Form 8-K

 

 

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)

Registrant’s 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 SCANA’s 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 Energy’s 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.


Exhibit     
  2.1    Agreement and Plan of Merger by and among Dominion Energy, Inc., Sedona Corp, and SCANA Corporation, dated as of January  2, 2018 (incorporated by reference from Exhibit 2.1, Form 8-K filed January 5, 2018, File No. 1-8489)
23.1    Consent of Deloitte & Touche LLP (filed herewith).
99.1    Press Release, dated January 2, 2019 (furnished herewith).
99.2    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 (incorporated by reference from Item  8. Financial Statements and Supplementary Data for SCANA Corporation, SCANA Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed February 23, 2018, File No. 1-8809). SCANA Corporation’s Annual Report is included in a combined filing with the Annual Report of South Carolina Electric  & Gas Company; information related to such affiliated entity as a separate registrant is not considered to be a component of the Audited Financial Statements of SCANA Corporation.
99.3    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 (incorporated by reference from Item 1. Financial Statements, SCANA Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed November 2, 2018, File No.  1-8809). SCANA Corporation’s Quarterly Report is included in a combined filing with the Quarterly Report of South Carolina Electric  & Gas Company; information related to such affiliated entity as a separate registrant is not considered to be a component of the Unaudited Financial Statements of SCANA Corporation.
99.4    Unaudited Pro Forma Consolidated Financial Statements of Dominion Energy, Inc. at September 30, 2018 and for the nine months ended September 30, 2018 (furnished herewith).


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

EX-23.1

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

EX-99.1

Exhibit 99.1

 

LOGO

January 2, 2019

Dominion Energy Combines With SCANA Corporation

 

   

Merger benefits SCANA’s customers, communities

 

   

Reduces customer bills, commits to maintain or exceed customer service levels

 

   

Builds on Dominion Energy’s presence in Georgia, North Carolina, South Carolina

 

   

Addition of high-quality regulated businesses improves company’s 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 SCANA’s 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.”

Today’s combination expands Dominion Energy’s 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 Energy’s 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 SCANA’s 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 Energy’s 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 Carolina’s 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 Carolina’s lawmakers. The new bill level was made possible by Dominion Energy’s 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 state’s homes and businesses,” Farrell said.

Dominion Energy will also provide bill credits of $3.75 million over three years to PSNC Energy’s 564,000 gas utility customers and $2.45 million over three years to SCE&G’s 370,000 gas utility customers.

Other benefits, commitments

The company has also committed to the following:

 

   

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;

 

   

Maintaining SCANA’s excellent customer service levels at or above current levels;

 

   

Increasing SCANA’s corporate and charitable giving by $1 million per year for at least five years in SCANA’s communities, including increasing PSNC Energy’s charitable contributions by $150,000 in 2019;

 

   

Implementing an EnergyShare-like program in South Carolina to assist low-income, elderly, disabled and veteran customers;

 

   

Agreeing to a freeze in base rates for SCE&G’s electric customers at current levels until Jan. 1, 2021;

 

   

Agreeing to a freeze in base rates for PSNC Energy’s customers at current levels until at least Nov. 1, 2021; and

 

   

Appointing a member of the SCANA board of directors or its executive management team to Dominion Energy’s board of directors.

Terms of transaction

At the merger’s 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.

SCANA’s 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:

 

   

3.3 million electric utility customer accounts in North Carolina, South Carolina and Virginia;

 

   

3.3 million natural gas utility customer accounts in Idaho, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wyoming; and

 

   

800,000 competitive and regulated, last-resort natural gas customer accounts in states with competitive markets.

Its operations now include:

 

   

93,600 miles of electric transmission and distribution lines;

 

   

106,400 miles of natural gas gathering, storage, transmission and distribution pipeline;

 

   

About 31,000 megawatts of diverse electric generation capacity in 10 states; and

 

   

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 Energy’s 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 Energy’s 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 nation’s 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 nation’s 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

EX-99.4

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 Energy’s 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:

 

   

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 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 Energy’s 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 SCANA’s 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 Energy’s 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 Energy’s 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 Energy’s 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  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

     5,702       1,420       42         7,164  
  

 

 

   

 

 

   

 

 

     

 

 

 

Investments

          

Nuclear decommissioning trust funds

     5,424       139       —           5,563  

Investment in equity method affiliates

     1,858       21       —           1,879  

Other

     345       114       —           459  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total investments

     7,627       274       —           7,901  
  

 

 

   

 

 

   

 

 

     

 

 

 

Property, Plant and Equipment

          

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)  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total property, plant and equipment, net

     54,185       10,941       (69       65,057  
  

 

 

   

 

 

   

 

 

     

 

 

 

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)  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total deferred charges and other assets

     11,568       6,181       105         17,854  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

   $ 79,082     $ 18,816     $ 78       $ 97,976  
  

 

 

   

 

 

   

 

 

     

 

 

 

 

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

          

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)  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

     9,212       1,164       549         10,925  
  

 

 

   

 

 

   

 

 

     

 

 

 

Long-Term Debt

          

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  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total Long-term debt

     32,188       6,735       24         38,947  
  

 

 

   

 

 

   

 

 

     

 

 

 

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)  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total deferred credits and other liabilities

     17,256       5,526       293         23,075  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

     58,656       13,425       866         72,947  
  

 

 

   

 

 

   

 

 

     

 

 

 

Commitments and Contingencies

          

Equity

          

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
  

 

 

   

 

 

   

 

 

     

 

 

 

Total common shareholders’ equity

     18,470       5,391       (788       23,073  
  

 

 

   

 

 

   

 

 

     

 

 

 

Noncontrolling interests

     1,956       —         —           1,956  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total equity

     20,426       5,391       (788       25,029  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 79,082     $ 18,816     $ 78       $ 97,976  
  

 

 

   

 

 

   

 

 

     

 

 

 

 

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)  
  

 

 

    

 

 

    

 

 

     

 

 

 

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

NOTE 1. BASIS OF PRESENTATION

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 Energy’s 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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 SCANA’s historical financial information to Dominion Energy’s significant accounting policies based on Dominion Energy’s review of SCANA’s summary of significant accounting policies, as disclosed in the SCANA historical financial statements incorporated by reference, and preliminary discussions with SCANA’s management. Upon completion of a more comprehensive comparison and assessment, additional differences may be identified.

 

6


NOTE 3. PURCHASE PRICE AND PRELIMINARY PURCHASE PRICE ALLOCATION

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 Energy’s 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 SCANA’s 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 SCANA’s 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 SCANA’s 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  
  

 

 

 

NOTE 4. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The following transactions are directly attributable to Dominion Energy’s 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 Energy’s 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 Energy’s 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 SCANA’s 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 SCANA’s historical shareholders’ equity.

 

(n)

This pro forma adjustment conforms SCANA’s 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 Energy’s 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 SCANA’s 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 SCANA’s 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 company’s 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 SCANA’s 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 Energy’s acquisition of SCANA during the nine months ended September 30, 2018, which have been included in Dominion Energy and SCANA’s 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 SCANA’s presentation of intangible assets to Dominion Energy’s 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