.4 billion at December 31, 2019 within the GT&S Transaction and $191 million at both December 31, 2020 and December 31, 2019 within the Q-Pipe Transaction.

(5)	Includes current portions of long-term debt of $699 million as of December 31, 2019, within the GT&S Transaction.

Capital expenditures and significant noncash items relating to the disposal groups included the following:

	Year Ended December 31, 2020				Year Ended December 31, 2019				Year Ended December 31, 2018
	GT&S Transaction⁽¹⁾		Q-Pipe Transaction		GT&S Transaction		Q-Pipe Transaction		GT&S Transaction		Q-Pipe Transaction
(millions)
Capital expenditures	$	292	$	38	$	386	$	42	$	728	$	34
Significant noncash items
Impairment of assets and other charges		469		—		13		1		391		—
Charge related to a voluntary retirement program		—		—		19		3		—		—
Depreciation, depletion and amortization		177		27		322		51		283		57
Accrued capital expenditures		—		1		25		2		56		2

(1)	Operations associated with the GT&S Transaction are through the November 1, 2020 settlement date.

In October 2020, Dominion Energy settled various derivatives related to, but not included in, the GT&S Transaction for a payment of $165 million.

Acquisition of SCANA

In January 2019, Dominion Energy issued 95.6 million shares of Dominion Energy common stock, valued at $6.8 billion, representing 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock, in connection with the completion of the SCANA Combination. SCANA, through its regulated subsidiaries, is primarily engaged in the generation, transmission and distribution of electricity in the central, southern and southwestern portions of South Carolina and in the distribution of natural gas in North Carolina and South Carolina. In addition, at the closing of the SCANA Combination, SCANA marketed natural gas to retail customers in the southeast U.S. Following completion of the SCANA Combination, SCANA operates as a wholly-owned subsidiary of Dominion Energy. In addition, SCANA’s debt totaled $6.9 billion at closing. The SCANA Combination expanded Dominion Energy’s portfolio of regulated electric generation, transmission and distribution and regulated natural gas distribution infrastructure operations.

Merger Conditions

Refunds to Customers

As a condition to the SCANA Merger Approval Order, DESC will provide refunds and restitution of $2.0 billion over 20 years with capital support from Dominion Energy.

In September and October 2017, DESC received proceeds totaling $1.1 billion in full satisfaction of its share of a settlement agreement among DESC, Santee Cooper and Toshiba Corporation in connection with Westinghouse and WECTEC, both wholly-owned subsidiaries of Toshiba Corporation and responsible for the engineering and construction of the NND Project, filing for bankruptcy. The purchase price allocation below includes a previously established regulatory liability at DESC totaling $1.1 billion, of which $67 million was considered current, associated with the monetization of the bankruptcy settlement with Toshiba Corporation. In accordance with the terms of the SCANA Merger Approval Order, this regulatory liability, net of amounts that may be required to satisfy any liens against NND Project property, totaling $1.0 billion will be refunded to DESC electric service customers over a 20-year period ending in 2039.

Additionally, in the first quarter of 2019, DESC recorded a reduction in operating revenue and a corresponding regulatory liability of $1.0 billion, of which $137 million was considered current, representing a refund of amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated 11-year period, effective February 2019. As a result, Dominion Energy’s Consolidated Statements of Income for the year ended December 31, 2019 includes a $756 million after-tax charge which is reflected in the Corporate and Other segment.

NND Project

As a condition to the SCANA Merger Approval Order, DESC committed to excluding from rate recovery $2.4 billion of costs related to the NND Project and $180 million of costs associated with the purchase of the Columbia Energy Center power station. Regulatory assets included in SCANA’s historical balance sheet at December 31, 2018 reflected these disallowances.

The remaining regulatory asset associated with the NND Project of $2.8 billion, of which $138 million was considered current, will be collected over a 20-year period, including a return on investment. In January 2019, DESC filed the capital cost rider in accordance with the terms of the SCANA Merger Approval Order for rates effective in February 2019 for DESC’s retail electric customers. The South Carolina Commission approved this filing in January 2019.

Other Terms and Conditions

•

DESC agreed not to file an application for a general rate case with the South Carolina Commission with a requested effective date earlier than January 2021. See Note 13 for information on the status of DESC’s ongoing base rate case;

•

PSNC will not file an application for a general rate case with the North Carolina Commission any earlier than April 2021;

•

Dominion Energy committed to increasing SCANA’s historical level of corporate contributions to charities by $1 million per year over five years beginning in 2019;

•

Dominion Energy will maintain DESC and PSNC’s headquarters in Cayce, South Carolina and Gastonia, North Carolina, respectively; and

•

Dominion Energy will seek to minimize reductions in local employment by allowing some DES employees supporting shared and common services functions and activities to be located in Cayce, South Carolina where it makes economic and practical sense to do so.

Purchase Price Allocation

SCANA’s assets acquired and liabilities assumed have been measured at estimated fair value at closing and are included in the Dominion Energy South Carolina and Gas Distribution operating segments. The majority of the operations acquired are subject to the rate setting authority of FERC and the North and South Carolina Commissions and are therefore accounted for pursuant to ASC 980, Regulated Operations. The fair values of SCANA’s assets and liabilities subject to rate-setting and cost recovery provisions provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. As such, the fair values of these assets and liabilities equal their carrying values. Accordingly, neither the assets and liabilities acquired, nor the unaudited pro forma financial information, reflect any adjustments related to these amounts.

The fair value of SCANA’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions discussed above and the fair values of SCANA’s investments accounted for under the equity method were determined using the income approach and the market approach. The valuation of SCANA’s long-term debt is considered a Level 2 fair value measurement. All other valuations are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future market prices.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was reflected as goodwill. The goodwill reflects the value associated with enhancing Dominion Energy’s portfolio of regulated operations in the growing southeast region of the U.S. The goodwill recognized is not deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.

The table below shows the allocation of the purchase price to the assets acquired and liabilities assumed at closing, which reflects certain adjustments related to income taxes, as discussed in Note 5, from the preliminary valuation recognized during the measurement period.

	Amount
(millions)
Total current assets⁽¹⁾		$	1,782
Investments⁽²⁾			224
Property, plant and equipment⁽³⁾⁽⁴⁾			11,006
Goodwill			2,609
Regulatory assets⁽⁵⁾			3,940
Other deferred charges and other assets, including intangible assets⁽⁶⁾			430
Total Assets			19,991
Total current liabilities⁽⁷⁾			1,556
Long-term debt			6,707
Deferred income taxes			1,068
Regulatory liabilities			2,706
Other deferred credits and other liabilities⁽⁸⁾			1,115
Total Liabilities			13,152
Total purchase price⁽⁹⁾		$	6,839

(1)	Includes $389 million of cash, restricted cash and equivalents, of which $115 million is considered restricted.

(2)	Includes $31 million for equity method investments. The fair value adjustment on the equity method investments is considered to be equity method goodwill and is not amortized.

(3)

Includes $105 million of certain property, plant and equipment associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. As a result, Dominion Energy’s Consolidated Statements of Income for the year ended December 31, 2019 include a charge of $105 million ($79 million after-tax), included in impairment of assets and other charges (reflected in the Corporate and Other segment).

(4)	Nonregulated property, plant and equipment, excluding land, will be depreciated on a straight-line basis over the remaining useful lives of such property, primarily ranging from 5 to 78 years.

(5)	Includes $258 million of certain income tax-related regulatory assets associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. See Note 5 for additional information.

(6)	Intangible assets have an estimated weighted-average amortization period of approximately five years.

(7)	Includes $40 million outstanding under letters of credit advances, which were repaid in January 2019, as well as $173 million outstanding commercial paper under various credit facilities. All such credit facilities were terminated in 2019.

(8)	Includes a $379 million pension and other postretirement benefit liability.

(9)	Includes stock-based compensation awards with a fair value of $21 million.

Results of Operations and Unaudited Pro Forma Information

The impact of the SCANA Combination on Dominion Energy’s operating revenue was an increase of $3.3 billion and $3.1 billion for the years ended December 31, 2020 and 2019, respectively, in the Consolidated Statements of Income. The impact of the SCANA Combination on Dominion Energy’s net income attributable to Dominion Energy was an increase of $277 million and a decrease of $1.1 billion for the years ended December 31, 2020 and 2019, respectively, in the Consolidated Statements of Income.

Dominion Energy incurred merger and integration-related costs of $97 million for the year ended December 31, 2020, all of which is recorded in other operations and maintenance expense in the Consolidated Statements of Income. Dominion Energy incurred merger and integration-related costs of $646 million for the year ended December 31, 2019. The amount for the year ended December 31, 2019 includes $427 million for a charge related to a voluntary retirement program. See Note 22 for additional information. Of the remaining merger and integration-related costs, $210 million is recorded in other operations and maintenance expense and $9 million was recorded in interest and related charges in the Consolidated Statements of Income for the year ended December 31, 2019. During the year ended December 31, 2018, Dominion Energy incurred merger and integration-related costs of $27 million, recorded primarily in other operations and maintenance expense in the Consolidated Statements of Income. These costs consist of professional fees, the charitable contribution commitment described above, employee-related expenses, certain financing costs and other miscellaneous costs.

The following unaudited pro forma financial information reflects the consolidated results of operations of Dominion Energy assuming the SCANA Combination had taken place on January 1, 2018. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of the combined company.

	Twelve Months Ended December 31,
	2019⁽¹⁾		2018⁽¹⁾
(millions, except EPS)
Operating Revenue	$	15,408	$	15,344
Net income attributable to Dominion Energy		3,266		2,081
Earnings Per Common Share – Basic	$	4.04	$	2.78
Earnings Per Common Share – Diluted	$	4.00	$	2.77

(1)	Amounts include adjustments for non-recurring costs directly related to the SCANA Combination.

Sale of Interest in Cove Point

In October 2019, Dominion Energy signed an agreement to sell its 25% noncontrolling limited partnership interests in Cove Point to Brookfield. In December 2019, the sale was completed and Dominion Energy received cash consideration of $2.1 billion, subject to working capital adjustments. The sale was accounted for by Dominion Energy following the guidance for a change in a parent company’s ownership interest in a consolidated subsidiary. Because Dominion Energy controlled Cove Point both before and after the sale of the noncontrolling interest, the changes in Dominion Energy’s ownership interest in Cove Point was accounted for as an equity transaction and no gain or loss was recognized.