UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) January 1, 2019
Dominion Energy, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Virginia | 001-08489 | 54-1229715 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
||
120 Tredegar Street Richmond, Virginia |
23219 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code (804) 819-2000
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.01 |
Completion of Acquisition or Disposition of Assets |
On January 1, 2019, pursuant to the Agreement and Plan of Merger dated as of January 2, 2018 (the Merger Agreement) by and among Dominion Energy, Inc. (Dominion Energy), Sedona Corp. (Merger Sub) and SCANA Corporation (SCANA), Merger Sub merged with and into SCANA (the Merger), with SCANA continuing as the surviving corporation and a wholly-owned subsidiary of Dominion Energy.
Pursuant to the Merger Agreement, at the effective time of the Merger, each share of issued and outstanding SCANA common stock was converted into the right to receive 0.6690 shares of Dominion Energy common stock (the Merger Consideration). Approximately 95,611,418 shares of Dominion Energy common stock will be issued to former SCANA shareholders. No fractional shares will be issued in the Merger; instead, if a former SCANA shareholder would be owed a fraction of a share of Dominion Energy common stock pursuant to the Merger, such former SCANA shareholder will receive the value of that fraction of a share in cash, without interest, where value is based on a formula set out in the Merger Agreement that takes into account the recent trading prices of Dominion Energy common stock before the effective time of the Merger. In addition, at the effective time of the Merger, each outstanding SCANA performance share award and restricted stock award will fully vest in accordance with the Merger Agreement and will be cancelled and converted automatically into the right to receive an amount in cash, without interest, based on a formula set out in the Merger Agreement that takes into account the recent trading prices of Dominion Energy common stock before the effective time of the Merger, the Merger Consideration per share of SCANA common stock and the number of shares of SCANA common stock previously underlying such equity compensation award. At the effective time of the Merger, there were 670,407 shares of SCANA common stock previously underlying such equity compensation awards. The Merger Agreement also provided for the conversion at the effective time of the Merger of deferred units in respect of SCANA shares credited to participants in SCANAs deferred compensation plans for directors and executives into deferred units in respect of Dominion shares under such plans based on a formula set out in the Merger Agreement. However, there were no deferred units in respect of SCANA shares outstanding at the effective time of the Merger and, consequently, no such conversions took place.
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which was filed with the Securities and Exchange Commission on January 5, 2018 as Exhibit 2.1 to Dominion Energys Current Report on Form 8-K, and which is incorporated herein by reference.
Item 7.01 |
Regulation FD Disclosure |
On January 2, 2019, Dominion Energy issued a press release in which Dominion Energy and SCANA announced the completion of the merger. The press release is furnished as Exhibit 99.1 hereto.
Item 9.01 |
Financial Statements and Exhibits |
(a) |
Financial Statements of Business Acquired |
Audited Consolidated Financial Statements and Schedule of SCANA Corporation at December 31, 2017 and 2016 and for the three years ended December 31, 2017, together with the related notes to the financial statements, filed as Exhibit 99.2 hereto and incorporated herein by reference.
Unaudited Condensed Consolidated Financial Statements of SCANA Corporation at September 30, 2018 and for the nine months ended September 30, 2018 and 2017, together with the related notes to the financial statements, filed as Exhibit 99.3 hereto and incorporated herein by reference.
(b) |
Pro Forma Financial Information |
Unaudited Pro Forma Consolidated Financial Statements of Dominion Energy, Inc. at and for the nine months ended September 30, 2018, a copy of which is furnished as Exhibit 99.4 hereto and incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DOMINION ENERGY, INC. Registrant |
/s/ Carlos M. Brown |
Carlos M. Brown Senior Vice President and General Counsel |
Date: January 2, 2019
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-216476, 333-219088 and 333-221291 on Form S-3, Registration Statement Nos. 333-223036 and 333-228732 on Form S-4 and Registration Statement Nos. 033-62705, 333-02733, 333-09167, 333-18391, 333-25587, 333-49725, 333-78173, 333-85094, 333-87529, 333-95795, 333-110332, 333-124256, 333-124257, 333-130566, 333-130570, 333-143916, 333-149989, 333-149993, 333-156027, 333-163805, 333-189578, 333-189579, 333-189580, 333-189581, 333-195768, 333-202364, 333-202366, 333-203952, 333-223264, 333-223265, 333-226041 and 333-226039 on Form S-8 of Dominion Energy, Inc. of our report dated February 22, 2018, relating to the consolidated financial statements and financial statement schedule of SCANA Corporation and subsidiaries (the Company) (which report expresses an unqualified opinion and includes an emphasis-of-matter paragraph regarding legal, legislative and regulatory matters that may result in material impacts to results and the liquidity of the Company as a result of the abandoned Nuclear Project) appearing in the Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 2017, which is incorporated by reference in this Current Report on Form 8-K of Dominion Energy, Inc. dated January 2, 2019.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
January 2, 2019
Exhibit 99.1
January 2, 2019
Dominion Energy Combines With SCANA Corporation
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Merger benefits SCANAs customers, communities |
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Reduces customer bills, commits to maintain or exceed customer service levels |
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Builds on Dominion Energys presence in Georgia, North Carolina, South Carolina |
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Addition of high-quality regulated businesses improves companys risk profile, supports long-term growth |
RICHMOND, Va. Dominion Energy, Inc. (NYSE: D), and SCANA Corporation announced today that they have completed their proposed merger, benefiting customers and communities in Georgia, North Carolina and South Carolina.
Thomas F. Farrell, II, chairman, president and chief executive officer, said:
Dominion Energy is pleased to add SCANAs fast-growing, high-performing Southeastern businesses to our 18-state footprint. Together, we are committed to providing safe, dependable, affordable and clean energy to the communities served by SCANA and to maintaining its excellent record of reliability and customer service.
Todays combination expands Dominion Energys operations in Georgia and the Carolinas, where the company had already operated an electric utility serving 120,000 customer accounts in northeastern North Carolina, a 1,500-mile interstate pipeline principally in South Carolina, and nearly 1,000 megawatts of gas, hydro and solar generating capacity in all three states.
The addition of SCANA makes geographic sense and aligns well with our core, regulated energy businesses, Farrell added. These are well-run regulated operations that we expect will help improve Dominion Energys risk profile and growth outlook.
Jimmy Addison, chief executive officer of SCANA, said:
Today marks a significant milestone in the history of Dominion Energy and SCANA. Employees at our respective companies have been working hard for months on integration planning, and I am confident that will lead to a smooth transition. These two companies share common values, and this combination provides SCANAs businesses with the scale and stability to meet customers growing energy needs in the years to come. I am particularly proud that despite the intense efforts that went into planning for the integration and attaining approval of the combination of the companies over the past year, employees across our three-state region maintained their focus on providing energy to our customers safely and reliably. We will now hit the ground running with Dominion Energy and embrace change.
Southeast Energy Group
SCANA Corporation will be a first-tier, wholly owned subsidiary of Dominion Energy. Its operating companies including South Carolina Electric & Gas Company (SCE&G), Public Service Company of North Carolina, Incorporated (PSNC Energy), and SCANA Energy Marketing, Inc. (SEMI) and its services company will be managed by a new operating segment, the Southeast Energy Group. It is Dominion Energys fourth operating segment, along with the Power Delivery, Power Generation and Gas Infrastructure Groups. The Southeast Energy Group will maintain a significant local presence with a local management structure. The president and chief executive officer will report directly to Farrell.
Benefits to customers
On July 31, 2017, SCE&G abandoned the construction of two new nuclear units at V.C. Summer. The typical monthly bill for an SCE&G electric customer using 1,000 kilowatt-hours had risen to more than $147 by the time the reactors construction was halted. During the summer of 2018, South Carolinas legislature passed a law that the Public Service Commission of South Carolina (PSC) implemented, temporarily reducing those bills to $125.34 per month.
Under a new plan approved by the South Carolina PSC, the typical SCE&G residential electric customer will pay approximately $125 per month, putting into effect bills below the level requested by South Carolinas lawmakers. The new bill level was made possible by Dominion Energys proposal which was approved by the PSC to provide customer refunds in the form of monthly bill relief of more than $2 billion, amortized over 20 years, and the write-downs and absorption of about $2.5 billion in financing obligations, regulatory assets and a natural gas-fired power station.
Putting into effect bills below the temporary rates and keeping residential, commercial and industrial electric bills lower and competitive with neighboring states will aid South Carolina in its economic development efforts and ensure that the state has a reliable energy supply to fuel growth and power the states homes and businesses, Farrell said.
Dominion Energy will also provide bill credits of $3.75 million over three years to PSNC Energys 564,000 gas utility customers and $2.45 million over three years to SCE&Gs 370,000 gas utility customers.
Other benefits, commitments
The company has also committed to the following:
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Maintaining compensation levels for employees of SCANA and its subsidiaries until at least Jan. 1, 2020, and extending to at least July 1, 2020, base pay continuation or severance for all non-executive employees; |
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Maintaining SCANAs excellent customer service levels at or above current levels; |
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Increasing SCANAs corporate and charitable giving by $1 million per year for at least five years in SCANAs communities, including increasing PSNC Energys charitable contributions by $150,000 in 2019; |
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Implementing an EnergyShare-like program in South Carolina to assist low-income, elderly, disabled and veteran customers; |
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Agreeing to a freeze in base rates for SCE&Gs electric customers at current levels until Jan. 1, 2021; |
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Agreeing to a freeze in base rates for PSNC Energys customers at current levels until at least Nov. 1, 2021; and |
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Appointing a member of the SCANA board of directors or its executive management team to Dominion Energys board of directors. |
Terms of transaction
At the mergers completion, each SCANA share was converted into 0.6690 shares of newly issued Dominion Energy common stock. The conversion resulted in a transaction value of approximately $6.8 billion, in addition to the assumption of approximately $6.6 billion in existing consolidated SCANA net debt.
SCANAs last declared dividend of 12.37 cents per share of common stock is being paid today to SCANA shareholders of record at the close of business on Dec. 10, 2018.
SCANA Corporation common stock has ceased trading on the New York Stock Exchange. Additional information for SCANA shareholders may be found at https://www.dominionenergy.com/investors/shareholder-services/merger-information .
Dominion Energy customers, operations
Dominion Energy now serves:
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3.3 million electric utility customer accounts in North Carolina, South Carolina and Virginia; |
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3.3 million natural gas utility customer accounts in Idaho, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wyoming; and |
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800,000 competitive and regulated, last-resort natural gas customer accounts in states with competitive markets. |
Its operations now include:
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93,600 miles of electric transmission and distribution lines; |
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106,400 miles of natural gas gathering, storage, transmission and distribution pipeline; |
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About 31,000 megawatts of diverse electric generation capacity in 10 states; and |
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More than a trillion cubic feet of natural gas storage. |
Forward-looking statements
This news release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements relate to, among other things, expectations and projections. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as expect, assume, estimate, project, anticipate, intend, plan, may, will, could, should, believe, potential, and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results, and may include, but are not limited to, statements about proposed transactions, Dominion Energys plans, objectives, expectations and intentions and the timing of future events. All statements relating to events or developments that we expect or anticipate will occur in the future are forward-looking statements, and Dominion Energys ability to predict results or the actual effect of future events is inherently uncertain. Although Dominion Energy believes that the expectation reflected in any forward-looking statement are based on reasonable assumptions, it can give no assurance that actual outcomes and results will not differ materially from what is expressed in such forward-looking statements. There can be no assurance that the transactions will close.
Forward-looking statements in this release are based on information available as of the date of this release, which such information is subject to change at any time. Dominion Energy undertakes no obligation to update any forward-looking statement to reflect developments after the statement is made.
About Dominion Energy
Nearly 7.5 million customers in 18 states energize their homes and businesses with electricity or natural gas from Dominion Energy (NYSE: D), headquartered in Richmond, Va. The company is committed to sustainable, reliable, affordable, and safe energy and is one of the nations largest producers and transporters of energy with about $100 billion of assets providing electric generation, transmission and distribution, as well as natural gas storage, transmission, distribution, and import/export services. As one of the nations leading solar operators, the company intends to reduce its carbon intensity 60 percent by 2030. Through its Dominion Energy Charitable Foundation , as well as EnergyShare and other programs, Dominion Energy contributed more than $30 million in 2018 to community causes throughout its footprint and beyond. Please visit www.DominionEnergy.com , to learn more.
#####
CONTACTS: Media: Ryan Frazier, (804) 819-2521 or C.Ryan.Frazier@dominionenergy.com
Financial analysts: Steven Ridge, (804) 929-6865 or Steven.D.Ridge@dominionenergy.com
Exhibit 99.4
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements of Dominion Energy, Inc. (Dominion Energy) consist of a condensed consolidated balance sheet at September 30, 2018, consolidated statement of income for the nine months ended September 30, 2018 and a consolidated statement of income for the year ended December 31, 2017, which reflect Dominion Energys acquisition of SCANA Corporation (SCANA), which was completed on January 1, 2019. The unaudited pro forma consolidated financial statements included herein have been derived from the following historical financial statements:
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the audited financial statements of Dominion Energy for the year ended December 31, 2017; |
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the unaudited interim financial statements of Dominion Energy for the nine months ended September 30, 2018; |
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the audited financial statements of SCANA for the year ended December 31, 2017; and |
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the unaudited interim financial statements of SCANA for the nine months ended September 30, 2018. |
On January 1, 2019, pursuant to the terms of an Agreement and Plan of Merger (the merger agreement) dated January 2, 2018, Dominion Energy and SCANA completed a stock-for-stock merger in which SCANA shareholders received the right to 0.6990 of a share of Dominion Energy common stock for each share of SCANA common stock. Following completion of the merger, SCANA operates as a wholly-owned subsidiary of Dominion Energy.
The pro forma adjustments have been prepared as if the acquisition of SCANA occurred on September 30, 2018 in the case of the unaudited pro forma condensed consolidated balance sheet and on January 1, 2017 in the case of the unaudited pro forma consolidated statements of income. The unaudited pro forma consolidated financial statements should be read in conjunction with the related notes, which are included herein, the financial statements and notes included in Dominion Energys Annual Report on Form 10-K for the year ended December 31, 2017, as updated in its Current Report on Form 8-K, filed June 6, 2018, and Quarterly Report on Form 10-Q for the nine months ended September 30, 2018, and the financial statements and notes included in SCANAs Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2018.
The unaudited pro forma consolidated financial statements do not necessarily reflect what Dominion Energys financial position and results of operations would have been if it had owned SCANA during the periods presented. In addition, they are not necessarily indicative of its future results of operations or financial condition. The assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to Dominion Energys acquisition of SCANA, (ii) factually supportable, and (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on Dominion Energy. The actual adjustments may differ from the pro forma adjustments.
The unaudited pro forma consolidated financial statements give effect to Dominion Energys acquisition of SCANA for total consideration consisting of the right to receive 0.6990 of a share of Dominion Energy common stock for each share of SCANA common stock.
1
DOMINION ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 2018
Dominion
Energy |
SCANA |
Pro Forma
Adjustments |
Dominion
Energy Pro Forma |
|||||||||||||||
(millions) | ||||||||||||||||||
ASSETS |
||||||||||||||||||
Current Assets |
||||||||||||||||||
Cash and cash equivalents |
$ | 310 | $ | 462 | $ | 20 | (r) | $ | 792 | |||||||||
Customer receivables |
1,539 | 447 | (8 | ) | (r) | 1,978 | ||||||||||||
Other receivables |
132 | 78 | | 210 | ||||||||||||||
Inventories |
1,455 | 289 | | 1,744 | ||||||||||||||
Regulatory assets |
540 | 27 | | 567 | ||||||||||||||
Assets held for sale |
1,029 | | 70 | (x) | 1,099 | |||||||||||||
Other |
697 | 117 | (40 | ) | (r) | 774 | ||||||||||||
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|
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Total current assets |
5,702 | 1,420 | 42 | 7,164 | ||||||||||||||
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Investments |
||||||||||||||||||
Nuclear decommissioning trust funds |
5,424 | 139 | | 5,563 | ||||||||||||||
Investment in equity method affiliates |
1,858 | 21 | | 1,879 | ||||||||||||||
Other |
345 | 114 | | 459 | ||||||||||||||
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Total investments |
7,627 | 274 | | 7,901 | ||||||||||||||
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Property, Plant and Equipment |
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Property, plant and equipment |
76,190 | 17,068 | 188 | (n) | 92,800 | |||||||||||||
(364 | ) | (y) | ||||||||||||||||
(114 | ) | (f) | ||||||||||||||||
(98 | ) | (e) | ||||||||||||||||
(70 | ) | (x) | ||||||||||||||||
Accumulated depreciation, depletion and amortization |
(22,005 | ) | (6,127 | ) | 247 | (y) | (27,743 | ) | ||||||||||
142 | (f) | |||||||||||||||||
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Total property, plant and equipment, net |
54,185 | 10,941 | (69 | ) | 65,057 | |||||||||||||
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Deferred Charges and Other Assets |
||||||||||||||||||
Goodwill |
6,410 | 210 | 1,405 | (g) | 8,025 | |||||||||||||
Regulatory assets |
2,316 | 5,739 | (1,372 | ) | (e) | 6,489 | ||||||||||||
(194 | ) | (z) | ||||||||||||||||
Other |
2,842 | 232 | 149 | (i) | 3,340 | |||||||||||||
117 | (y) | |||||||||||||||||
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Total deferred charges and other assets |
11,568 | 6,181 | 105 | 17,854 | ||||||||||||||
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Total assets |
$ | 79,082 | $ | 18,816 | $ | 78 | $ | 97,976 | ||||||||||
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2
DOMINION ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 2018
Dominion
Energy |
SCANA |
Pro Forma
Adjustments |
Dominion
Energy Pro Forma |
|||||||||||||||
(millions) | ||||||||||||||||||
LIABILITIES AND EQUITY |
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Current Liabilities |
||||||||||||||||||
Securities due within one year |
$ | 3,101 | $ | 18 | $ | | $ | 3,119 | ||||||||||
Short-term debt |
2,935 | 314 | | 3,249 | ||||||||||||||
Accounts payable |
587 | 263 | 76 | (b) | 918 | |||||||||||||
(8 | ) | (r) | ||||||||||||||||
Regulatory liabilities |
335 | 110 | 67 | (c) | 651 | |||||||||||||
137 | (d) | |||||||||||||||||
2 | (u) | |||||||||||||||||
Other |
2,254 | 459 | (20 | ) | (r) | 2,988 | ||||||||||||
115 | (w) | |||||||||||||||||
70 | (x) | |||||||||||||||||
64 | (j) | |||||||||||||||||
35 | (h) | |||||||||||||||||
6 | (n) | |||||||||||||||||
5 | (k) | |||||||||||||||||
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Total current liabilities |
9,212 | 1,164 | 549 | 10,925 | ||||||||||||||
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Long-Term Debt |
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Long-term debt |
27,300 | 6,735 | 22 | (l) | 34,059 | |||||||||||||
2 | (l) | |||||||||||||||||
Junior subordinated notes |
3,431 | | | 3,431 | ||||||||||||||
Remarketable subordinated notes |
1,384 | | | 1,384 | ||||||||||||||
Credit facility borrowings |
73 | | | 73 | ||||||||||||||
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Total Long-term debt |
32,188 | 6,735 | 24 | 38,947 | ||||||||||||||
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Deferred Credits and Other Liabilities |
||||||||||||||||||
Deferred income taxes and investment tax credits |
5,079 | 1,355 | (675 | ) | (o) | 5,711 | ||||||||||||
(48 | ) | (z) | ||||||||||||||||
Regulatory liabilities |
7,146 | 3,040 | (67 | ) | (c) | 10,993 | ||||||||||||
870 | (d) | |||||||||||||||||
4 | (u) | |||||||||||||||||
Other |
5,031 | 1,131 | 182 | (n) | 6,371 | |||||||||||||
16 | (k) | |||||||||||||||||
11 | (j) | |||||||||||||||||
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Total deferred credits and other liabilities |
17,256 | 5,526 | 293 | 23,075 | ||||||||||||||
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Total liabilities |
58,656 | 13,425 | 866 | 72,947 | ||||||||||||||
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Commitments and Contingencies |
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Equity |
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Common stock - no par |
10,862 | 2,389 | (2,389 | ) | (m) | 17,694 | ||||||||||||
6,832 | (a) | |||||||||||||||||
Retained earnings |
9,128 | 3,036 | (3,036 | ) | (m) | 6,899 | ||||||||||||
(1,470 | ) | (e) | ||||||||||||||||
(1,007 | ) | (d) | ||||||||||||||||
(146 | ) | (z) | ||||||||||||||||
(115 | ) | (w) | ||||||||||||||||
(76 | ) | (b) | ||||||||||||||||
(70 | ) | (x) | ||||||||||||||||
(21 | ) | (k) | ||||||||||||||||
(13 | ) | (h) | ||||||||||||||||
(6 | ) | (u) | ||||||||||||||||
695 | (o) | |||||||||||||||||
Accumulated other comprehensive loss |
(1,520 | ) | (34 | ) | 34 | (q) | (1,520 | ) | ||||||||||
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Total common shareholders equity |
18,470 | 5,391 | (788 | ) | 23,073 | |||||||||||||
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Noncontrolling interests |
1,956 | | | 1,956 | ||||||||||||||
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Total equity |
20,426 | 5,391 | (788 | ) | 25,029 | |||||||||||||
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Total liabilities and equity |
$ | 79,082 | $ | 18,816 | $ | 78 | $ | 97,976 | ||||||||||
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3
DOMINION ENERGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
Dominion
Energy |
SCANA |
Pro Forma
Adjustments |
Dominion
Energy Pro Forma |
|||||||||||||||
(millions, except per share amounts) | ||||||||||||||||||
Operating Revenue |
$ | 10,005 | $ | 2,948 | $ | 11 | (j) | $ | 12,899 | |||||||||
(65 | ) | (r) | ||||||||||||||||
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Operating Expenses |
||||||||||||||||||
Electric fuel and other energy-related purchases |
2,128 | 569 | (18 | ) | (r) | 2,679 | ||||||||||||
Purchased electric capacity |
87 | 11 | | 98 | ||||||||||||||
Purchased gas |
409 | 774 | (47 | ) | (r) | 1,136 | ||||||||||||
Other operations and maintenance |
2,585 | 610 | (38 | ) | (v) | 3,157 | ||||||||||||
Impairment loss |
| 4 | | 4 | ||||||||||||||
Depreciation, depletion and amortization |
1,487 | 299 | 25 | (i) | 1,811 | |||||||||||||
Other taxes |
542 | 206 | | 748 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
7,238 | 2,473 | (78 | ) | 9,633 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
2,767 | 475 | 24 | 3,266 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Other income |
658 | 136 | (2 | ) | (r) | 792 | ||||||||||||
Interest and related charges |
1,053 | 292 | (5 | ) | (l) | 1,338 | ||||||||||||
(2 | ) | (r) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income from operations including noncontrolling interests before income tax expense |
2,372 | 319 | 29 | 2,720 | ||||||||||||||
Income tax expense |
485 | 75 | 7 | (p) | 567 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net Income Including Noncontrolling Interests |
1,887 | 244 | 22 | 2,153 | ||||||||||||||
Noncontrolling Interests |
81 | | | 81 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net Income Attributable to Dominion Energy |
$ | 1,806 | $ | 244 | $ | 22 | $ | 2,072 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Average shares of common stock outstanding - basic |
652.4 | 142.9 | (47.3 | ) | (t) | 748.0 | ||||||||||||
Average shares of common stock outstanding - diluted |
652.8 | 142.9 | (47.3 | ) | (t) | 748.4 | ||||||||||||
Earnings Per Common Share - Basic |
$ | 2.77 | $ | 1.71 | $ | 2.77 | ||||||||||||
Earnings Per Common Share - Diluted |
$ | 2.77 | $ | 1.71 | $ | 2.77 |
4
DOMINION ENERGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017
Dominion
Energy |
SCANA |
Pro Forma
Adjustments |
Dominion
Energy Pro Forma |
|||||||||||||||
(millions, except per share amounts) |
||||||||||||||||||
Operating Revenue |
$ | 12,586 | $ | 4,407 | $ | 64 | (j) | $ | 16,998 | |||||||||
(59 | ) | (r) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating Expenses |
||||||||||||||||||
Electric fuel and other energy-related purchases |
2,301 | 661 | (8 | ) | (r) | 2,954 | ||||||||||||
Purchased electric capacity |
6 | 13 | | 19 | ||||||||||||||
Purchased gas |
701 | 1,156 | (51 | ) | (r) | 1,806 | ||||||||||||
Other operations and maintenance |
3,068 | 737 | (9 | ) | (s) | 3,796 | ||||||||||||
Impairment loss |
| 1,118 | | 1,118 | ||||||||||||||
Depreciation, depletion and amortization |
1,905 | 382 | 46 | (i) | 2,333 | |||||||||||||
Other taxes |
668 | 264 | | 932 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
8,649 | 4,331 | (22 | ) | 12,958 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income from operations |
3,937 | 76 | 27 | 4,040 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Other income |
358 | 56 | (9 | ) | (s) | 405 | ||||||||||||
Interest and related charges |
1,205 | 363 | (12 | ) | (l) | 1,555 | ||||||||||||
(1 | ) | (l) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations including noncontrolling interests before income tax expense (benefit) |
3,090 | (231 | ) | 31 | 2,890 | |||||||||||||
Income tax expense (benefit) |
(30 | ) | (112 | ) | 12 | (p) | (130 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net Income (Loss) Including Noncontrolling Interests |
3,120 | (119 | ) | 19 | 3,020 | |||||||||||||
Noncontrolling Interests |
121 | | | 121 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net Income (Loss) Attributable to Dominion Energy |
$ | 2,999 | $ | (119 | ) | $ | 19 | $ | 2,899 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Average shares of common stock outstanding - basic |
636.0 | 142.9 | (47.3 | ) | (t) | 731.6 | ||||||||||||
Average shares of common stock outstanding - diluted |
636.0 | 142.9 | (47.3 | ) | (t) | 731.6 | ||||||||||||
Earnings (Loss) Per Common Share - Basic |
$ | 4.72 | $ | (0.83 | ) | $ | 3.96 | |||||||||||
Earnings (Loss) Per Common Share - Diluted |
$ | 4.72 | $ | (0.83 | ) | $ | 3.96 |
5
DOMINION ENERGY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
N OTE 1. B ASIS O F P RESENTATION
The unaudited pro forma consolidated financial statements included herein have been derived from the following historical financial statements:
|
the audited financial statements of Dominion Energy for the year ended December 31, 2017; |
|
the unaudited interim financial statements of Dominion Energy for the nine months ended September 30, 2018; |
|
the audited financial statements of SCANA for the year ended December 31, 2017; and |
|
the unaudited interim financial statements of SCANA for the nine months ended September 30, 2018. |
On January 1, 2019, pursuant to the terms of the merger agreement dated January 2, 2018, Dominion Energy and SCANA completed a stock-for-stock merger in which SCANA shareholders received the right to 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock. Following completion of the merger, SCANA operates as a wholly-owned subsidiary of Dominion Energy.
The pro forma adjustments have been prepared as if the acquisition of SCANA occurred on September 30, 2018 in the case of the unaudited pro forma condensed consolidated balance sheet and on January 1, 2017 in the case of the unaudited pro forma consolidated statements of income for the year ended December 31, 2017 and for the nine months ended September 30, 2018. The adjustments give pro forma effect to events that are (i) directly attributable to Dominion Energys acquisition of SCANA, (ii) factually supportable, and (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on Dominion Energy. The adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effects of these transactions will differ from the pro forma adjustments. However, management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the transaction, and that the pro forma adjustments in the unaudited pro forma consolidated financial statements give appropriate effect to the assumptions. The effects on the unaudited pro forma consolidated financial statements of the transaction described above are more fully described in Note 4.
N OTE 2. S UMMARY O F S IGNIFICANT A CCOUNTING P OLICIES
The accounting policies followed in preparing the unaudited pro forma consolidated financial statements are those used by Dominion Energy as set forth in the audited historical financial statements and notes of Dominion Energy included in its Annual Report on Form 10-K for the year ended December 31, 2017, as updated in its Current Report on Form 8-K, filed June 6, 2018, and in the unaudited historical interim financial statements and notes of Dominion Energy included in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2018. The unaudited pro forma consolidated financial statements reflect any adjustments known at this time to conform SCANAs historical financial information to Dominion Energys significant accounting policies based on Dominion Energys review of SCANAs summary of significant accounting policies, as disclosed in the SCANA historical financial statements incorporated by reference, and preliminary discussions with SCANAs management. Upon completion of a more comprehensive comparison and assessment, additional differences may be identified.
6
N OTE 3. P URCHASE P RICE A ND P RELIMINARY P URCHASE P RICE A LLOCATION
Purchase Price
The fair value of the purchase consideration transferred on the closing date included the value of the equity consideration (including the value attributable to the consideration transferred of replacement stock compensation awards). The fair value per share of Dominion Energy common stock was $71.46 per share, which was the closing price of Dominion Energys common stock on December 31, 2018. The accompanying unaudited pro forma condensed consolidated balance sheet reflects a purchase price of approximately $6.9 billion.
The purchase price for the merger is as follows:
(millions, except exchange ratio and closing price) | ||||
SCANA shares outstanding at December 31, 2018 |
142.9 | |||
Exchange ratio |
0.6690 | |||
|
|
|||
Total shares of Dominion Energy common stock issued |
95.6 | |||
Closing price of Dominion Energy common stock on December 31, 2018 |
71.46 | |||
|
|
|||
Equity portion of purchase price |
$ | 6,832 | ||
Equity compensation |
$ | 22 | ||
|
|
|||
Total purchase price |
$ | 6,854 | ||
|
|
Preliminary Purchase Price Allocation
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of SCANA are recorded at fair value on the acquisition date and added to those of Dominion Energy. The pro forma adjustments included herein are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition between Dominion Energy and SCANA. Significant portions of SCANAs operations are subject to the rate-setting authority of the Federal Energy Regulatory Commission, the South Carolina Public Service Commission (SCPSC) or the North Carolina Utilities Commission (NCUC). The carrying values of the assets and liabilities subject to regulatory accounting under U.S. generally accepted accounting principles, including property, plant and equipment, are considered to approximate the fair values. A fair value adjustment has not been included for SCANAs pension and other postretirement benefit obligations, which could vary by a significant amount due to potential changes in discount rates, return on plan assets or other assumptions surrounding the determination of these obligations. At this time, Dominion Energy management does not have sufficient information to record any adjustments to measure legal contingencies at fair value or at a reasonably estimable amount. The final purchase price allocation is dependent upon certain valuation and other studies that have not yet been completed. The final determination of the purchase price allocation will be based on the net assets acquired as of the acquisition date and will depend on a number of factors, which cannot be predicted with any certainty at this time. The purchase price allocation may change materially based on the receipt of more detailed information. Accordingly, the pro forma purchase price allocation is preliminary and is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurance that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.
7
The following table provides a summary of the preliminary allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed of SCANA, based on SCANAs consolidated balance sheet at September 30, 2018, with all excess value over consideration paid recorded as goodwill.
(millions) | ||||
Total current assets |
$ | 1,420 | ||
Investments |
274 | |||
Property, plant and equipment |
10,969 | |||
Goodwill |
1,615 | |||
Regulatory assets |
5,739 | |||
Other deferred charges and other assets, including intangible assets |
381 | |||
|
|
|||
Total assets |
20,398 | |||
|
|
|||
Total current liabilities |
1,228 | |||
Long-term debt |
6,759 | |||
Deferred tax liabilities |
1,375 | |||
Regulatory liabilities |
3,040 | |||
Other deferred credits and other liabilities |
1,142 | |||
|
|
|||
Total liabilities |
13,544 | |||
|
|
|||
Total purchase price |
$ | 6,854 | ||
|
|
N OTE 4. P RO F ORMA A DJUSTMENTS A ND A SSUMPTIONS
The following transactions are directly attributable to Dominion Energys acquisition of SCANA.
(a) |
Reflects the issuance of 95.6 million shares of Dominion Energy common stock to SCANA shareholders as consideration for the acquisition. Based on the closing price of Dominion Energys common stock at December 31, 2018 of $71.46, such consideration is calculated to have a value of $6.9 billion, as shown in Note 3 above. |
(b) |
Reflects the accrual of $76 million in estimated transaction costs associated with the acquisition of SCANA by Dominion Energy, including audit, legal and advisory fees. |
(c) |
Reflects the reclassification of $67 million to current regulatory liabilities of a previously existing $1.1 billion regulatory liability, to be credited over an accelerated 20-year period following the merger. |
(d) |
Reflects the accrual of a $1.0 billion refund of amounts previously collected from retail electric customers of South Carolina Electric & Gas Company (SCE&G) to be credited over an estimated 11-year period following the merger. The allocation between current and noncurrent regulatory liabilities has been determined based on the expected portion to be credited to customer bills. The impact of this refund has not been reflected in the unaudited pro forma consolidated statements of income as the $1.0 billion charge is nonrecurring. |
(e) |
Reflects the write-down of $1.4 billion of existing regulatory assets and $98 million of existing property, plant and equipment associated with the New Nuclear Development Project under which SCANA and the South Carolina Public Service Authority undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina (New Nuclear Development Project) which SCE&G will not seek recovery of following the merger. The impact of this write-down has not been reflected in the unaudited pro forma consolidated statements of income as the $1.5 billion charge is nonrecurring. |
(f) |
Reflects the presentation of nonutility property, plant and equipment at estimated fair value and the removal of historical accumulated depreciation. |
(g) |
Reflects the excess of Dominion Energys consideration paid of approximately $1.6 billion over the amount of identifiable assets and liabilities assumed in the transaction (goodwill) as shown in Note 3 above. In addition, this reflects the removal of SCANAs previously recorded goodwill. |
(h) |
Reflects the settlement of all outstanding SCANA equity compensation awards at the time of the merger, allocated between compensation considered to be service provided prior to the merger ($22 million) and expense to be recognized after the merger ($13 million). The impact of this charge has not been reflected in the unaudited pro forma consolidated statements of income as it is nonrecurring. |
8
(i) |
Reflects an intangible asset for the value of customer relationships estimated to be $149 million with a weighted average useful life of approximately three years included within the preliminary purchase price allocation in Note 3. Amortization is based on the expected pattern of economic benefit, estimated to be $46 million, $32 million, $22 million, $15 million and $11 million over the five-year period following the acquisition. Estimated amortization of this asset is $25 million for the nine months ended September 30, 2018 and $46 million for the year ended December 31, 2017. |
(j) |
Reflects a contract liability for the unfavorable terms of existing contracts estimated to be $75 million with an estimated 14-month useful life included within the preliminary purchase price allocation in Note 3. Estimated amortization of this liability is $11 million for the nine months ended September 30, 2018 and $64 million for the year ended December 31, 2017. |
(k) |
Reflects an increase in liabilities for incremental charitable contributions committed to by Dominion Energy under the terms of the final orders issued by the SCPSC and NCUC of $21 million, $5 million of which is considered a current liability. The impact of this charge has not been reflected in the unaudited pro forma consolidated statements of income as it is nonrecurring. |
(l) |
Reflects the fair value adjustment of long-term debt of $22 million, on a weighted average maturity of approximately three years, and the write-off of $2 million of unamortized debt issuance costs, included within the preliminary purchase price allocation in Note 3. Estimated amortization of the fair value premium, and the elimination of the recorded debt issuance cost amortization, is $5 million and less than $1 million for the nine months ended September 30, 2018, and $12 million and $1 million for the year ended December 31, 2017, respectively. |
(m) |
Reflects the elimination of SCANAs historical shareholders equity. |
(n) |
This pro forma adjustment conforms SCANAs accounting for asset retirement obligations, which we refer to as AROs, to the methodology used by Dominion Energy. The cash flows used to measure Dominion Energys pipeline AROs reflect the cost and timing of activities legally required to retire component sections of pipeline as they are removed from service. The cash flows previously used to measure SCANAs pipeline AROs are those legally required to retire the entire pipeline system at one point in time. As a result of this change in accounting estimate, Dominion Energy recorded an increase of $188 million to property, plant and equipment and increases of $6 million and $182 million to current and noncurrent other liabilities, respectively. |
(o) |
Reflects adjustments related to the preliminary purchase price allocation ($20 million) and related pro forma adjustment impacting retained earnings ($695 million), based on an estimated statutory tax rate of 25.0%. |
(p) |
Reflects income taxes on pro forma adjustments based on an estimated statutory tax rate of 25.0% for the unaudited pro forma consolidated statement of income for the nine months ended September 30, 2018 and an estimated statutory tax rate of 38.3% for the unaudited pro forma consolidated statement of income for the year ended December 31, 2017. |
(q) |
Reflects the elimination of SCANAs historical accumulated other comprehensive loss. |
(r) |
Reflects the elimination of transactions between Dominion Energy and SCANA, primarily for the purchase and sale of natural gas transportation, included in each companys historical financial statements. In connection with these transactions, amounts for deposits held by Dominion Energy from SCANA have been eliminated and restrictions on the related cash have been removed. |
(s) |
This pro forma adjustment conforms SCANAs accounting for certain net periodic pension and other postretirement benefit costs to the methodology used by Dominion Energy. The January 2018 retrospective adoption by Dominion Energy of revised accounting guidance for certain net periodic pension and other postretirement benefit costs requires that the service cost component of net periodic pension and other postretirement benefit costs be classified in the same line item as other compensation costs arising from services rendered by employees, while all other components of net periodic pension and other postretirement benefit costs are classified outside of income from operations. As a result, Dominion Energy recorded corresponding decreases to other operations and maintenance expense and other income in the consolidated statement |
9
of income for the year ended December 31, 2017. These adjustments are incorporated in the Dominion Energy financial information included in the unaudited pro forma consolidated statement of income for the year ended December 31, 2017. While SCANA has also adopted the revised accounting guidance (effective January 2018), it has not yet reflected adjustments in its statement of income for the year ended December 31, 2017. |
(t) |
Reflects the elimination of the SCANA common stock offset by the issuance of 95.6 million shares of Dominion Energy common stock as discussed in tickmark (a). |
(u) |
Reflects the impacts of the final orders issued by the NCUC and SCPSC under which the Public Service Company of North Carolina, Incorporated and SCE&G, both wholly-owned subsidiaries of SCANA, will record a regulatory liability of $4 million and $2 million, respectively, representing a refund to customers of 2017 revenues to be refunded to customers through an annual bill credit over a three-year period following the merger. The impact of these refunds has not been reflected in the unaudited pro forma consolidated statements of income as the $6 million charge is nonrecurring. |
(v) |
Reflects the elimination of direct, incremental costs associated with Dominion Energys acquisition of SCANA during the nine months ended September 30, 2018, which have been included in Dominion Energy and SCANAs unaudited interim financial statements for the associated period, as these charges are nonrecurring. |
(w) |
Reflects the accrual of $115 million to be refunded to retail electric service customers of SCE&G, in accordance with the terms of a class action settlement agreement, of amounts previously held in a rabbi trust fund. The impact of this refund has not been reflected in the unaudited pro forma consolidated statements of income as the $115 million charge is nonrecurring. |
(x) |
Reflects the anticipated sale of certain SCE&G assets with the proceeds to be refunded to retail electric service customers in accordance with the terms of a class action settlement agreement. This adjustment serves to reclassify the fair value of these assets ($70 million) from property, plant and equipment to held for sale with an accrual for the associated current liability. The impact of this refund has not been reflected in the unaudited pro forma consolidated statements of income as the $70 million charge is nonrecurring. |
(y) |
This pro forma adjustment conforms SCANAs presentation of intangible assets to Dominion Energys accounting policies. Dominion Energy has elected to present intangible assets separately rather than as a component of property, plant and equipment. As a result of this change in accounting policy, Dominion Energy recorded decreases in property, plant and equipment and accumulated depreciation of $364 million and $247 million, respectively, offset by an increase to other noncurrent assets of $117 million. |
(z) |
Reflects the write-down of $146 million of net excess deferred income taxes associated with the New Nuclear Development Project for which SCE&G will not seek recovery of following the merger. This write-down consists of regulatory assets of $194 million, partially offset by $48 million of deferred income tax liabilities, and is not reflected in the unaudited pro forma consolidated statements of income as the $146 million charge is nonrecurring. |
10