Acquisitions | Acquisitions DCG On April 1, 2015, Dominion Midstream entered into a Purchase, Sale and Contribution Agreement with Dominion pursuant to which Dominion Midstream purchased from Dominion all of the issued and outstanding membership interests of DCG in exchange for total consideration of approximately $500.8 million , as adjusted for working capital. Total consideration to Dominion consisted of the issuance of a two -year $300.8 million senior unsecured promissory note, as adjusted for working capital, payable to Dominion at an annual interest rate of 0.6% , and 5,112,139 common units, valued at $200.0 million , representing limited partner interests in Dominion Midstream, to Dominion. The number of units was based on the volume weighted average trading price of Dominion Midstream's common units for the 10 trading days prior to April 1, 2015, or $39.12 per unit. For the nine months ended September 30, 2016, total transition costs of $1.3 million were expensed as incurred to operations and maintenance expense in the Consolidated Statements of Income. These costs were paid by Dominion, and Dominion Midstream subsequently reimbursed Dominion. There were no such costs incurred during the three months ended September 30, 2016. Subsequent to the DCG Acquisition through September 30, 2015, total transaction and transition costs of $1.5 million were expensed as incurred to operations and maintenance expense in the Consolidated Statements of Income, including $0.5 million for the three months ended September 30, 2015. These costs were paid by Dominion. Dominion did not seek reimbursement for $0.7 million of such costs incurred subsequent to the DCG Acquisition in 2015, and accordingly Dominion Midstream recognized a capital contribution by the general partner. The DCG Acquisition supports the expansion of Dominion Midstream's portfolio of natural gas terminaling, processing, storage, transportation and related assets. The contribution of DCG by Dominion to Dominion Midstream is considered to be a reorganization of entities under common control. Accordingly, Dominion Midstream's net investment in DCG is recorded at Dominion's historical cost of $501.6 million as of April 1, 2015. Common control began on January 31, 2015, concurrent with Dominion's acquisition of DCG from SCANA, which was accounted for using the acquisition method of accounting. Accordingly, the Consolidated Financial Statements of Dominion Midstream reflect DCG's financial results beginning January 31, 2015. In connection with the DCG Acquisition, Dominion Midstream entered into a registration rights agreement with Dominion pursuant to which Dominion Midstream must register the 5,112,139 common units issued to Dominion at its request, subject to certain terms and conditions. Additionally, at the time of Dominion's acquisition of DCG, DCG entered into services agreements and an intercompany tax sharing agreement with Dominion as described in Note 14. Iroquois On August 14, 2015, Dominion Midstream entered into contribution agreements with NG and NJNR. On September 29, 2015, pursuant to the contribution agreements, Dominion Midstream acquired a 25.93% noncontrolling partnership interest in Iroquois, consisting of NG’s 20.4% and NJNR’s 5.53% partnership interests in Iroquois and, in exchange, Dominion Midstream issued common units representing limited partnership interests in Dominion Midstream to both NG ( 6,783,373 common units) and NJNR ( 1,838,932 common units). The number of units was based on the volume-weighted average trading price of Dominion Midstream’s common units for the five trading days prior to August 14, 2015, or $33.23 per unit. The acquisition of the 25.93% noncontrolling partnership interest in Iroquois supports the expansion of Dominion Midstream’s portfolio of natural gas terminaling, processing, storage, transportation and related assets. The Iroquois investment, accounted for under the equity method, was recorded at $216.4 million based on the value of Dominion Midstream's common units at closing, including $0.4 million of external transaction costs. NG and NJNR agreed to certain transfer restrictions applicable to the 8,622,305 common units issued to them, including, with limited exceptions, a one -year lockup period following the closing of the transactions described above. In addition, at closing, Dominion Midstream entered into registration rights agreements with NG and NJNR pursuant to which Dominion Midstream was required to register the common units issued to NG and NJNR for resale when Dominion Midstream became eligible to file a registration statement on Form S-3. Such registration statement, filed on November 2, 2015, did not change the lockup periods to which NG and NJNR were subject. No market issuance of the common units is planned in connection with the transactions described above. Questar Pipeline In October 2016, Dominion Midstream, following approval by the Conflicts Committee of Dominion Midstream GP, LLC, its general partner, entered into the Questar Pipeline Contribution Agreement to acquire Questar Pipeline from Dominion. Upon closing of the agreement, expected by the end of 2016, Dominion Midstream will become the owner of all of the issued and outstanding membership interests of Questar Pipeline in exchange for consideration consisting of: (1) common units with a value between $100.0 million and $425.0 million with the actual number of Dominion Midstream common units to be issued to Dominion to be determined by the volume-weighted average trading price of Dominion Midstream's common units on the NYSE for the 10 -day trading period immediately preceding closing, (2) 11,365,628 convertible preferred units with a value of $300.0 million and (3) cash between $565.0 million and $890.0 million , $300.0 million of which is treated as a debt-financed distribution, for total consideration of $1.29 billion . In addition, Questar Pipeline's debt of $435.0 million is expected to remain outstanding. As a result of the transaction, Dominion Midstream will own 100% of the membership interests in Questar Pipeline and will thereafter consolidate Questar Pipeline in its financial statements. Because the contribution of Questar Pipeline by Dominion to Dominion Midstream is considered a reorganization of entities under common control, Questar Pipeline's assets and liabilities will be recorded in Dominion Midstream's consolidated financial statements at Dominion’s historical cost. Common control began on September 16, 2016, concurrent with Dominion's acquisition of Dominion Questar, which was accounted for using the acquisition method of accounting. To facilitate the financing of the anticipated acquisition of Questar Pipeline, Dominion Midstream completed a public issuance of 15,525,000 common units, which included a 2,025,000 common unit over-allotment option that was exercised in full by the underwriters, resulting in proceeds of $347.6 million , net of offering costs of $12.6 million , on November 3, 2016. In addition, in October 2016, Dominion Midstream entered into an agreement for the private placement of 5,990,633 common units with a value of $137.5 million and convertible preferred units with a value between $450.0 million and $600.0 million upon closing. Also in October 2016, Dominion Midstream entered into an agreement providing for a $300.0 million three -year senior unsecured term loan, with a variable interest rate, which will fund upon closing of the acquisition. The key terms of the senior unsecured term loan include limitations on the incurrence of additional indebtedness by Dominion Midstream's subsidiaries, a requirement that amounts due and payable under the term loan agreement be paid prior to Dominion Midstream making any distributions to unitholders and the maintenance of a quarterly leverage ratio not greater than 5.0 to 1.0 (or during the period following certain acquisitions, 5.50 to 1.0). If Dominion Midstream fails to make payments under the term loan or becomes subject to bankruptcy or other insolvency proceedings, these covenants could result in the acceleration of principal and interest payments and restrictions on distributions to unitholders. Offering expenses associated with the private placement of common units and convertible preferred units and the term loan agreement may be paid through a draw on the existing revolving credit facility with Dominion. As a condition to closing under the Questar Pipeline Contribution Agreement, Dominion Midstream is required to repay the outstanding $300.8 million senior unsecured promissory note payable to Dominion and to repurchase 6,656,839 common units from Dominion. In connection with the anticipated acquisition of Questar Pipeline, total transaction and transition costs of $0.4 million were expensed as incurred to operations and maintenance expense in the Consolidated Statements of Income, including $0.3 million for the three months ended September 30, 2016. These costs were paid by Dominion and Dominion did not seek reimbursement. Accordingly, Dominion Midstream recognized an equity contribution from the general partner. Questar Pipeline operates interstate natural gas pipelines and storage facilities in the western United States, providing natural gas transportation and underground storage services in Utah, Wyoming and Colorado. As of September 30, 2016, Questar Pipeline's natural gas system consisted of nearly 2,200 miles of interstate pipeline and nearly 58 billion cubic feet of working gas storage capacity. Questar Pipeline's core transportation system is strategically located near large reserves of natural gas in six major Rocky Mountain producing areas. Questar Pipeline transports natural gas from these producing areas to other major pipeline systems, Questar Gas Company's distribution system and other utility systems. Questar Pipeline operates and owns 50% of White River Hub, LLC, a FERC-regulated transporter of natural gas, in western Colorado, which is accounted for under the equity method. Questar Pipeline also owns gathering lines and processing facilities in Utah, through which it provides gas-processing services. The anticipated acquisition of Questar Pipeline supports the expansion of Dominion Midstream's portfolio of natural gas terminaling, processing, storage, transportation and related assets. |