Note 6 - Other Investments

6 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6. Other Investments

Midstream is an approximately 1% equity investment owner of the LLC constructing the MVP, a 303 mile natural gas interstate pipeline from northern West Virginia to southern Virginia.  Since inception, the MVP has encountered various legal and regulatory issues that continue to delay the completion of the project.  While under construction, AFUDC has provided the majority of the income recognized by Midstream.  AFUDC accruals were suspended in November 2021 until such time when growth construction activities are allowed to resume.

Midstream is also a less than 1% investor in Southgate, which is being accounted for under the cost method. 

On January 25, 2022, the Fourth Circuit vacated and remanded on specific issues certain permits issued by the Bureau of Land Management and the U.S. Forest Service to the LLC in respect of the Jefferson National Forest.  On February 3, 2022, the Fourth Circuit vacated and remanded on specific issues the Biological Opinion and Incidental Take Statement issued by the U.S. Fish and Wildlife Service for MVP.  Primarily due to these unfavorable decisions by the Fourth Circuit, Midstream identified as an indicator of an other-than-temporary decline in value the increased uncertainty of the completion and commercial operation of MVP and Southgate.  As a result, Midstream assessed the value of its investment in the LLC as of February 22, 2022 and March 31, 2022, to determine if its investment's carrying value exceeded the fair value. 

Midstream estimated the fair value of its investment in the LLC, with the assistance of a valuation specialist, using an income based approach that primarily considered probability-weighted scenarios of discounted future cash flows based on the estimated project costs at completion and projected revenues.  These scenarios reflected assumptions and judgments regarding the ultimate outcome of further matters relating to, or resulting from, the January and February 2022 Fourth Circuit rulings, as well as various other ongoing legal and regulatory matters affecting MVP and Southgate.  Such assumptions and judgments also included certain additional potential delays and related cost increases that could result from unfavorable decisions on these proceedings and matters.  Midstream’s analysis also took into account, among other things, probability weighted growth expectations from additional compression expansion opportunities.  This analysis also considered scenarios under which ongoing or new legal and regulatory matters further delay the completion and increase the total costs of the project; all required legal and regulatory approvals and authorizations and certain compression expansion opportunities are realized; and MVP and Southgate are canceled.  As a result of the assessment, Midstream recognized a pre-tax impairment loss of approximately $39.8 million in the second quarter of fiscal 2022.  The fair value of the investment in the LLC was determined under a Level 3 measurement considering the significant assumptions and judgments required in estimating the fair value of the Company's investment in the LLC.  Investment balances of MVP and Southgate, as of March 31, 2022, are reflected in the table below.

There is risk that Midstream’s equity investment in the LLC may be further impaired in the future.  There are ongoing, and potential future legal and regulatory matters related to MVP, any of which could affect the ability to complete or operate the project, as well as legal and regulatory matters related to Southgate that must be resolved.  Assumptions and estimates utilized in assessing the fair value of Midstream’s investment in the LLC may change depending on the nature or timing of resolutions to the legal and regulatory matters or based on other relevant developments.  Adverse changes in circumstances relevant to the likelihood of project or expansion completion could prompt Midstream, in future assessments, to apply lower probability of project or expansion completion and such changes in assumptions or estimates, including discount rates, could have a material adverse effect on the fair value of Midstream’s investment in the LLC and potentially result in an additional impairment, which could have a material adverse effect on the results of operations and financial position of Midstream and the Company as a whole.

Funding for Midstream's investments in the LLC for both MVP and Southgate is being provided through two variable rate unsecured promissory notes, under a non-revolving credit agreement, maturing in December 2022, and three additional notes as detailed in Note 9.

The investments in the LLC are included in the accompanying financial statements as follows:

Balance Sheet location:	March 31, 2022		September 30, 2021
Other Assets:
MVP	$	27,237,888	$	64,462,194
Southgate		83,363		405,125
Investment in unconsolidated affiliates	$	27,321,251	$	64,867,319
Current Liabilities:
MVP	$	772,601	$	2,139,696
Southgate		489		941
Capital contributions payable	$	773,090	$	2,140,637

	Three Months Ended						Six Months Ended
Income Statement location:	March 31, 2022			March 31, 2021			March 31, 2022		March 31, 2021
Equity in earnings (loss) of unconsolidated affiliate	$	(445	)	$	(3,797	)	$	71,682	$	1,352,886

	March 31, 2022		September 30, 2021
Undistributed earnings, net of income taxes, of MVP in retained earnings	$	8,134,259	$	8,081,027

The undistributed earnings does not include the impairment of the investment in the LLC.

The change in the investment in unconsolidated affiliates is provided below:

	Six Months Ended
	March 31, 2022			March 31, 2021
Cash investment	$	3,572,011		$	2,720,008
Change in accrued capital calls		(1,367,548	)		(1,071,205	)
Pre-tax impairment		(39,822,213	)		—
Equity in earnings of unconsolidated affiliate		71,682			1,352,886
Change in investment in unconsolidated affiliates	$	(37,546,068	)	$	3,001,689

Summary unaudited financial statements of MVP are presented below. Southgate financial statements, which are accounted for under the cost method, are not included:

	Income Statements
	Three Months Ended				Six Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022			March 31, 2021
AFUDC	$	—	$	—	$	6,883,069		$	133,757,314
Other income (expense), net		9,245		5,514		(35,818	)		(47,094	)
Net income	$	9,245	$	5,514	$	6,847,251		$	133,710,220

	Balance Sheets
	March 31, 2022		September 30, 2021
Assets:
Current assets	$	118,201,286	$	208,961,113
Construction work in progress		6,514,077,686		6,281,991,035
Other assets		1,190,042		980,410
Total assets	$	6,633,469,014	$	6,491,932,558
Liabilities and Equity:
Current liabilities	$	146,102,517	$	200,441,027
Noncurrent liabilities		45,000		13,000
Capital		6,487,321,497		6,291,478,531
Total liabilities and equity	$	6,633,469,014	$	6,491,932,558