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Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 2020
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Acquisitions and Dispositions | Note 3. Acquisitions and Dispositions 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 market ed 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. See Note 3 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2019 for more information on the SCANA Combination, including merger approval and conditions, information on assets acquired and liabilities assumed and purchase price allocation. In addition, see Note 17 for a discussion of certain legal proceedings involving Dominion Energy, SCANA or DESC relating to events occurring before closing of the SCANA Combination. In accordance with the SCANA Merger Approval Order, Dominion Energy incurred certain charges to its Consolidated Statements of Income for the following:
| • | In the first quarter of 2019, DESC recorded a reduction in operating revenue and a corresponding regulatory liability of $1.0 billion 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 January 2019, As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a $756 million after-tax charge.
| • | Dominion Energy committed to forgo recovery of $105 million of certain property, plant and equipment associated with the NND Project. As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a charge of $105 million ($79 million after-tax), included in impairment of assets and other charges.
| • | Dominion Energy committed to forgo recovery of $264 million of certain income tax-related regulatory assets associated with the NND Project. As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a charge of $198 million included in income tax expense.
Results of Operations and Unaudited Pro Forma Information The impact of the SCANA Combination on Dominion Energy’s operating revenue was an increase of $701 million and $909 million for the three months ended June 30, 2020 and 2019, respectively, and an increase of $1.6 billion and $1.1 billion for the six months ended June 30, 2020 and 2019, respectively, in the Consolidated Statements of Income. The impact of the SCANA Combination on net income attributable to Dominion Energy was an increase of $58 million and a decrease of $102 million for the three months ended June 30, 2020 and 2019, respectively, and an increase of $112 million and a decrease of $1.2 billion for the six months ended June 30, 2020 and 2019, respectively, in the Consolidated Statements of Income. Dominion Energy incurred merger and integration-related costs of $23 million and $42 million for the three and six months ended June 30, 2020, respectively, of which $20 million and $39 million are recorded in other operations and maintenance expense in the Consolidated Statements of Income. Dominion Energy incurred merger and integration-related costs of $443 million and $567 million in the Consolidated Statements of Income for the three and six months ended June 30, 2019, respectively. These amounts for both the three and six months ended June 30, 2019 include $423 million for a charge related to a voluntary retirement program. See Note 20 for additional information. Of the remaining merger and integration-related costs, $20 million and $135 million was recorded in other operations and maintenance expense in the Consolidated Statements of Income for the three and six months ended June 30, 2019, respectively, and $9 million was recorded in interest and related charges in the Consolidated Statement of Income for the six months ended June 30, 2019. There were no such charges recorded in interest and related charges for the three months ended June 30, 2019. These costs consist of professional fees, charitable contribution commitments, 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.
|  | Three Months Ended June 30, 2019(1) |  |  | Six Months Ended June 30, 2019(1) |
(millions, except EPS) |  |  |  |  |  |  |  |
Operating Revenue |  | $ | 3,970 |  |  | $ | 8,835 |
Net income attributable to Dominion Energy |  |  | 392 |  |  |  | 962 |
Earnings Per Common Share – Basic |  | $ | 0.49 |  |  | $ | 1.21 |
Earnings Per Common Share – Diluted |  | $ | 0.47 |  |  | $ | 1.19 |
(1) | Amounts include adjustments for non-recurring costs directly related to the SCANA Combination.
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 Dominion Energy Gas’ 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). Upon closing, Dominion Energy Gas will become a wholly-owned subsidiary of BHE. Dominion Energy will retain a 50% noncontrolling interest in Cove Point, which will be accounted for as an equity method investment following completion of the sale, as well as the assets and obligations of the pension and other postretirement employee benefit plans associated with the operations to be sold and relating to services provided through closing. The sale will be treated as an asset sale for tax purposes and is expected to close in the fourth quarter of 2020, contingent on clearance or approval under the Hart-Scott-Rodino Act and from the DOE, and other customary closing and regulatory conditions. Based on the recorded balances at June 30, 2020, Dominion Energy expects to recognize a pre-tax gain of approximately $1 billion upon closing, excluding the effects of any closing adjustments. If approval under the Hart-Scott-Rodino Act is not obtained by mid-September 2020, Dominion Energy may elect to exclude from this transaction Dominion Energy Questar Pipeline and certain other affiliated entities pursuant to a provision in the agreement with BHE, with an associated reduction in the cash consideration to $2.7 billion, subject to customary closing adjustments. Dominion Energy will reclassify the assets and liabilities to be disposed of, currently reflected within Gas Transmission & Storage, as held for sale and will report the associated results of operations as discontinued operations starting in the third quarter of 2020. In addition, in the third quarter of 2020, Dominion Energy and Dominion Energy Gas expect to record pre-tax losses of approximately $225 million and $140 million, respectively, for cash flow hedges of debt-related items that are probable of not occurring. Dominion Energy Gas Restructuring The Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control. As a result, Dominion Energy Gas’ basis in DCP and DMLPHCII, which includes the general partner of Dominion Energy Midstream, a controlling 75% interest in Cove Point, DECG, Dominion Energy Questar Pipeline, a 50% noncontrolling interest in White River Hub and a 25.93% noncontrolling interest in Iroquois, is equal to Dominion Energy’s cost basis in the assets and liabilities of such entities since the applicable inception dates of common control. In November 2019, following completion of the Dominion Energy Gas Restructuring, DCP and DMLPHCII are wholly-owned subsidiaries of Dominion Energy Gas and therefore are consolidated by Dominion Energy Gas. The accompanying Consolidated Financial Statements and Notes of Dominion Energy Gas have been retrospectively adjusted to include the historical results and financial position of DCP and DMLPHCII. The 25% interest in Cove Point retained by Dominion Energy, and subsequently sold to Brookfield in December 2019, and the non-Dominion Energy held interest in Dominion Energy Midstream (through January 2019) are reflected as noncontrolling interest. The Dominion Energy Gas Restructuring includes the disposition of East Ohio and DGP by Dominion Energy Gas in November 2019. This restructuring represented a strategic shift in the operations of Dominion Energy Gas as Dominion Energy Gas’ operations consist of LNG import/export and storage and regulated gas transmission and storage operations. As a result, the accompanying Consolidated Financial Statements and Notes of Dominion Energy Gas have been retrospectively adjusted to include the historical results and financial position of East Ohio and DGP as discontinued operations until November 2019, presented within the Corporate and Other segment. As the Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control, Dominion Energy Gas has reflected the disposition as an equity transaction. The following table represents selected information regarding the results of operations of East Ohio, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:
|  | Three Months Ended June 30, 2019 |  |  | Six Months Ended June 30, 2019 |
(millions) |  |  |  |  |  |  |  |
Operating revenue |  | $ | 154 |  |  | $ | 383 |
Depreciation and amortization |  |  | 22 |  |  |  | 43 |
Other operating expenses |  |  | 128 |  |  |  | 277 |
Other income |  |  | 18 |  |  |  | 37 |
Interest and related charges |  |  | 8 |  |  |  | 18 |
Income tax expense |  |  | 3 |  |  |  | 17 |
Net income from discontinued operations |  | $ | 11 |  |  | $ | 65 |
Capital expenditures and significant noncash items relating to East Ohio included the following:
|  | Six Months Ended June 30, 2019 |
(millions) |  |  |  |
Capital expenditures |  | $ | 168 |
Significant noncash items |  |  |  |
Charge related to a voluntary retirement program |  |  | 32 |
Accrued capital expenditures |  |  | 8 |
The following table represents selected information regarding the results of operations of DGP, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:
|  | Three Months Ended June 30, 2019 |  |  | Six Months Ended June 30, 2019 |
(millions) |  |  |  |  |  |  |  |
Operating revenue |  | $ | 34 |  |  | $ | 79 |
Depreciation and amortization |  |  | 1 |  |  |  | 2 |
Other operating expenses |  |  | 12 |  |  |  | 56 |
Income tax expense |  |  | 6 |  |  |  | 6 |
Net income from discontinued operations |  | $ | 15 |  |  | $ | 15 |
Capital expenditures and significant noncash items of DGP included the following:
|  | Six Months Ended June 30, 2019 |
(millions) |  |  |  |
Capital Expenditures |  | $ | 8 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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