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Note 5 - Other Investments | 12 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Equity Method Investments and Joint Ventures Disclosure [Text Block] |
5. | OTHER INVESTMENTS
Midstream owns a less than 1% equity investment in the LLC constructing the MVP. Midstream is also a less than 1% investor, accounted for under the cost method, in Southgate. Since inception, the MVP has encountered various legal and regulatory issues that have substantially delayed the completion of the project, including a period in 2022 where work on the projected was halted. These events have, at various times, caused the Company to suspend/resume income accruals and/or impair its investment as described more fully below. In May 2023, Midstream agreed with the LLC’s managing partner and primary interest owner that the primary interest owner would make Midstream’s future capital contributions to the LLC for the MVP project until MVP in-service, as a result of which Midstream's ownership interest percentage in the LLC as it relates to the MVP project has been and will continue to be proportionately adjusted. Legislative and legal actions in the second half of fiscal 2023 enabled project construction to restart. While under construction, AFUDC has provided the majority of the income recognized by Midstream. The LLC temporarily suspended accruing AFUDC on the project for parts of 2021, 2022, and 2023. AFUDC accruals resumed in June 2023 when construction activities restarted. The amount of AFUDC recognized during the current and prior year is included in the equity in earnings of unconsolidated affiliate in the tables below. Actions by the Fourth Circuit in the second quarter of fiscal 2022 led to the vacatur and remand of certain permits issued by the Bureau of Land Management and the U.S. Forest Service to the LLC with respect to the Jefferson National Forest and a vacatur and remand of the Biological Opinion and Incidental Take Statement issued by the U.S. Fish and Wildlife Service for the MVP. Primarily due to these unfavorable decisions, Midstream recorded an other-than-temporary decline in value of its investment due to the then increased uncertainty of the completion and commercial operation of MVP and Southgate. 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 Fourth Circuit rulings, as well as various other legal and regulatory matters affecting MVP and Southgate. Such assumptions and judgments also included certain potential additional delays and related cost increases that could result from unfavorable decisions on these proceedings and matters. Midstream’s analysis considered probability-weighted growth expectations from additional compression expansion opportunities, how ongoing or new legal and regulatory matters may further delay the completion and increase the total costs of the project and the potential of MVP and Southgate cancellation. As a result of the assessment, Midstream recognized a pre-tax impairment loss of $39.8 million in the second quarter of fiscal 2022. Using a similar process, during the fourth quarter of fiscal 2022, Midstream recognized an additional pre-tax impairment charge of $15.3 million primarily due to increased uncertainty in the permitting process for the MVP project as a result of legal developments and regulatory uncertainties, as well as macroeconomic pressures primarily due to increased interest rates impacting the discount rate. Midstream reassesses the value of its investment in the LLC on at least a quarterly basis, and no impairment indicators were identified in fiscal 2023. As noted above, developments in 2023 on the legislative and legal fronts have been favorable. Most notably, in June 2023, the FRA declared the completion of the MVP to be in the national interest and cleared the permitting and regulatory impediments. It also divested courts of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation. In July 2023, SCOTUS lifted certain stays and cleared judicial impediments. Construction work was restarted and the current target from the project's managing partner is that the MVP will be completed in the first calendar quarter of 2024. Together, these actions have significantly increased the Company’s assessment of the probability of a successful project with a corresponding increase to fair value. While the outlook for completion is decidedly more favorable than a year ago, the MVP project is not yet completed and adverse developments, as well as potential macroeconomic factors related to interest rates, cost increases, or other unanticipated events could erode fair value leading to new indicators or impairment. The fair value of the investment in the LLC in fiscal 2022 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 September 30, 2023 and 2022, are reflected in the table below. Funding for Midstream's investments has been provided through two variable rate, unsecured promissory notes which mature in June 2024, under a non-revolving credit agreement maturing in December 2024 and three additional notes as detailed in Note 7, as well as by equity contributions from Resources. The Company expects to refinance the maturing notes in 2024. The Company will participate in the earnings generated from the transportation of natural gas through both pipelines proportionate to its level of investment once the pipelines are placed in service. The investments in the LLC are included in the consolidated financial statements as follows:
|  | September 30 |
Balance Sheet location: |  | 2023 |  |  | 2022 |
Other Assets: |  |  |  |  |  |  |  |
MVP |  | $ | 17,096,476 |  |  | $ | 13,689,370 |
Southgate |  |  | 90,617 |  |  |  | 83,705 |
Investment in unconsolidated affiliates |  | $ | 17,187,093 |  |  | $ | 13,773,075 |
Current Liabilities: |  |  |  |  |  |  |  |
MVP |  | $ | — |  |  | $ | 804,404 |
Southgate |  |  | — |  |  |  | 102 |
Capital contributions payable |  | $ | — |  |  | $ | 804,506 |
|  | Years Ended September 30 |
Income Statement location: |  | 2023 |  |  | 2022 |
Equity in earnings of unconsolidated affiliate |  | $ | 2,084,990 |  |  | $ | 73,327 |
|  | September 30 |
|  | 2023 |  |  | 2022 |
Undistributed earnings, net of income taxes, of MVP in retained earnings, excluding impairment |  | $ | 9,683,797 |  |  | $ | 8,135,482 |
The change in the investment in unconsolidated affiliates is provided below:
|  | September 30 |
|  | 2023 |  |  | 2022 |
Cash investment |  | $ | 2,133,534 |  |  | $ | 5,260,863 |
Change in accrued capital calls |  |  | (804,506 | ) |  |  | (1,336,131 | )
Pre-tax impairment |  |  | — |  |  |  | (55,092,303 | )
Equity in earnings of unconsolidated affiliate |  |  | 2,084,990 |  |  |  | 73,327 |
Change in investment in unconsolidated affiliates |  | $ | 3,414,018 |  |  | $ | (51,094,244 | )
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 |
|  | Years Ended September 30 |
|  | 2023 |  |  | 2022 |
AFUDC |  | $ | 203,721,584 |  |  | $ | 6,883,069 |
Net other income |  |  | 2,091,886 |  |  |  | 147,154 |
Net income |  | $ | 205,813,470 |  |  | $ | 7,030,223 |
|  | Balance Sheets |
|  | September 30 |
|  | 2023 |  |  | 2022 |
Assets: |  |  |  |  |  |  |  |
Current assets |  | $ | 795,787,358 |  |  | $ | 76,474,981 |
Construction work in progress |  |  | 7,499,128,254 |  |  |  | 6,667,146,408 |
Other assets |  |  | 11,639,586 |  |  |  | 8,021,877 |
Total assets |  | $ | 8,306,555,198 |  |  | $ | 6,751,643,266 |
Liabilities and Equity: |  |  |  |  |  |  |  |
Current liabilities |  | $ | 236,947,158 |  |  | $ | 115,061,723 |
Capital |  |  | 8,069,608,040 |  |  |  | 6,636,581,543 |
Total liabilities and equity |  | $ | 8,306,555,198 |  |  | $ | 6,751,643,266 |

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (a)(3) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481687/323-10-50-3 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481687/323-10-50-3 Reference 3: http://www.xbrl.org/2003/role/recommendedDisclosureRef -Topic 323 -SubTopic 740 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147481543/323-740-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 323 -Publisher FASB -URI https://asc.fasb.org//323/tableOfContent + Details
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