Equity Method Investments

The condensed consolidated financial statements include the accounts of wholly-owned subsidiaries whose investments in joint venture, energy-related businesses are accounted for under the equity method. Our ownership interest in each entity is included in “Equity method investments in non-utility activities” in “Noncurrent Assets” in the Condensed Consolidated Balance Sheets. Earnings or losses from equity method investments are included in “Income from equity method investments” in “Other Income (Expense)” in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Ownership Interests

We have the following membership interests in these companies as of July 31, 2016 and October 31, 2015.



Entity Name	Interest	Activity
Cardinal Pipeline Company, LLC (Cardinal)	21.49%	Intrastate pipeline located in North Carolina; regulated by the NCUC
Pine Needle LNG Company, LLC (Pine Needle)	45%	Interstate LNG storage facility located in North Carolina; regulated by the FERC
SouthStar Energy Services LLC (SouthStar)	15%	Energy services company primarily selling natural gas in the unregulated retail gas market to residential, commercial and industrial customers in the eastern United States, primarily Georgia and Illinois
Hardy Storage Company (Hardy Storage)	50%	Underground interstate storage facility located in Hardy and Hampshire Counties, West Virginia; regulated by the FERC
Constitution Pipeline Company LLC (Constitution)	24%	To develop, construct, own and operate 124 miles of interstate natural gas pipeline and related facilities, connecting shale natural gas supplies and gathering systems in Susquehanna County, Pennsylvania, to Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York; regulated by the FERC
Atlantic Coast Pipeline, LLC (ACP)	10%	To develop, construct, own and operate approximately 600 miles of interstate natural gas pipeline with associated compression from West Virginia through Virginia into eastern North Carolina in order to provide interstate natural gas transportation services of diverse eastern gas supplies into southeastern markets; regulated by the FERC

Accumulated Other Comprehensive Income (Loss)

As an equity method investor, we record the effect of certain transactions in our accumulated OCIL. Cardinal and Pine Needle enter into interest-rate swap agreements to modify the interest expense characteristics of their unsecured long-term debt which is nonrecourse to its members. SouthStar uses financial contracts in the form of futures, options and swaps, all considered to be derivatives, to moderate the effect of price and weather changes on the timing of its earnings; fair value of these financial contracts is based on selected market indices. Retirement benefits are allocated to SouthStar by its majority member with the activity of prescribed benefit expense items reflected in accumulated OCIL. For these transactions with these equity method investees, we record our share of movements in the market value of these hedged agreements and contracts and retirement benefit items in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Condensed Consolidated Balance Sheets; the detail of our share of the market value of the various financial instruments and the retirement benefits are presented in “Other Comprehensive Income (Loss), net of tax” in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Related Party Transactions

We have related party transactions as a customer of our investments. For each period of the three months and nine months ended July 31, 2016 and 2015, these gas costs and the amounts we owed to our equity method investees as of July 31, 2016 and October 31, 2015 are as follows.



Related Party	Type of Expense	Cost of Gas ⁽¹⁾								Trade accounts payable ⁽²⁾
		Three Months				Nine Months				July 31, 2016		October 31, 2015
In thousands		2016		2015		2016		2015		July 31, 2016		October 31, 2015
Cardinal	Transportation costs	$	2,198	$	2,207	$	6,550	$	6,556	$	741	$	744
Hardy Storage	Gas storage costs	2,322		2,322		6,967		6,967		774		774
Pine Needle	Gas storage costs	2,535		2,833		8,141		8,609		854		955
Totals		$	7,055	$	7,362	$	21,658	$	22,132	$	2,369	$	2,473

⁽¹⁾In the Condensed Consolidated Statements of Operations and Comprehensive Income.
⁽²⁾ In the Condensed Consolidated Balance Sheets.

We have related party transactions as we sell wholesale gas supplies to SouthStar. For each period of the three months and nine months ended July 31, 2016 and 2015, our operating revenues from these sales and the amounts SouthStar owed us as of July 31, 2016 and October 31, 2015 are as follows.



	Operating Revenues ⁽¹⁾								Trade accounts receivable ⁽²⁾
	Three Months				Nine Months				July 31, 2016		October 31, 2015
In thousands	2016		2015		2016		2015		July 31, 2016		October 31, 2015
Operating revenues	$	34	$	475	$	286	$	1,058	$	2	$	183

⁽¹⁾ In the Condensed Consolidated Statements of Operations and Comprehensive Income.
⁽²⁾In the Condensed Consolidated Balance Sheets.

Other Information

SouthStar

In accordance with the SouthStar limited liability company (LLC) agreement, upon the announcement of the Acquisition, we delivered a notice of change of control to Georgia Natural Gas Company (GNGC). On December 9, 2015, GNGC delivered to us a written notice electing to purchase our entire 15% interest in SouthStar, subject to and effective with the consummation of the Acquisition. On February 12, 2016, we entered into a letter agreement with GNGC for the purchase of our interest for $160 million cash. The letter agreement provides that we and GNGC will execute a definitive agreement for the purchase, which will include the satisfaction of customary closing conditions and obtaining regulatory approvals or consents necessary to consummate the purchase of our interest. The definitive agreement has been negotiated, and the parties intend to execute it and close the purchase, simultaneously with the closing of the Acquisition.

Constitution

A subsidiary of The Williams Companies is the operator of the Constitution pipeline project. The total estimated cost of the project is $1.1 billion, including an allowance for funds used during construction (AFUDC).

On April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a necessary water quality certification for the New York portion of the Constitution pipeline. Constitution filed legal actions in the U.S District Court for the Northern District of New York and in the U.S Court of Appeals for the Second Circuit challenging the legality and appropriateness of the NYSDEC’s decision. Both courts granted Constitution's motions to expedite the schedules for the legal actions.

Constitution has stated that it remains steadfastly committed to pursuing the project and that it intends to pursue all available options to challenge the NYSDEC's decision. In light of the denial of the certification, Constitution revised its target in-service date to the second half of 2018, assuming that the challenge process is satisfactorily and promptly concluded.

In July 2016, Constitution requested and the FERC approved an extension of the construction period and in-service deadline of the project to December 2018. Also in July, the FERC denied the New York Attorney General's (NYAG) complaint and request for a stay of the certificate order authorizing the project on the grounds that Constitution had improperly cut trees along the proposed route. The FERC found the complaint procedurally deficient and that there was no justification for a stay; it did find the filing constituted a valid request for investigation and thus referred the matter to FERC staff for further examination as may be appropriate. The NYAG filed a motion for reconsideration of this order.

Our investment in Constitution totaled $93.6 million as of July 31, 2016. We evaluated our investment in the Constitution project for OTTI since the NYSDEC denied Constitution’s application for the water quality certification. Our impairment assessment uses a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our key inputs involve significant management judgments and estimates, including projections of the project’s cash flows, selection of a discount rate and probability weighting of potential outcomes of legal and regulatory proceedings. At this time, we believe we do not have an OTTI and have not recorded any impairment charge to reduce the carrying value of our investment. Our evaluation considered that the pending legal and regulatory proceedings are at very early stages given the recent actions of the NYSDEC in late April 2016. Further, the courts have granted Constitution's motions to expedite the schedules for the legal actions. However, to the extent that the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward as legal and regulatory actions progress, our conclusions with respect to OTTI could change and may require that we recognize an impairment charge of up to our recorded investment in the project, net of any cash and working capital returned. We will continue to monitor and update our OTTI analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period. For information on our evaluation process, see "Fair Value Measurements" in Note 1 to the condensed consolidated financial statements in this Form 10-Q.

We believe that the denial of the certification and resulting delay in the project’s in-service date will not have a material impact on the Acquisition by Duke Energy that is expected to close by the end of 2016.

Pending the outcome of the matters described above, and when construction proceeds, we remain committed to fund the project in an amount in proportion to our ownership interest for the development and construction of the new pipeline, which is expected to cost approximately $955 million, excluding AFUDC, subject to the terms of the LLC agreement. Our total anticipated contributions are approximately $229.3 million. As of July 31, 2016, our contributions for the quarter and fiscal year 2016 were $.5 million and $10.2 million, respectively, with our total equity contribution for the project totaling $82.9 million to date. The capacity of the pipeline is 100% subscribed under fifteen-year service agreements with two Marcellus producer-shippers with a negotiated rate structure.

ACP

A subsidiary of Dominion Resources, Inc. (Dominion) is the operator of the ACP pipeline project. The total cost of the project is expected to be between $4.5 billion to $5 billion, excluding financing costs. Members anticipate obtaining project financing for 60% of the total costs during the construction period, and a project capitalization ratio of 50% debt and 50% equity when operational.

We have committed to fund an amount in proportion to our ownership interest for the development and construction of the new pipeline. As of July 31, 2016, our contributions for the quarter and fiscal year 2016 were $10 million and $20.4 million, respectively, with our total equity contributions for the project totaling $31 million to date.

ACP is regulated by the FERC and subject to state and other federal approvals with a target in-service date that has moved into 2019. The capacity of ACP is substantially subscribed by affiliates of the members of ACP and another utility under twenty-year contracts.

ACP filed its application in September 2015 to request FERC authorization to construct and operate the project facilities under the previously FERC-approved pre-filing process, including the environmental review for the natural gas pipeline. FERC approval of the application of the certificate of public convenience and necessity is expected in mid-2017 with construction projected to begin in late summer of 2017.

On April 15, 2016, Dominion, on behalf of ACP, filed an updated application with the FERC. The filing included, among other items, updated alignment sheets, tables and information regarding the alternative routes adopted by the partners since filing a certificate application in September.

On August 12, 2016, the FERC issued its notice of schedule for environmental review of the project. Under the notice of schedule, we anticipate that the FERC will issue a draft of its environmental impact statement (EIS) in December 2016 and the final EIS in the summer of 2017. Based on this schedule, ACP is reviewing the timing of the project, as well as refining the project cost estimates.

On March 2, 2015, ACP entered into a Precedent Agreement with Dominion Transmission, Inc. (DTI) for supply header transportation services. Under the Precedent Agreement, ACP is required to provide assurance of its ability to meet its financial obligations to DTI. DTI has informed ACP that ACP, independent of its members, is not currently creditworthy as required by DTI’s FERC Gas Tariff. ACP requested that its members provide proportionate assurance of ACP’s ability to meet its financial obligations under the Precedent Agreement, which the Piedmont member provided through an Equity Contribution Agreement between Piedmont and ACP where Piedmont committed to make funds available to the Piedmont member for it to pay and perform its obligations under the ACP Limited Liability Company Agreement. This commitment is capped at $15.2 million. This commitment ceases when DTI acknowledges that ACP is independently creditworthy in accordance with the Precedent Agreement, termination or expiration of the Precedent Agreement, or when we are no longer a member of ACP.

On July 13, 2015, the parent companies of the members of ACP entered into an indemnification agreement with an insurance company to secure surety bonds in connection with preparatory and pre-construction activities on the ACP project. Liability under the indemnification agreement is several and is capped at each member’s proportionate share, based on its membership interest in ACP, of losses, if any, incurred by the insurance company.

On October 24, 2015, Piedmont entered into a Merger Agreement with Duke Energy. The ACP Limited Liability Company Agreement includes provisions that grant Dominion an option, exercisable following consummation of the Acquisition, to purchase additional ownership interests in ACP from Duke Energy to maintain a majority ownership percentage relative to all other members. After consummation of the Acquisition, Duke Energy, together with our ownership, would have a 50% membership interest unless Dominion exercises its option.