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Form 10-Q Dominion Midstream Partn For: Mar 31

May 5, 2016 10:59 AM EDT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

 

 

Commission File

Number

 

Exact name of registrants as specified in their charters, address of

principal executive offices and registrants’ telephone  number

 

I.R.S. Employer

Identification Number

001-36684   Dominion Midstream Partners, LP   46-5135781

120 Tredegar Street

Richmond, Virginia 23219

(804) 819-2000

State or other jurisdiction of incorporation or organization of the registrant: Delaware

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The registrant had 45,722,371 common units and 31,972,789 subordinated units outstanding as of April 15, 2016.

 

 

 


Table of Contents

INDEX

 

          Page
Number
 
   Glossary of Terms      3   
   PART I. Financial Information   
Item 1.    Financial Statements      5   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      20   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      29   
Item 4.    Controls and Procedures      29   
   PART II. Other Information   
Item 1.    Legal Proceedings      30   
Item 1A.    Risk Factors      30   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      30   
Item 6.    Exhibits      31   

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Cove Point,” “the Predecessor,” “our predecessor,” and “we,” “our,” “us,” “our partnership” or like terms when used in a historical context (period prior to October 20, 2014), refer to Dominion Cove Point LNG, LP as our predecessor for accounting purposes. When used in the present tense or prospectively (periods beginning October 20, 2014), “Dominion Midstream,” “we,” “our,” “us” or like terms refer to Dominion Midstream Partners, LP; one of its wholly-owned subsidiaries, Cove Point GP Holding Company, LLC, Iroquois GP Holding Company, LLC or Dominion Carolina Gas Transmission, LLC (beginning April 1, 2015); or all of them taken as a whole.

 

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Table of Contents

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:

 

Abbreviation or Acronym

  

Definition

2005 Agreement    An agreement effective March 1, 2005, which Cove Point entered into with the Sierra Club and the Maryland Conservation Council, Inc.
Additional Return Distributions    The additional cash distribution equal to 3.0% of Cove Point’s Modified Net Operating Income in excess of $600 million distributed each year
Adjusted EBITDA    EBITDA after adjustment for EBITDA attributable to the DCG Predecessor and a noncontrolling interest in Cove Point held by Dominion subsequent to the Offering, less income from equity method investee, plus distributions from equity method investee
AFUDC    Allowance for funds used during construction
CAA    Clean Air Act
CEO    Chief Executive Officer
CFO    Chief Financial Officer
Columbia to Eastover Project    Project to provide 15,800 Dths/day of firm transportation service from an existing interconnect with Southern Natural Gas Company, LLC in Aiken County, South Carolina and provide for a receipt point change of 2,200 Dths/day under an existing contract from an existing interconnect with Transco in Cherokee County, South Carolina for a total 18,000 Dths/day, to a new delivery point for the International Paper Company at its pulp and paper mill known as the Eastover Plant in Richland County, South Carolina
Cove Point    Dominion Cove Point LNG, LP
Cove Point LNG Facility    An LNG import/regasification and storage facility located on the Chesapeake Bay in Lusby, Maryland owned by Cove Point
Cove Point Pipeline    An approximately 136-mile natural gas pipeline owned by Cove Point that connects the Cove Point LNG Facility to interstate natural gas pipelines
CPCN    Certificate of Public Convenience and Necessity
DCG    Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation)
DCG Acquisition    The acquisition of DCG by Dominion Midstream from Dominion on April 1, 2015
DCG Predecessor    Dominion as the predecessor for accounting purposes for the period from Dominion’s acquisition of DCG from SCANA on January 31, 2015 until the DCG Acquisition
DCGS    Dominion Carolina Gas Services, Inc.
Dominion    The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Dominion Midstream GP, LLC and its subsidiaries) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Midstream    The legal entity, Dominion Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point GP Holding Company, LLC, Iroquois GP Holding Company, LLC and DCG (beginning April 1, 2015), or the entirety of Dominion Midstream Partners, LP and its consolidated subsidiaries
Dominion Payroll    Dominion Payroll Company, Inc.
DRS    Dominion Resources Services, Inc.
Dth    Dekatherm
EBITDA    Earnings before interest and associated charges, income tax expense, depreciation and amortization
EPA    Environmental Protection Agency
FERC    Federal Energy Regulatory Commission
GAAP    U.S. generally accepted accounting principles
GHG    Greenhouse gas
IDR    Incentive distribution right
Import Shippers    The three LNG import shippers consisting of BP Energy Company, Shell NA LNG, Inc. and Statoil Natural Gas, LLC
Iroquois    Iroquois Gas Transmission System, L.P.
Keys Energy Project    Project to provide 107,000 Dths/day of firm transportation service from Cove Point’s interconnect with Transco in Fairfax County, Virginia to Keys Energy Center, LLC’s power generating facility in Prince George’s County, Maryland
Liquefaction Project    A natural gas export/liquefaction facility currently under construction by Cove Point
LNG    Liquefied natural gas
MD&A    Management’s Discussion and Analysis of Financial Condition and Results of Operations
MLP    Master limited partnership, equivalent to publicly traded partnership

 

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Table of Contents

Abbreviation or Acronym

  

Definition

Modified Net Operating Income    Cove Point’s Net Operating Income plus any interest expense included in the computation of Net Operating Income
Net Operating Income    Cove Point’s gross revenues from operations minus its interest expense and operating expenses, but excluding depreciation and amortization, as determined for U.S. federal income tax purposes
NGA    Natural Gas Act of 1938, as amended
Offering    The initial public offering of common units of Dominion Midstream
organizational design initiative    In the first quarter of 2016, Dominion announced an organizational design initiative that will reduce its total workforce during 2016, the goal of which was to streamline its leadership structure and push decision making lower while also improving efficiency
Preferred Equity Interest    A perpetual, non-convertible preferred equity interest in Cove Point entitled to the Preferred Return Distributions and the Additional Return Distributions
Preferred Return Distributions    The first $50.0 million of annual cash distributions made by Cove Point
SCANA    SCANA Corporation
SEC    Securities and Exchange Commission
St. Charles Transportation Project    Project to provide 132,000 Dths/day of firm transportation service from Cove Point’s interconnect with Transco in Fairfax County, Virginia to Competitive Power Venture Maryland, LLC’s power generating facility in Charles County, Maryland
Storage Customers    The four local distribution companies that receive firm peaking services from Cove Point, consisting of: Atlanta Gas Light Company, Public Service Company of North Carolina, Incorporated, Virginia Natural Gas, Inc. and Washington Gas Light Company
Transco    Transcontinental Gas Pipe Line Company, LLC
Transco to Charleston Project    Project to provide 80,000 Dths/day of firm transportation service from an existing interconnect with Transco in Spartanburg County, South Carolina to customers in Dillon, Marlboro, Sumter, Charleston, Lexington and Richland counties, South Carolina
VIE    Variable interest entity

 

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION MIDSTREAM PARTNERS, LP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

    

Three Months Ended

March 31,

 
     2016     2015  
(millions, except per unit data)             

Operating Revenue(1)

   $ 83.0      $ 78.4   
  

 

 

   

 

 

 

Operating Expenses

    

Purchased gas(1)

     0.9        3.9   

Other operations and maintenance:

    

Affiliated suppliers

     9.4        4.8   

Other

     10.6        8.5   

Depreciation and amortization

     10.0        10.6   

Other taxes

     7.3        5.9   
  

 

 

   

 

 

 

Total operating expenses

     38.2        33.7   
  

 

 

   

 

 

 

Income from operations

     44.8        44.7   

Earnings from equity method investee

     6.4        —     

Other income

     0.5        0.2   

Interest and related charges (benefit)(1)

     (0.1     —     
  

 

 

   

 

 

 

Income from operations including noncontrolling interest before income taxes

     51.8        44.9   

Income tax expense

     —          2.1   
  

 

 

   

 

 

 

Net income including noncontrolling interest and DCG Predecessor

   $ 51.8      $ 42.8   
  

 

 

   

 

 

 

Less: Net income attributable to DCG Predecessor

     —          2.3   
  

 

 

   

 

 

 

Net income including noncontrolling interest

     51.8        40.5   

Less: Net income attributable to noncontrolling interest

     28.7        28.7   
  

 

 

   

 

 

 

Net income attributable to partners

   $ 23.1      $ 11.8   
  

 

 

   

 

 

 

Net income attributable to partners’ ownership interest

    

General partner’s interest in net income

   $ 0.4      $ —     

Common unitholders’ interest in net income

     13.4        5.9   

Subordinated unitholder’s interest in net income

     9.3        5.9   

Net income per limited partner unit (basic and diluted)

    

Common units

   $ 0.29      $ 0.19   

Subordinated units

     0.29        0.19   
(1) See Note 14 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Midstream’s Consolidated Financial Statements.

 

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DOMINION MIDSTREAM PARTNERS, LP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     March 31,
2016
    December 31,
2015
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 35.4      $ 35.0   

Customer and other receivables

     25.9        27.0   

Affiliated receivables

     6.2        6.2   

Prepayments

     5.6        10.6   

Materials and supplies

     12.5        12.5   

Regulatory assets

     2.5        1.7   

Other(1)

     3.0        2.8   
  

 

 

   

 

 

 

Total current assets

     91.1        95.8   
  

 

 

   

 

 

 

Investment in Equity Method Affiliate

     221.1        220.5   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     4,143.7        3,845.7   

Accumulated depreciation and amortization

     (359.2     (351.0
  

 

 

   

 

 

 

Total property, plant and equipment, net

     3,784.5        3,494.7   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Goodwill

     295.5        295.5   

Intangible assets, net

     15.5        15.8   

Regulatory assets

     2.7        2.5   

Other

     0.7        0.4   
  

 

 

   

 

 

 

Total deferred charges and other assets

     314.4        314.2   
  

 

 

   

 

 

 

Total assets

   $ 4,411.1      $ 4,125.2   
  

 

 

   

 

 

 
(1) See Note 14 for amounts attributable to related parties.

 

The accompanying notes are an integral part of Dominion Midstream’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION MIDSTREAM PARTNERS, LP

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Unaudited)

 

     March 31,
2016
    December 31,
2015
 
(millions)             

LIABILITIES AND EQUITY AND PARTNERS’ CAPITAL

    

Current Liabilities

    

Accounts payable

   $ 11.7      $ 8.6   

Payables to affiliates

     8.6        5.2   

Accrued payroll and taxes

     2.9        6.0   

Regulatory liabilities

     5.1        6.7   

Dominion credit facility borrowings

     9.5        5.9   

Deferred revenue

     1.0        4.2   

Natural gas imbalances(1)

     3.6        1.0   

CPCN obligation

     8.0        8.0   

Other

     13.3        14.4   
  

 

 

   

 

 

 

Total current liabilities

     63.7        60.0   
  

 

 

   

 

 

 

Affiliated Long-Term Debt

     300.8        300.8   
  

 

 

   

 

 

 

Deferred Credits and Other Liabilities

    

Pension and other postretirement benefit liabilities(1)

     5.3        5.0   

Regulatory liabilities

     66.9        66.7   

CPCN obligation

     29.1        29.0   

Asset retirement obligation

     12.5        13.0   

Deferred revenue

     11.0        9.1   

Other

     0.7        0.6   
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     125.5        123.4   
  

 

 

   

 

 

 

Total liabilities

     490.0        484.2   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 12)

    

Equity and Partners’ Capital

    

Common unitholders - public (27,498,388 units issued and outstanding at March 31, 2016; 27,867,938 units issued and outstanding at December 31, 2015)

     595.0        600.8   

Common unitholder - Dominion (18,223,983 units issued and outstanding at March 31, 2016; 17,846,672 units issued and outstanding at December 31, 2015)

     448.3        438.8   

Subordinated unitholder - Dominion (31,972,789 units issued and outstanding at March 31, 2016 and December 31, 2015)

     477.9        475.4   

General Partner interest - Dominion (non-economic interest)

     (12.2     (12.4
  

 

 

   

 

 

 

Total Dominion Midstream Partners, LP partners’ capital

     1,509.0        1,502.6   
  

 

 

   

 

 

 

Noncontrolling interest

     2,412.1        2,138.4   
  

 

 

   

 

 

 

Total equity and partners’ capital

     3,921.1        3,641.0   
  

 

 

   

 

 

 

Total liabilities and equity and partners’ capital

   $ 4,411.1      $ 4,125.2   
  

 

 

   

 

 

 
(1) See Note 14 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Midstream’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION MIDSTREAM PARTNERS, LP

CONSOLIDATED STATEMENT OF EQUITY AND PARTNERS’ CAPITAL

(Unaudited)

 

     Partnership                     
     Common
Unitholders
Public
    Common
Unitholder
Dominion
    Subordinated
Unitholder
Dominion
    General
Partner
Dominion
(non-
economic
interest)
    Total Dominion
Midstream
Partners, LP
Partners’ Equity
and Capital
    Noncontrolling
interest
     Total Equity and
Partners’ Capital
 
(millions)                                            

December 31, 2015

   $ 600.8      $ 438.8      $ 475.4      $ (12.4   $ 1,502.6      $ 2,138.4       $ 3,641.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income including noncontrolling interest

     8.1        5.3        9.3        0.4        23.1        28.7         51.8   

Equity contributions from Dominion

     —          —          —          —          —          244.9         244.9   

Purchase of common units by Dominion

     (8.1     8.1        —          —          —          —           —     

Distributions

     (5.9     (3.9     (6.8     (0.2     (16.8     —           (16.8

Unit awards (net of unearned compensation)

     0.1        —          —          —          0.1        —           0.1   

Other

     —          —          —          —          —          0.1         0.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

March 31, 2016

   $ 595.0      $ 448.3      $ 477.9      $ (12.2   $ 1,509.0      $ 2,412.1       $ 3,921.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of Dominion Midstream’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION MIDSTREAM PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31,

   2016     2015  
(millions)             

Operating Activities

    

Net income including noncontrolling interest and DCG Predecessor

   $ 51.8      $ 42.8   

Adjustments to reconcile net income including noncontrolling interest and DCG Predecessor to net cash provided by operating activities:

    

Depreciation and amortization

     10.0        10.6   

Deferred income taxes

     —          1.5   

Other adjustments to income, net

     (1.1     1.0   

Changes in:

    

Customer and other receivables

     1.1        (2.4

Prepayments

     5.0        3.2   

Accounts payable

     1.8        (0.5

Payables to affiliates

     3.4        1.3   

Accrued payroll and taxes

     (3.1     0.8   

Other operating assets and liabilities

     (0.4     (1.6
  

 

 

   

 

 

 

Net cash provided by operating activities

     68.5        56.7   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions

     (299.7     (176.1

Other

     (0.1     (0.3
  

 

 

   

 

 

 

Net cash used in investing activities

     (299.8     (176.4
  

 

 

   

 

 

 

Financing Activities

    

Dominion credit facility borrowings

     3.6        —     

Contributions from Dominion

     244.9        1.3   

Distributions to common unitholders - public

     (5.9     (2.8

Distribution to common unitholder - Dominion

     (3.9     (1.7

Distribution to subordinated unitholder - Dominion

     (6.8     (4.4

Distribution to general partner - Dominion

     (0.2     —     

Other

     —          (0.1
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     231.7        (7.7
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     0.4        (127.4

Cash and cash equivalents at beginning of period

     35.0        175.4   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 35.4      $ 48.0   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing and financing activities:

    

Accrued capital expenditures

   $ 14.9      $ 111.3   

DCG Acquisition through issuance of debt and equity

     —          497.0   

Equity contribution from Dominion to relieve payables to affiliates

     —          1.0   

The accompanying notes are an integral part of Dominion Midstream’s Consolidated Financial Statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business and Basis of Presentation

Description of Business

Dominion Midstream is a Delaware limited partnership formed in March 2014 by Dominion MLP Holding Company, LLC and Dominion Midstream GP, LLC, both indirect wholly-owned subsidiaries of Dominion, to grow a portfolio of natural gas terminaling, processing, storage, transportation and related assets.

Dominion Midstream acquired from Dominion the Preferred Equity Interest and non-economic general partner interest in Cove Point, the owner and operator of the Cove Point LNG Facility and the Cove Point Pipeline. The Preferred Equity Interest is a perpetual, non-convertible preferred equity interest entitled to Preferred Return Distributions so long as Cove Point has sufficient cash and undistributed Net Operating Income (determined on a cumulative basis from the closing of the Offering) from which to make Preferred Return Distributions. Preferred Return Distributions are made on a quarterly basis and are not cumulative. The Preferred Equity Interest is also entitled to the Additional Return Distributions.

On April 1, 2015, Dominion Midstream acquired from Dominion all issued and outstanding membership interests in DCG as described further in Note 2. DCG owns and operates nearly 1,500 miles of FERC-regulated open access, transportation-only interstate natural gas pipeline in South Carolina and southeastern Georgia.

On September 29, 2015, Dominion Midstream acquired a 25.93% noncontrolling partnership interest in Iroquois as described further in Note 7. Iroquois, a Delaware limited partnership, owns and operates a 416-mile FERC-regulated interstate natural gas transmission pipeline that extends from the Canada-U.S. border through the states of New York and Connecticut.

Basis of Presentation

The contribution by Dominion to Dominion Midstream of the general partner interest in Cove Point and a portion of the Preferred Equity Interest is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis is equal to Dominion’s cost basis in the general partner interest in Cove Point and a portion of the Preferred Equity Interest. As discussed in Note 10, Dominion Midstream is the primary beneficiary of, and therefore consolidates, Cove Point. As such, Dominion Midstream’s investment in the Preferred Equity Interest and Cove Point’s preferred equity interest are eliminated in consolidation. Dominion’s retained common equity interest in Cove Point is reflected as noncontrolling interest.

The DCG Acquisition is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis in DCG is equal to Dominion’s cost basis in the assets and liabilities of DCG. On April 1, 2015, DCG became a wholly-owned subsidiary of Dominion Midstream and is therefore consolidated by Dominion Midstream. The accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of DCG beginning January 31, 2015, the inception date of common control.

The financial statements for all periods presented include costs for certain general, administrative and corporate expenses assigned by DRS or DCGS (Dominion Payroll prior to January 1, 2016) to Dominion Midstream on the basis of direct and allocated methods in accordance with Dominion Midstream’s services agreements with DRS and DCGS (Dominion Payroll prior to January 1, 2016). Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DRS or DCGS (Dominion Payroll prior to January 1, 2016) resources that is attributable to the entities, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DRS or DCGS (Dominion Payroll prior to January 1, 2016) department. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.

 

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Note 2. 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 three months ended March 31, 2016, total transaction and 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. Dominion Midstream subsequently reimbursed Dominion for the total transaction and transition costs. 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.

Note 3. Significant Accounting Policies

Interim Financial Information and Estimates

As permitted by the rules and regulations of the SEC, Dominion Midstream’s accompanying unaudited Consolidated Financial Statements exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015.

In the opinion of management, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly Dominion Midstream’s financial position at March 31, 2016, and its results of operations, cash flows and changes in equity for the three months ended March 31, 2016 and 2015. Such adjustments are normal and recurring in nature unless otherwise noted.

Dominion Midstream makes certain estimates and assumptions in preparing its Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, purchased gas expenses and other factors.

Note 4. Net Income Per Limited Partner Unit

Net income per limited partner unit applicable to common and subordinated units is computed by dividing the respective limited partners’ interest in net income attributable to Dominion Midstream, after deducting any incentive distributions, by the weighted average number of common units and subordinated units outstanding. Because Dominion Midstream has more than one class of participating securities, the two-class method is used when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units and IDRs.

Dominion Midstream’s net income is allocated to the limited partners in accordance with their respective partnership interests, after giving effect to priority income allocations for incentive distributions, if any, to Dominion, the holder of the IDRs, pursuant to the partnership agreement. The distributions are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to Dominion Midstream’s unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of earnings per limited partner unit.

 

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Diluted net income per limited partner unit is the same as basic net income per limited partner unit as there were no potentially dilutive common or subordinated units outstanding at March 31, 2016 and 2015.

The calculation of earnings per limited partner unit is as follows:

 

     Three Months Ended
March 31,
2016
 
(millions)       

Net income attributable to partners

   $ 23.1   

Distributions declared on(1):

  

IDRs(2)

     0.4   

Common unitholders

     10.3   

Subordinated unitholders

     7.1   
  

 

 

 

Total distributions declared

     17.8   
  

 

 

 

Undistributed earnings

   $ 5.3   
  

 

 

 

 

(1) On April 19, 2016, the Board of Directors of our general partner declared a quarterly cash distribution of $0.2245 per unit, totaling $17.8 million for the three months ended March 31, 2016. This distribution will be paid on May 13, 2016 to unitholders of record on May 3, 2016. The amount of distributions declared for the three months ended March 31, 2016 is based on the units outstanding at that date.
(2) Dominion is a non-economic general partner that holds all of the IDRs.

 

     Three Months Ended
March 31,
2015
 
(millions)       

Net income attributable to partners

   $ 11.8   

Distributions declared on(1):

  

IDRs(2)

     —     

Common unitholders

     5.6   

Subordinated unitholders

     5.6   
  

 

 

 

Total distributions declared

     11.2   
  

 

 

 

Undistributed earnings

   $ 0.6   
  

 

 

 

 

(1) On April 22, 2015, the Board of Directors of our general partner declared a quarterly cash distribution of $0.1750 per unit, totaling $12.1 million for the three months ended March 31, 2015. This distribution was paid on May 15, 2015 to unitholders of record on May 5, 2015. The amount of distributions declared shown above is based on the units outstanding at March 31, 2015, and therefore excludes $0.9 million of distributions that were paid on 5,112,139 common units issued to Dominion on April 1, 2015, in connection with the acquisition of DCG. See Note 2 for further information.
(2) Dominion is a non-economic general partner that holds all of the IDRs.

 

Basic and diluted net income per limited partner unit                            
     Common Units      Subordinated
Units
     General Partner      Total  
(millions, except for weighted average units and per unit data)                            

Three Months Ended March 31, 2016

           

Distributions declared

   $ 10.3       $ 7.1       $ 0.4       $ 17.8   

Undistributed earnings

     3.1         2.2         —           5.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to partners

   $ 13.4       $ 9.3       $ 0.4       $ 23.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average units outstanding

     45,722,112         31,972,789         
  

 

 

    

 

 

       

Net income per limited partner unit

   $ 0.29       $ 0.29         
  

 

 

    

 

 

       

 

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Basic and diluted net income per limited partner unit                            
     Common Units      Subordinated
Units
     General Partner      Total  

Three Months Ended March 31, 2015

           

Distributions declared

   $ 5.6       $ 5.6       $ —         $ 11.2   

Undistributed earnings

     0.3         0.3         —           0.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to partners

   $ 5.9       $ 5.9       $ —         $ 11.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average units outstanding

     31,980,110         31,972,789         
  

 

 

    

 

 

       

Net income per limited partner unit

   $ 0.19       $ 0.19         
  

 

 

    

 

 

       

Note 5. Unit Activity

Activity in the number of units was as follows:

 

     Common                       
     Public     Dominion      Subordinated      General Partner      Total  
                         (non-economic interest)         

Balance at December 31, 2015

     27,867,938        17,846,672         31,972,789         —           77,687,399   

Unit-based compensation

     7,761        —           —           —           7,761   

Dominion purchase of common units(1)

     (377,311     377,311         —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2016

     27,498,388        18,223,983         31,972,789         —           77,695,160   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) These shares were purchased by Dominion as part of Dominion’s program initiated in September 2015 to purchase from the market up to $50.0 million of common units representing limited partner interests in Dominion Midstream by September 2016 at the discretion of Dominion’s management.

Note 6. Operating Revenue

Dominion Midstream’s operating revenue consists of the following:

 

    

Three Months Ended

March 31,

 
     2016      2015  
(millions)              

Gas transportation and storage

   $ 79.1       $ 74.7   

Other

     3.9         3.7   
  

 

 

    

 

 

 

Total operating revenue

   $ 83.0       $ 78.4   
  

 

 

    

 

 

 

Note 7. Equity Method Investments

The Consolidated Financial Statements include Dominion Midstream’s 25.93% noncontrolling partnership interest in Iroquois, which is accounted for under the equity method. See further discussion of Iroquois in Notes 1 and 10.

During the three months ended March 31, 2016, Dominion Midstream received distributions of $5.8 million from Iroquois. At March 31, 2016, the carrying amount of Dominion Midstream’s investment of $221.1 million exceeded its share of underlying equity in net assets by approximately $122.9 million. The difference reflects equity method goodwill and is not being amortized.

Summarized financial information provided to us by Iroquois for 100% of Iroquois for the three months ended March 31, 2016, is presented below.

 

(in millions)   

Three Months Ended

March 31, 2016

 

Revenues

   $ 53.0   

Operating income

     28.8   

Net income

     24.6   

 

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Note 8. Regulatory Assets and Liabilities

Regulatory assets and liabilities include the following:

 

     March 31, 2016      December 31, 2015  
(millions)              

Regulatory assets:

     

Unrecovered gas costs(1)

   $ 2.2       $ 1.4   

Other

     0.3         0.3   
  

 

 

    

 

 

 

Regulatory assets-current

     2.5         1.7   
  

 

 

    

 

 

 

Income taxes recoverable through future rates(2)

     2.7         2.5   
  

 

 

    

 

 

 

Regulatory assets-non-current

     2.7         2.5   
  

 

 

    

 

 

 

Total regulatory assets

   $ 5.2       $ 4.2   
  

 

 

    

 

 

 

Regulatory liabilities:

     

Overrecovered gas costs(1)

   $ —         $ 0.1   

LNG cargo obligations(3)

     1.5         3.0   

Customer bankruptcy settlement(4)

     3.2         3.1   

Other

     0.4         0.5   
  

 

 

    

 

 

 

Regulatory liabilities-current

     5.1         6.7   
  

 

 

    

 

 

 

Provision for future cost of removal(5)

     46.6         45.7   

Customer bankruptcy settlement(4)

     19.7         20.5   

Other

     0.6         0.5   
  

 

 

    

 

 

 

Regulatory liabilities-non-current

     66.9         66.7   
  

 

 

    

 

 

 

Total regulatory liabilities

   $ 72.0       $ 73.4   
  

 

 

    

 

 

 

 

(1) Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
(2) Amounts to be recovered through future rates to pay income taxes that become payable by unitholders when rate revenue is provided to recover AFUDC-equity when such amounts are recovered through book depreciation.
(3) Reflects obligations to the Import Shippers for LNG cargo received. See Note 12 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
(4) Represents the balance of proceeds from the monetization of a bankruptcy claim acquired as part of the DCG Acquisition, which is being amortized into operating revenue through February 2024.
(5) Rates charged to customers include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.

At March 31, 2016, approximately $2.5 million of regulatory assets represented past expenditures on which Dominion Midstream does not currently earn a return. These expenditures are expected to be recovered within one year.

Note 9. Regulatory Matters

FERC regulates the transportation and sale for resale of natural gas in interstate commerce under the NGA and the Natural Gas Policy Act of 1978, as amended. Under the NGA, FERC has authority over rates, terms and conditions of services performed by Cove Point and DCG. FERC also has jurisdiction over siting, construction and operation of natural gas import facilities and interstate natural gas pipeline facilities.

There have been no significant developments regarding the regulatory matters disclosed in Note 12 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015.

In 2014, DCG executed three binding precedent agreements for the approximately $120 million Transco to Charleston Project. In March 2016, DCG filed an application to request FERC authorization to construct and operate the project facilities, which are expected to be placed into service in the fourth quarter of 2017.

Note 10. Variable Interest Entities

The primary beneficiary of a VIE is required to consolidate the VIE and to disclose certain information about its significant variable interests in the VIE. The primary beneficiary of a VIE is the entity that has both 1) the power to direct the activities that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.

 

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Cove Point

Dominion Midstream concluded that Cove Point is a VIE due to the limited partners lacking the characteristics of a controlling financial interest. Dominion Midstream is the primary beneficiary of Cove Point as it has the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and benefits which could be significant to it.

Iroquois

Dominion Midstream previously concluded that Iroquois was a VIE because a non-affiliated Iroquois equity holder had the ability during a limited period of time to transfer its ownership interests to another Iroquois equity holder or its affiliate. As such right no longer exists at March 31, 2016, Dominion Midstream concluded that Iroquois is no longer a VIE.

DRS, DCGS and Dominion Payroll

In connection with the Offering, our general partner entered into a services agreement with DRS. DRS provides administrative, management and other services to Dominion and its subsidiaries as a subsidiary service company. From time to time and at the option of our general partner, our general partner will request that DRS provide, and reimburse DRS for the cost of providing such administrative, management and other services as it deems necessary or appropriate for our operations. We will reimburse our general partner and its affiliates for the associated costs of obtaining these services.

Additionally, in connection with Dominion’s acquisition of DCG, DCG entered into services agreements beginning February 1, 2015 with DRS, for similar services as described above, and with Dominion Payroll, which provides human resources and operations services to Dominion and its subsidiaries as a subsidiary service company. Effective January 1, 2016, DCGS provides these services to Dominion Midstream with Dominion Payroll no longer providing any services to Dominion Midstream.

Dominion Midstream purchased shared services from DRS and DCGS of approximately $6.7 million and $5.0 million, respectively, during the three months ended March 31, 2016. Dominion Midstream purchased shared services from DRS and Dominion Payroll of approximately $3.6 million and $1.9 million, respectively, for the three months ended March 31, 2015. The Consolidated Balance Sheets at March 31, 2016 and December 31, 2015 include amounts due from Dominion Midstream to DRS, DCGS and Dominion Payroll of approximately $5.2 million and $2.8 million, respectively.

Dominion Midstream determined that neither it nor any of its consolidated entities is the primary beneficiary of DRS, DCGS or Dominion Payroll, as neither it nor any of its consolidated entities has both the power to direct the activities that most significantly impact their economic performance as well as the obligation to absorb losses and benefits which could be significant to them. Neither Dominion Midstream nor any of its consolidated entities has any obligation to absorb more than its allocated share of DRS, DCGS or Dominion Payroll costs.

Note 11. Affiliated Long-Term Debt

In connection with the DCG Acquisition, Dominion Midstream issued a two-year, $300.8 million senior unsecured promissory note payable to Dominion, as adjusted for working capital, at an annual fixed interest rate of 0.6%. Interest on the note is payable quarterly, and all principal and accrued interest is due and payable at maturity on April 1, 2017, which under certain conditions can be extended at the option of Dominion Midstream to October 1, 2017. Interest charges related to Dominion Midstream’s borrowing from Dominion were $0.5 million for the three months ended March 31, 2016. At March 31, 2016 and December 31, 2015, accrued interest payable to Dominion of $0.5 million was recorded in payables to affiliates on the Consolidated Balance Sheets.

The debt instrument described above is reported at historical cost. At March 31, 2016, the fair value of Dominion Midstream’s outstanding debt was $295.9 million. The estimated fair value has been determined using available market information and valuation methodologies considered appropriate by management. The fair value was calculated using market interest rates currently available for issuance of debt with similar terms and remaining maturities. The fair value measurement is classified as Level 2.

The key terms of the note payable to Dominion include a prohibition on the incurrence of additional indebtedness (other than under the credit facility with Dominion discussed in Note 14) and a negative pledge applicable to liens on the assets of Dominion Midstream, but which does not apply to the assets of subsidiaries of Dominion Midstream. The note payable does not include any financial covenants. If Dominion Midstream fails to make payments under the note payable or becomes subject to bankruptcy or other insolvency proceedings, Dominion may accelerate Dominion Midstream’s payment obligations under the note payable.

 

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Note 12. Commitments and Contingencies

As a result of issues generated in the ordinary course of business, Dominion Midstream is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by FERC), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for Dominion Midstream to estimate a range of possible loss. For such matters that Dominion Midstream cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that Dominion Midstream is able to estimate a range of possible loss. For legal proceedings and governmental examinations for which Dominion Midstream is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Any estimated range of possible loss may not represent Dominion Midstream’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. Management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on Dominion Midstream’s financial position, liquidity or results of operations.

Cove Point Natural Heritage Trust

Under the terms of the 2005 Agreement, Cove Point is required to make an annual contribution to the Cove Point Natural Heritage Trust, an affiliated non-profit trust focused on the preservation and protection of ecologically sensitive sites at or near Cove Point, of $0.3 million for each year the facility is in operation. These annual payments are recorded in other operations and maintenance expense in the Consolidated Statements of Income. If Cove Point voluntarily tenders title according to the terms of this agreement, no contributions are required. There are no current plans to voluntarily tender title to the Cove Point site.

Surety Bonds

At March 31, 2016, Cove Point had purchased $10.9 million of surety bonds. Under the terms of surety bonds, Cove Point is obligated to indemnify the respective surety bond company for any amounts paid.

Lease Commitments

Dominion Midstream leases various facilities, vehicles and equipment under operating lease arrangements, the majority of which include terms of one year or less, require payments on a monthly or annual basis and can be canceled at any time. Rental expense for Dominion Midstream totaled $0.6 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively. The majority of rent expense is included within other operations and maintenance expense in the Consolidated Statements of Income.

Note 13. Credit Risk

Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit policies are maintained, including the evaluation of counterparty financial condition. In addition, counterparties may make available collateral, including letters of credit, payment guarantees or cash deposits.

Dominion Midstream provides service to approximately 70 customers, including the Storage Customers, marketers or end users and the Import Shippers. The two largest customers comprised approximately 72% and 70% of the total transportation and storage revenues for the three months ended March 31, 2016 and 2015, with Dominion Midstream’s largest customer representing approximately 56% and 59% of such amounts in each period, respectively.

Dominion Midstream maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends and other information. At March 31, 2016 and December 31, 2015, the provision for credit losses was less than $0.1 million. Management believes, based on credit policies and the March 31, 2016 provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.

Note 14. Related-Party Transactions

Dominion Midstream engages in related-party transactions primarily with other Dominion subsidiaries (affiliates), including our general partner. Dominion Midstream’s receivable and payable balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. Cove Point participates in certain

 

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Dominion benefit plans as described in Note 16 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. In Dominion Midstream’s Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, amounts due to Dominion associated with these benefit plans included in pension and other postretirement benefit liabilities were $5.3 million and $5.0 million, respectively, and amounts due from Dominion at March 31, 2016 included in other current assets were $0.2 million. There were no such amounts due from Dominion at December 31, 2015. Transactions related to the DCG Acquisition are described in Notes 2 and 11. A discussion of the remaining significant related party transactions follows.

Transactions with Affiliates

DRS provides accounting, legal, finance and certain administrative and technical services to Dominion Midstream. Effective January 1, 2016, DCGS provides human resources and operations services to Dominion Midstream as a subsidiary service company. Prior to January 1, 2016, Dominion Payroll provided human resources and operations services to Dominion Midstream as a subsidiary service company. Refer to Note 10 for further information.

Dominion may seek reimbursement from DCG for costs incurred related to Dominion’s transition services agreement with SCANA to provide administrative functions related to DCG. For the three months ended March 31, 2016, DCG reimbursed Dominion a total of $0.6 million for such costs. During the three months ended March 31, 2015, Dominion did not seek reimbursement for any such costs.

Dominion Midstream provides transportation services to affiliates and affiliates provide goods and services to Dominion Midstream.

Affiliated transactions are presented below:

 

     Three Months Ended
March 31,
 
     2016      2015  
(millions)              

Sales of natural gas transportation services to affiliates

   $ 0.5       $ 0.7   

Purchased gas from affiliates

     0.1         0.2   

Goods and services provided by affiliates to Dominion Midstream(1)

     13.3         7.2   

 

(1) Includes $3.9 million and $2.4 million of capitalized expenditures for the three months ended March 31, 2016 and 2015, respectively.

Dominion Credit Facility

In connection with the Offering, Dominion Midstream entered into a credit facility with Dominion with a borrowing capacity of $300 million. A summary of certain key terms of the credit facility with Dominion is included in Note 20 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. At March 31, 2016 and December 31, 2015, $9.5 million and $5.9 million was outstanding against the credit facility, respectively. Outstanding borrowings are presented within current liabilities as such amounts could become payable on demand after a 90-day termination notice provided by either party. No such notice has been provided through the date of this filing. Interest charges related to Dominion Midstream’s borrowings against the facility were less than $0.1 million for the three months ended March 31, 2016. The facility was undrawn during the three months ended March 31, 2015.

Income Taxes

DCG participated in Dominion’s intercompany tax sharing agreement from February 1, 2015 through March 31, 2015. DCG’s participation in this tax sharing agreement was subsequently terminated in connection with the DCG Acquisition. At the time of the DCG Acquisition, DCG settled income taxes payable and net deferred income taxes of $13.4 million through an equity transaction with Dominion.

Natural Gas Imbalances

Dominion Midstream maintains natural gas imbalances with affiliates. The imbalances with affiliates are provided below:

 

     March 31, 2016      December 31, 2015  
(millions)              

Imbalances payable to affiliates

   $ 3.5       $ 0.8   

 

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Right of First Offer

In connection with the Offering, Dominion Midstream entered into a right of first offer agreement with Dominion as described in Note 20 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no changes to this agreement.

Contributions from Dominion

For the three months ended March 31, 2016, Dominion contributed $244.9 million to Cove Point to fund capital expenditures related to the Liquefaction Project. No such amounts were contributed for the three months ended March 31, 2015. In April 2016, Dominion contributed an additional $85.1 million to Cove Point to fund capital expenditures related to the Liquefaction Project. In February 2015, Dominion contributed $1.3 million in cash to DCG to fund operations.

Transaction and transition costs incurred by the DCG Predecessor were attributed to Dominion Midstream and expensed in operations and maintenance expense in the Consolidated Statements of Income. At the time of the DCG Acquisition, Dominion Midstream settled amounts payable to Dominion of $1.0 million through equity contributions from Dominion.

Note 15. Income Taxes

Dominion Midstream is organized as an MLP, a pass-through entity for U.S. federal and state income tax purposes. Each unitholder is responsible for taking into account the unitholder’s respective share of Dominion Midstream’s items of taxable income, gain, loss and deduction in the preparation of income tax returns. Upon the closing of the Offering, Cove Point became a pass-through entity for U.S. federal and state income tax purposes. Effective April 1, 2015, the date of the DCG Acquisition, DCG is treated as a component of Dominion Midstream for income tax purposes. Accordingly, Dominion Midstream’s Consolidated Financial Statements do not include income taxes for the period subsequent to the Offering, with the exception of income taxes attributable to the DCG Predecessor.

DCG operated as a taxable corporation at the time of Dominion’s acquisition of DCG. In March 2015, DCG converted to a single member limited liability company and as a result, became a disregarded entity for income tax purposes and was treated as a taxable division of its corporate parent. Its business activities from January 31, 2015 through March 31, 2015, will be included in the consolidated U.S. federal and certain state income tax returns of Dominion.

Current income taxes for DCG were based on taxable income or loss, determined on a separate company basis, and, where applicable, settled in accordance with the principles of Dominion’s intercompany tax sharing agreement. The settlement of DCG’s federal and state income taxes payable and net deferred income taxes is reflected as an equity transaction in Dominion Midstream’s Consolidated Financial Statements.

For the three months ended March 31, 2016 and 2015, the statutory U.S. federal income tax rate reconciles to the effective income tax rate as follows:

 

Three Months Ended March 31,

   2016     2015  

U.S. statutory rate

     35.0     35.0

Partnership income not subject to income taxes(1)

     (35.0     (30.8

Increases resulting from:

    

State taxes, net of federal benefit(2)

     —          0.4   
  

 

 

   

 

 

 

Effective tax rate

     —       4.6
  

 

 

   

 

 

 

 

(1) Reflects the pass-through entity status of Dominion Midstream, including the operations of DCG subsequent to the DCG Acquisition, and Cove Point.
(2) 2015 amounts are attributable to the operations of DCG prior to the DCG Acquisition.

See Note 21 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015 for additional information.

Note 16. Operating Segment

Dominion Midstream is organized primarily on the basis of products and services sold in the U.S. Dominion Energy, Dominion Midstream’s operating segment, consists of gas transportation, storage and regasification services.

Dominion Midstream also reports a Corporate and Other segment. The Corporate and Other segment primarily includes items attributable to Dominion Midstream’s operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.

The following table presents segment information pertaining to Dominion Midstream’s operations:

 

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     Dominion Energy      Corporate and
Other
     Total  
(millions)                     

Three Months Ended March 31, 2016

        

Operating revenue

   $ 83.0       $ —         $ 83.0   

Earnings from equity method investee

     6.4         —           6.4   

Net income including noncontrolling interest and DCG Predecessor

     51.8         —           51.8   

Net income including noncontrolling interest

     51.8         —           51.8   

Net income attributable to partners

     23.1         —           23.1   

Three Months Ended March 31, 2015

        

Operating revenue

   $ 78.4       $ —         $ 78.4   

Net income (loss) including noncontrolling interest and DCG Predecessor

     43.8         (1.0      42.8   

Net income including noncontrolling interest

     40.5         —           40.5   

Net income attributable to partners

     11.8         —           11.8   

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses our results of operations and general financial condition. MD&A should be read in conjunction with the Consolidated Financial Statements.

Contents of MD&A

MD&A consists of the following information:

 

    Forward-Looking Statements

 

    How We Evaluate Our Operations

 

    Factors Impacting Comparability of Our Financial Results

 

    Accounting Matters

 

    Results of Operations

 

    Analysis of Consolidated Operations

 

    Segment Results of Operations

 

    Liquidity and Capital Resources

 

    Future Issues and Other Matters

Forward-Looking Statements

This report contains statements concerning expectations, plans, objectives, future financial performance and other statements that are not historical facts. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “continue,” “target” or other similar words.

We make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:

 

    Unusual weather conditions and their effect on energy sales to customers and energy commodity prices;

 

    Extreme weather events and other natural disasters, including, but not limited to, hurricanes, high winds, severe storms, earthquakes, flooding and changes in water availability that can cause outages and property damage to facilities;

 

    Federal, state and local legislative and regulatory developments, including changes in federal and state tax laws and regulations;

 

    Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other emissions, more extensive permitting requirements and the regulation of additional substances;

 

    The cost of environmental compliance, including those costs related to climate change;

 

    Changes in implementation and enforcement practices of regulators relating to environmental and safety standards and litigation exposure for remedial activities;

 

    Difficulty in anticipating mitigation requirements associated with environmental and other regulatory approvals;

 

    Fluctuations in energy-related commodity prices and the effect these could have on our earnings, liquidity position and the underlying value of our assets;

 

    Counterparty credit and performance risk;

 

    Employee workforce factors;

 

    Risks of operating businesses in regulated industries that are subject to changing regulatory structures;

 

    The ability to negotiate, obtain necessary approvals and consummate acquisitions from Dominion and third parties and the impacts of such acquisitions;

 

    Receipt of approvals for, and timing of, closing dates for acquisitions;

 

    The timing and execution of our growth strategy;

 

    Risks associated with entities in which we share ownership and control with third parties, including risks that result from our lack of sole decision making authority, or reliance on the financial condition of third parties, disputes that may arise between us and third party participants, difficulties in exiting these arrangements, requirements to contribute additional capital, the timing and amount of which may not be within our control, and rules for accounting for these entities including those requiring their consolidation or deconsolidation in our financial statements;

 

    Political and economic conditions, including inflation and deflation;

 

    Domestic terrorism and other threats to our physical and intangible assets, as well as threats to cybersecurity;

 

 

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    The timing and receipt of regulatory approvals necessary for planned construction or any future expansion projects, including the overall development of the Liquefaction Project, and compliance with conditions associated with such regulatory approvals;

 

    Changes in demand for our services, including industrial, commercial and residential growth or decline in our service areas, changes in supplies of natural gas delivered to our pipeline systems, failure to maintain or replace customer contracts on favorable terms, changes in customer growth or usage patterns, including as a result of energy conservation programs and the availability of energy efficient devices;

 

    Additional competition in industries in which we operate;

 

    Changes to regulated gas transportation rates collected by us;

 

    Changes in operating, maintenance and construction costs;

 

    Adverse outcomes in litigation matters or regulatory proceedings;

 

    The impact of operational hazards, including adverse developments with respect to pipeline and plant safety or integrity, equipment loss, malfunction or failure, operator error, and other catastrophic events;

 

    The inability to complete planned construction, conversion or expansion projects, including the Liquefaction Project, at all, or within the terms and time frames initially anticipated;

 

    Contractual arrangements to be entered into with or performed by our customers substantially in the future, including any revenues anticipated thereunder and any possibility of termination and inability to replace such contractual arrangements;

 

    Capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms;

 

    Fluctuations in interest rates and increases in our level of indebtedness;

 

    Changes in availability and cost of capital;

 

    Changes in financial or regulatory accounting principles or policies imposed by governing bodies; and

 

    Conflicts of interest with Dominion and its affiliates.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part II, Item 1A. Risk Factors.

Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution the reader not to place undue reliance on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. We undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

How We Evaluate Our Operations

Dominion Midstream management uses a variety of financial metrics to analyze our performance. These metrics are significant factors in assessing our operating results and include: (1) EBITDA; (2) Adjusted EBITDA; and (3) distributable cash flow.

EBITDA, Adjusted EBITDA and Distributable Cash Flow

EBITDA represents net income including noncontrolling interest and DCG Predecessor before interest and related charges, income tax and depreciation and amortization. Adjusted EBITDA represents EBITDA after adjustment for the EBITDA attributable to the DCG Predecessor and a noncontrolling interest in Cove Point held by Dominion subsequent to the Offering, less income from equity method investee, plus distributions from equity method investee. Subsequent to the DCG Acquisition in the second quarter of 2015, we define distributable cash flow as Adjusted EBITDA less maintenance capital expenditures, less interest expense and adjusted for known timing differences between cash and income. During the first quarter of 2015, the remaining net proceeds from the Offering were used to fund capital expenditures. As a result, the reconciliation of distributable cash flow no longer includes adjustments for expansion capital expenditures or the use of net proceeds from the Offering. All periods presented reflect the adjustments described above.

EBITDA, Adjusted EBITDA and distributable cash flow are used as supplemental financial measures by our management and by external users of our financial statements, such as investors and securities analysts, to assess:

 

    The financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

 

    The ability of our assets to generate cash sufficient to pay interest on our indebtedness, if any, and to make distributions; and

 

    Our operating performance and return on invested capital as compared to those of other publicly traded companies that own energy infrastructure assets, without regard to their financing methods and capital structure.

The GAAP measure most directly comparable to EBITDA and Adjusted EBITDA is net income, and the GAAP measure most directly comparable to distributable cash flow is net cash provided by operating activities. EBITDA, Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating

 

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activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA, Adjusted EBITDA and distributable cash flow exclude some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, EBITDA, Adjusted EBITDA and distributable cash flow as presented may not be comparable to similarly titled measures of other companies.

Factors Impacting Comparability of Our Financial Results

As of March 31, 2016, there have been no significant changes with regard to the factors impacting comparability of our financial results as disclosed in MD&A in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. The factors disclosed included the acquisition of interest in Iroquois, DCG Acquisition, import contracts, the Liquefaction Project, income taxes and general and administrative expenses.

Accounting Matters

Critical Accounting Policies and Estimates

As of March 31, 2016, there have been no significant changes to the critical accounting policies and estimates disclosed in MD&A in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. The policies previously disclosed included the accounting for regulated operations, use of estimates in goodwill impairment testing and use of estimates in long-lived asset impairment testing.

Results of Operations

Presented below are selected amounts related to Dominion Midstream’s results of operations:

 

     First Quarter  
     2016      2015      $ Change  
(millions)                     

Operating revenue

   $ 83.0       $ 78.4       $ 4.6   

Purchased gas

     0.9         3.9         (3.0
  

 

 

    

 

 

    

 

 

 

Net revenue

     82.1         74.5         7.6   
  

 

 

    

 

 

    

 

 

 

Other operations and maintenance

     20.0         13.3         6.7   

Depreciation and amortization

     10.0         10.6         (0.6

Other taxes

     7.3         5.9         1.4   

Earnings from equity method investee

     6.4         —           6.4   

Other income

     0.5         0.2         0.3   

Interest and related charges (benefit)

     (0.1      —           (0.1

Income tax expense

     —           2.1         (2.1
  

 

 

    

 

 

    

 

 

 

Net income including noncontrolling interest and DCG Predecessor

   $ 51.8       $ 42.8       $ 9.0   
  

 

 

    

 

 

    

 

 

 

Less: Net income attributable to DCG Predecessor

     —           2.3      
  

 

 

    

 

 

    

Net income including noncontrolling interest

     51.8         40.5      
  

 

 

    

 

 

    

Less: Net income attributable to noncontrolling interest

     28.7         28.7      
  

 

 

    

 

 

    

Net income attributable to partners

   $ 23.1       $ 11.8      
  

 

 

    

 

 

    

EBITDA

   $ 61.7       $ 55.5      
  

 

 

    

 

 

    

Adjusted EBITDA

   $ 24.9       $ 11.8      
  

 

 

    

 

 

    

Distributable cash flow

   $ 20.3       $ 11.9      
  

 

 

    

 

 

    

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial measure for each year.

 

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     First Quarter  
     2016     2015  
(millions)             

Adjustments to reconcile net income including noncontrolling interest and DCG Predecessor to EBITDA and Adjusted EBITDA:

    

Net income including noncontrolling interest and DCG Predecessor

   $ 51.8      $ 42.8   

Add:

    

Depreciation and amortization

     10.0        10.6   

Interest and related charges (benefit)

     (0.1     —     

Income tax expense

     —          2.1   
  

 

 

   

 

 

 

EBITDA

   $ 61.7      $ 55.5   
  

 

 

   

 

 

 

Distributions from equity method investee

     5.8        —     

Less:

    

Earnings from equity method investee

     6.4        —     

EBITDA attributable to DCG Predecessor

     —          5.7   

EBITDA attributable to noncontrolling interest

     36.2        38.0   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 24.9      $ 11.8   
  

 

 

   

 

 

 

The following table presents a reconciliation of distributable cash flow to the most directly comparable GAAP financial measure for the three months ended March 31, 2016 and 2015.

 

     First Quarter  
     2016     2015  
(millions)             

Adjustments to reconcile net cash provided by operating activities to distributable cash flow:

    

Net cash provided by operating activities

   $ 68.5      $ 56.7   

Less:

    

Cash attributable to noncontrolling interest(1)

     40.7        35.5   

Cash attributable to DCG Predecessor(2)

     —          10.4   

Other changes in working capital and noncash adjustments

     (2.9     1.0   
  

 

 

   

 

 

 

Adjusted EBITDA

     24.9        11.8   

Adjustments to cash(3):

    

Plus: Deferred revenue(4)

     2.0        —     

Less: Amortization of regulatory liability(5)

     (0.7     —     

Less: Maintenance capital expenditures(6)

     (5.5     —     

Less: Interest expense and AFUDC equity

     (0.5     —     

Plus: Non-cash director compensation

     0.1        0.1   
  

 

 

   

 

 

 

Distributable cash flow

   $ 20.3      $ 11.9   
  

 

 

   

 

 

 

 

(1) The Preferred Equity Interest is a perpetual, non-convertible preferred equity interest entitled to the Preferred Return Distributions. Any excess in cash available over the $50.0 million is attributable to the noncontrolling interest held by Dominion but not available for distribution until the distribution reserve has been fully funded.
(2) Represents net cash provided by operating activities of DCG from January 31, 2015, the inception date of common control, through March 31, 2015, the date just prior to Dominion Midstream acquiring DCG.
(3) Beginning in the first quarter of 2016, distributable cash flow no longer reflects an adjustment for the timing difference between cash paid for property taxes and the amount recognized into expense. All prior periods presented have been recalculated to reflect a consistent approach. There was no change to the amount presented as distributable cash flow for the quarter ended March 31, 2015.
(4) Adjustment to reflect the difference between cash received and revenue recognized related to facilities payments that are deferred and will be recognized over the related customer contract periods.
(5) Represents the monetization of a bankruptcy claim being amortized into income through February 2024.
(6) Amounts include accruals. For the three months ended March 31, 2016 and 2015, amount excludes $1.5 million and $3.8 million of Dominion funded maintenance capital expenditures related to the Cove Point LNG Facility and Cove Point Pipeline. Dominion has indicated that it intends to continue providing the funding necessary for such expenditures, but it is under no obligation to do so. In addition, the three month period ended March 31, 2015 excludes $1.3 million of maintenance capital expenditures incurred by the DCG Predecessor.

 

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Analysis of Consolidated Operations

Overview

Net revenue reflects operating revenue less purchased gas expense. Purchased gas expense includes the value of natural gas retained for use in routine operations and the cost of LNG cooling cargo purchases. Increases or decreases in purchased gas expenses are offset by corresponding increases or decreases in operating revenues and are thus financially neutral to Dominion Midstream. LNG cooling cargo purchases are required for Cove Point to maintain the cryogenic readiness of the Cove Point LNG Facility. Each year, one or two LNG cooling cargos are procured and billed to the Import Shippers pursuant to certain provisions in Cove Point’s FERC gas tariff.

An analysis of Dominion Midstream’s results of operations follows:

First Quarter 2016 vs. 2015

Net revenue increased 10%, primarily related to increased transportation and storage revenue due to DCG results being included in Dominion Midstream for three months in 2016, as compared to two months in 2015. Cove Point did not receive any LNG cooling cargo in either period.

Other operations and maintenance increased 50%, primarily related to an increase in costs due to DCG results being included in Dominion Midstream for three months in 2016, as compared to two months in 2015 ($2.4 million) and organizational design initiative costs incurred during the first quarter of 2016 ($3.5 million).

Depreciation and amortization decreased by 6%, primarily as a result of the absence of accelerated depreciation from 2015 asset retirements associated with the Liquefaction Project ($1.5 million), partially offset by DCG depreciation and amortization expense being included in Dominion Midstream for three months in 2016, as compared to two months in 2015 ($0.8 million).

Other taxes increased 24%, primarily due to DCG property tax expense being included in Dominion Midstream for three months in 2016, as compared to two months in 2015 ($0.6 million) and increased estimated property taxes at Cove Point in the first quarter of 2016 ($0.6 million).

Earnings from equity method investee increased $6.4 million as a result of the September 2015 acquisition of a 25.93% noncontrolling partnership interest in Iroquois.

Income tax expense decreased $2.1 million as a result of the absence of income taxes attributable to the DCG Predecessor in 2015.

Segment Results of Operations

Presented below is a summary of contributions by Dominion Midstream’s operating segment to net income including noncontrolling interest and DCG Predecessor:

 

     First Quarter  
     2016      2015      $ Change  
(millions)                     

Dominion Energy

   $ 51.8       $ 43.8       $ 8.0   

Corporate and Other

     —           (1.0      1.0   
  

 

 

    

 

 

    

 

 

 

Consolidated

   $ 51.8       $ 42.8       $ 9.0   
  

 

 

    

 

 

    

 

 

 

Dominion Energy

The following table summarizes, on an after-tax basis, the key factors impacting Dominion Energy’s contribution to net income including noncontrolling interest and DCG Predecessor. Dominion Midstream, as a pass-through entity, is generally not subject to income taxes.

 

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     First Quarter
2016 vs. 2015
Increase/(Decrease)
 
(millions)       

Acquisition of noncontrolling interest in Iroquois

   $ 6.4   

Absence of income taxes attributable to the DCG Predecessor

     2.1   

DCG Acquisition

     2.6   

2016 organizational design initiative costs

     (3.5

Accelerated depreciation in 2015

     1.5   

Other

     (1.1
  

 

 

 

Change in net income contribution

   $ 8.0   
  

 

 

 

Corporate and Other

Corporate and Other includes items attributable to Dominion Midstream’s operating segment that are not included in profit measures evaluated by executive management in assessing segment performance or in allocating resources. Corporate and Other expenses were $1.0 million during the three months ended March 31, 2015, consisting of certain transition service costs associated with the DCG Acquisition. There were no such items in the three months ended March 31, 2016.

Liquidity and Capital Resources

Overview

Dominion Midstream’s ongoing principal sources of liquidity may include distributions received from Cove Point from our Preferred Equity Interest, cash generated from operations of DCG, distributions received from our noncontrolling partnership interest in Iroquois, borrowings under our credit facility with Dominion and issuances of debt and equity securities. We believe that cash from these sources will be sufficient to pay distributions while continuing to meet our short-term working capital requirements and our long-term capital expenditure requirements. We expect to have sufficient distributable cash flow to pay the minimum quarterly distribution of $0.1750 per common unit and subordinated unit, which equates to $13.6 million per quarter, or $54.4 million per year in the aggregate, based on the number of common units and subordinated units outstanding at March 31, 2016. However, we do not have a legal or contractual obligation to pay distributions quarterly or on any other basis or at the minimum quarterly distribution rate or at any other rate, and there is no guarantee that we will pay distributions to our unitholders in any quarter.

Outstanding Indebtedness

In connection with the Offering, Dominion Midstream entered into a $300 million credit facility with Dominion, allowing it to competitively pursue acquisitions and future organic growth opportunities or to otherwise meet its financial needs. At March 31, 2016, $9.5 million was outstanding against the credit facility.

On April 1, 2015, in connection with the DCG Acquisition, Dominion Midstream issued a two-year, $300.8 million senior unsecured promissory note payable to Dominion, as adjusted for working capital, at an annual interest rate of 0.6%. Interest on the note is payable quarterly, and all principal and accrued interest is due and payable at maturity on April 1, 2017, which under certain conditions can be extended at the option of Dominion Midstream to October 1, 2017.

See Notes 11 and 14 to the Consolidated Financial Statements for further information.

Capital Requirements

Capital Spending

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. As defined in our partnership agreement, our capital requirements consist of:

 

    Maintenance capital expenditures used to maintain the long-term operating capacity and operating income of our pipelines and facilities. Examples include expenditures to refurbish and replace pipelines, terminals and storage facilities, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations; and

 

    Expansion capital expenditures used to increase our operating capacity or operating income over the long term. Examples include the acquisition of equipment, the development of a new facility or the expansion of an existing facility.

 

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For the three months ended March 31, 2016, Dominion Midstream paid total capital expenditures of $299.7 million, which included $7.0 million of maintenance capital expenditures.

Our significant capital projects, all of which are expansion projects, are described further below:

 

    Total costs of developing the Liquefaction Project are estimated to be $3.4 billion to $3.8 billion, excluding financing costs. Through March 31, 2016, Cove Point incurred approximately $2.4 billion of development and construction costs associated with the Liquefaction Project. We caused Cove Point to use the net proceeds contributed to it from the Offering to fund a portion of development and construction costs associated with the Liquefaction Project. The Liquefaction Project is expected to be placed into service in late 2017.

 

    Total costs of the St. Charles Transportation Project and Keys Energy Project are estimated to be approximately $30 million and $40 million, respectively. Through March 31, 2016, we incurred approximately $25 million of costs associated with these projects. Service is expected to commence in June 2016 for the St. Charles Transportation Project and March 2017 for the Keys Energy Project.

 

    Total costs of the Columbia to Eastover Project are estimated to be approximately $45 million. Through March 31, 2016, approximately $9 million of costs had been incurred, of which Dominion Midstream incurred $5 million subsequent to the DCG Acquisition. In May 2015, DCG filed an application to request FERC authorization to construct and operate the project facilities, which are expected to be placed into service in the fourth quarter of 2016.

 

    Total costs of the Transco to Charleston Project are estimated to be approximately $120 million. Through March 31, 2016, approximately $7 million of costs had been incurred, all of which Dominion Midstream incurred subsequent to the DCG Acquisition. In March 2016, DCG filed an application to request FERC authorization to construct and operate the project facilities, which are expected to be placed into service in the fourth quarter of 2017.

Dominion has indicated that it intends to provide the funding necessary for the remaining construction costs and other capital expenditures of Cove Point, including the Liquefaction Project, St. Charles Transportation Project and Keys Energy Project, but it is under no contractual obligation to do so and has not secured all of the funding necessary to cover these costs, as it intends to finance these costs as they are incurred using its consolidated operating cash flows in addition to proceeds from capital markets transactions. However, Dominion has entered into guarantee arrangements on behalf of Cove Point to facilitate the Liquefaction Project, including guarantees supporting the terminal services and transportation agreements as well as the engineering, procurement and construction contract for the Liquefaction Project. Two of the guarantees have no stated limit, one guarantee has a $150 million limit and one guarantee has a $1.75 billion aggregate limit with an annual draw limit of $175 million. In the event that Dominion does not satisfy its obligations under these guarantee arrangements or otherwise does not agree to provide the funding necessary for the remaining development costs and other capital expenditures of Cove Point, or is unable to obtain such funding in the amounts required or on terms acceptable to Dominion, Cove Point would require substantial external debt or equity financing to complete the construction of the Liquefaction Project, St. Charles Transportation Project and Keys Energy Project.

Distributions

Distributions are declared subsequent to quarter end. The table below summarizes the quarterly cash distributions declared during 2016.

 

Quarterly Period Ended

   Total Quarterly
Distribution

(per unit)
     Total Cash
Distribution

(in millions)
     Date of Declaration      Date of Record      Date of Distribution  

December 31, 2015

   $ 0.2135       $ 16.8         January 21, 2016         February 5, 2016         February 15, 2016   

March 31, 2016

     0.2245         17.8         April 19, 2016         May 3, 2016         May 13, 2016   

 

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Cash Flows

A summary of cash flows is presented below:

 

    

Three Months Ended

March 31,

 
     2016      2015  
(millions)              

Cash and cash equivalents at beginning of year

   $ 35.0       $ 175.4   

Cash flows provided by (used in):

     

Operating activities

     68.5         56.7   

Investing activities

     (299.8      (176.4

Financing activities

     231.7         (7.7
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     0.4         (127.4
  

 

 

    

 

 

 

Cash and cash equivalents at March 31

   $ 35.4       $ 48.0   
  

 

 

    

 

 

 

Operating Cash Flows

In the first three months of 2016, net cash provided by Dominion Midstream’s operating activities increased by $11.8 million, primarily due to the September 2015 acquisition of a 25.93% noncontrolling partnership interest in Iroquois, as well as net changes in working capital items.

Investing Cash Flows

In the first three months of 2016, net cash used in Dominion Midstream’s investing activities increased by $123.4 million, primarily due to higher expenditures for the Liquefaction Project.

Financing Cash Flows

In the first three months of 2016, net cash provided by Dominion Midstream’s financing activities increased $239.4 million, primarily due to higher capital contributions from Dominion to fund the Liquefaction Project.

Customer Concentration

Dominion Midstream provides service to approximately 70 customers, including the Storage Customers, marketers or end users and the Import Shippers. The two largest customers comprised approximately 72% of the total transportation and storage revenues for the three months ended March 31, 2016. See Note 13 to the Consolidated Financial Statements for additional information.

Contractual Obligations

At March 31, 2016, there have been no material changes outside the ordinary course of business to Dominion Midstream’s contractual obligations as disclosed in MD&A in the Dominion Midstream Annual Report on Form 10-K for the year ended December 31, 2015.

Off-Balance Sheet Arrangements

Other than the holding of surety bonds as discussed in Note 12 to the Consolidated Financial Statements, Dominion Midstream had no off-balance sheet arrangements at March 31, 2016.

Future Issues and Other Matters

The following discussion of future issues and other information includes current developments of previously disclosed matters and new issues arising during the period covered by, and subsequent to, the dates of the Consolidated Financial Statements that may impact Dominion Midstream’s future results of operations, financial condition and/or cash flows. This section should be read in conjunction with Item 1. Business and Future Issues and Other Matters in MD&A in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015.

Environmental Matters

Dominion Midstream is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations. See Note 18 in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015 and Note 12 in the Consolidated Financial Statements in this report for additional information on various environmental matters.

 

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Air

The CAA, as amended, is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation’s air quality. At a minimum, states are required to establish regulatory programs to address all requirements of the CAA. However, states may choose to develop regulatory programs that are more restrictive. Dominion Midstream’s facilities are subject to the CAA’s permitting and other requirements.

In September 2015, the EPA issued a proposed new source performance standard to regulate methane and volatile organic compound emissions from transportation and storage, gathering and boosting, production and processing facilities. The proposed regulation is expected to be finalized in summer 2016. All projects which commenced construction after September 2015 are required to comply with this regulation. Until the proposed regulation is finalized, Dominion Midstream cannot predict future requirements or estimate compliance costs.

In March 2016, President Obama directed the EPA to develop regulations for reducing methane emissions from existing sources in the oil and natural gas sectors. The EPA intends to issue an Information Collection Request to collect information on existing sources in this sector in fall 2016. Depending on the results of this Information Collection Request effort, the EPA may propose new regulations on existing sources. Dominion Midstream cannot currently estimate the potential impacts on results of operations, financial condition and/or cash flows related to this matter.

Legal Matters

See Item 3. Legal Proceedings in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015 and Notes 9 and 12 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings in this report for additional information on various legal matters.

In January 2015, DCG, while it was a subsidiary of SCANA, self-reported potentially non-compliant natural gas pipeline exposure maintenance activities to the U.S. Army Corps of Engineers. During pipeline maintenance activities, it was discovered that prior authorization had not been obtained from the U.S. Army Corps of Engineers for seventeen locations that involved the additions of fill, culverts and concrete mats. In June 2015, DCG submitted a draft Compliance Resolution Agreement to the U.S. Army Corps of Engineers with proposed plans for rehabilitation and minimization of potential adverse impacts to water bodies and proposed to apply for after-the-fact permits. Dominion Midstream expects SCANA will provide funding for all material costs, if any, to satisfy the requirements imposed by the U.S. Army Corps of Engineers as required by the Compliance Resolution Agreement.

Regulatory Matters

See Note 12 to the Consolidated Financial Statements in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015 and Note 9 in this report for additional information on various regulatory matters.

 

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ITEM 3.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Upon the closing of the Offering, we entered into a $300 million variable rate revolving credit facility with Dominion. We may hedge the interest on portions of our borrowings under the credit facility from time-to-time in order to manage risks associated with floating interest rates. At March 31, 2016, we have $9.5 million outstanding indebtedness against the credit facility. A hypothetical 10% increase in market interest rates would not have resulted in a material change in earnings at March 31, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Senior management of Dominion Midstream’s general partner, including the general partner’s CEO and CFO, evaluated the effectiveness of Dominion Midstream’s disclosure controls and procedures at March 31, 2016, the end of the period covered by this report. Based on this evaluation process, the CEO and CFO of Dominion Midstream’s general partner have concluded that Dominion Midstream’s disclosure controls and procedures are effective.

During the quarter ended March 31, 2016, there were no changes in Dominion Midstream’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Dominion Midstream’s internal control over financial reporting.

 

29


Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time Dominion Midstream may be alleged to be in violation or in default under orders, statutes, rules or regulations relating to the environment, compliance plans imposed or agreed to by Dominion Midstream, as applicable, or permits issued by various local, state or federal agencies for the construction or operation of facilities. Administrative proceedings may also be pending on these matters. In addition, in the ordinary course of business Dominion Midstream may be involved in various legal proceedings.

See the following for discussions on various environmental and other regulatory proceedings to which Dominion Midstream is a party:

 

  Notes 12 and 18 to the Consolidated Financial Statements and Future Issues and Other Matters in MD&A in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015, which information is incorporated herein by reference, for discussion of various environmental and other regulatory proceedings to which the Companies is a party.

 

  Notes 9 and 12 in this report, which information is incorporated herein by reference, for discussion of various environmental and other regulatory proceedings to which Dominion Midstream is a party.

ITEM 1A. RISK FACTORS

Dominion Midstream’s business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond its control. These risk factors have been identified in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in Part I. Item 2. MD&A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents certain information with respect to Dominion’s purchase of Dominion Midstream’s common units during the first quarter of 2016:

 

DOMINION PURCHASES OF DOMINION MIDSTREAM COMMON UNITS

 

Period

   Total
Number
of Units
Purchased
     Average
Price
Paid per
Unit
     Total Number
of Units
Purchased as Part
of Publicly Announced
Plans or Programs(1)
     Approximate Dollar Value
of Units that May
Yet Be Purchased under the
Plans or Programs(3)
 

1/1/2016 - 1/31/2016

     257,104       $ 26.49         257,104       $ 18.6 million   

2/1/2016 - 2/29/2016

     120,207       $ 26.43         120,207       $ 15.5 million   

3/1/2016 - 3/31/2016

     —         $ —           —         $ 15.5 million   
  

 

 

    

 

 

    

 

 

    

Total

     377,311       $ 26.47         377,311      
  

 

 

    

 

 

    

 

 

    

 

(1) These units were purchased by Dominion as part of Dominion’s program initiated on September 24, 2015 to purchase from the market up to $50.0 million of common units representing limited partner interests in Dominion Midstream by September 2016 at the discretion of Dominion’s management. The purchased units are held by Dominion or a subsidiary of Dominion other than Dominion Midstream. See Note 5 to the Consolidated Financial Statements for additional information.

 

30


Table of Contents

ITEM 6. EXHIBITS

 

Exhibit

Number

  

Description

  3.1    Certificate of Limited Partnership of Dominion Midstream Partners, LP (Exhibit 3.1, Form S-1 Registration Statement filed March 28, 2014, File No. 333-194864).
  3.2    First Amended and Restated Agreement of Limited Partnership of Dominion Midstream Partners, LP, dated October 20, 2014, by and between Dominion Midstream GP, LLC and Dominion MLP Holding Company, LLC (Exhibit 3.1, Form 8-K filed October 20, 2014, File No. 1-36684).
  31.a    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  31.b    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  32    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101    The following financial statements from Dominion Midstream’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statement of Equity and Partners’ Capital, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.

 

31


Table of Contents

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 thereunto duly authorized.

 

   

DOMINION MIDSTREAM PARTNERS, LP

Registrant

    By: Dominion Midstream GP, LLC, its general partner
May 5, 2016    

/s/ Michele L. Cardiff

   

Michele L. Cardiff

Vice President, Controller and

Chief Accounting Officer

 

32


Table of Contents

EXHIBIT INDEX

 

Exhibit

Number

  

Description

  3.1    Certificate of Limited Partnership of Dominion Midstream Partners, LP (Exhibit 3.1, Form S-1 Registration Statement filed March 28, 2014, File No. 333-194864).
  3.2    First Amended and Restated Agreement of Limited Partnership of Dominion Midstream Partners, LP, dated October 20, 2014, by and between Dominion Midstream GP, LLC and Dominion MLP Holding Company, LLC (Exhibit 3.1, Form 8-K filed October 20, 2014, File No. 1-36684).
  31.a    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  31.b    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  32    Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101    The following financial statements from Dominion Midstream’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Balance Sheets, (iii) Consolidated Statement of Equity and Partners’ Capital, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.

 

33

Exhibit 31.a

I, Thomas F. Farrell II, certify that:

 

1. I have reviewed this report on Form 10-Q of Dominion Midstream Partners, LP;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 5, 2016    

/s/ Thomas F. Farrell II

   

Thomas F. Farrell II

President and Chief Executive Officer

   

of Dominion Midstream GP, LLC

(the general partner of

Dominion Midstream Partners, LP)

Exhibit 31.b

I, Mark F. McGettrick, certify that:

 

1. I have reviewed this report on Form 10-Q of Dominion Midstream Partners, LP;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 5, 2016    

/s/ Mark F. McGettrick

   

Mark F. McGettrick

Executive Vice President and

Chief Financial Officer

   

of Dominion Midstream GP, LLC

(the general partner of

Dominion Midstream Partners, LP)

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Dominion Midstream GP, LLC, the general partner of Dominion Midstream Partners, LP (“Dominion Midstream”), certify that:

 

1. the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (the “Report”), of Dominion Midstream to which this certification is an exhibit fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)).

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dominion Midstream as of March 31, 2016, and for the period then ended.

 

/s/ Thomas F. Farrell II

Thomas F. Farrell II

President and Chief Executive Officer

of Dominion Midstream GP, LLC

(the general partner of Dominion Midstream Partners, LP)

May 5, 2016

 

/s/ Mark F. McGettrick

Mark F. McGettrick

Executive Vice President and

Chief Financial Officer

of Dominion Midstream GP, LLC

(the general partner of Dominion Midstream Partners, LP)

May 5, 2016

v3.4.0.3
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
Apr. 15, 2016
Document and Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Trading Symbol DM  
Entity Registrant Name Dominion Midstream Partners, LP  
Entity Central Index Key 0001603286  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Units Outstanding    
Document and Entity Information [Line Items]    
Entity Units Outstanding   45,722,371
Entity Subordinated Units Outstanding    
Document and Entity Information [Line Items]    
Entity Units Outstanding   31,972,789
v3.4.0.3
Consolidated Statements of Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating revenue [1] $ 83.0 $ 78.4
Operating Expenses    
Purchased gas [1] 0.9 3.9
Other operations and maintenance:    
Affiliated suppliers 9.4 4.8
Other 10.6 8.5
Depreciation and amortization 10.0 10.6
Other taxes 7.3 5.9
Total operating expenses 38.2 33.7
Income from operations 44.8 44.7
Earnings from equity method investee 6.4 0.0
Other income 0.5 0.2
Interest and related charges (benefit) [1] (0.1) 0.0
Income from operations including noncontrolling interest before income taxes 51.8 44.9
Income tax expense 0.0 2.1
Net income including noncontrolling interest and DCG Predecessor 51.8 42.8
Less: Net income attributable to DCG Predecessor 0.0 2.3
Net income including noncontrolling interest 51.8 40.5
Less: Net income attributable to noncontrolling interest 28.7 28.7
Net income attributable to partners 23.1 11.8
Net income attributable to partners' ownership interest    
General partner's interest in net income 0.4 0.0
Common Units    
Net income attributable to partners' ownership interest    
Net income attributable to limited partners $ 13.4 $ 5.9
Net income per limited partner unit (basic and diluted)    
Net income per limited partner unit (basic and diluted) $ 0.29 $ 0.19
Subordinated Units    
Net income attributable to partners' ownership interest    
Net income attributable to limited partners $ 9.3 $ 5.9
Net income per limited partner unit (basic and diluted)    
Net income per limited partner unit (basic and diluted) $ 0.29 $ 0.19
[1] See Note 14 for amounts attributable to related parties.
v3.4.0.3
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Current Assets    
Cash and cash equivalents $ 35.4 $ 35.0
Customer and other receivables 25.9 27.0
Affiliated receivables 6.2 6.2
Prepayments 5.6 10.6
Materials and supplies 12.5 12.5
Regulatory assets 2.5 1.7
Other [1] 3.0 2.8
Total current assets 91.1 95.8
Investment in Equity Method Affiliate 221.1 220.5
Property, Plant and Equipment    
Property, plant and equipment 4,143.7 3,845.7
Accumulated depreciation and amortization (359.2) (351.0)
Total property, plant and equipment, net 3,784.5 3,494.7
Deferred Charges and Other Assets    
Goodwill 295.5 295.5
Intangible assets, net 15.5 15.8
Regulatory assets 2.7 2.5
Other 0.7 0.4
Total deferred charges and other assets 314.4 314.2
Total assets 4,411.1 4,125.2
Current Liabilities    
Accounts payable 11.7 8.6
Payables to affiliates 8.6 5.2
Accrued payroll and taxes 2.9 6.0
Regulatory liabilities 5.1 6.7
Dominion credit facility borrowings 9.5 5.9
Deferred revenue 1.0 4.2
Natural gas imbalances [1] 3.6 1.0
CPCN obligation 8.0 8.0
Other 13.3 14.4
Total current liabilities 63.7 60.0
Affiliated Long-Term Debt 300.8 300.8
Deferred Credits and Other Liabilities    
Pension and other postretirement benefit liabilities [1] 5.3 5.0
Regulatory liabilities 66.9 66.7
CPCN obligation 29.1 29.0
Asset retirement obligation 12.5 13.0
Deferred revenue 11.0 9.1
Other 0.7 0.6
Total deferred credits and other liabilities 125.5 123.4
Total liabilities $ 490.0 $ 484.2
Commitments and Contingencies (see Note 12)
Equity and Partners' Capital    
Total Dominion Midstream Partners, LP partners' capital $ 1,509.0 $ 1,502.6
Noncontrolling interest 2,412.1 2,138.4
Total equity and partners' capital 3,921.1 3,641.0
Total liabilities and equity and partners' capital 4,411.1 4,125.2
Common Units    
Equity and Partners' Capital    
Common unitholders and Subordinated unitholder 595.0 600.8
Dominion    
Equity and Partners' Capital    
General Partner interest - Dominion (non-economic interest) (12.2) (12.4)
Dominion | Common Units    
Equity and Partners' Capital    
Common unitholders and Subordinated unitholder 448.3 438.8
Dominion | Subordinated Units    
Equity and Partners' Capital    
Common unitholders and Subordinated unitholder $ 477.9 $ 475.4
[1] See Note 14 for amounts attributable to related parties.
v3.4.0.3
Consolidated Balance Sheets (Parenthetical) - shares
Mar. 31, 2016
Dec. 31, 2015
Common Units    
Common unitholders and Subordinated unitholder - units issued 27,498,388 27,867,938
Common unitholders and Subordinated unitholder- units outstanding 27,498,388 27,867,938
Common Units | Dominion    
Common unitholders and Subordinated unitholder - units issued 18,223,983 17,846,672
Common unitholders and Subordinated unitholder- units outstanding 18,223,983 17,846,672
Subordinated Units | Dominion    
Common unitholders and Subordinated unitholder - units issued 31,972,789 31,972,789
Common unitholders and Subordinated unitholder- units outstanding 31,972,789 31,972,789
v3.4.0.3
Consolidated Statement of Equity and Partners' Capital - 3 months ended Mar. 31, 2016 - USD ($)
$ in Millions
Total
Total Dominion Midstream Partners, LP Partners' Equity and Capital
Common Unitholders and Subordinated Unitholder
Common Units
Common Unitholders Public
Common Unitholders and Subordinated Unitholder
Common Units
Common Unitholder and Subordinated Unitholder- Dominion
Common Unitholders and Subordinated Unitholder
Subordinated Units
Common Unitholder and Subordinated Unitholder- Dominion
General Partner Dominion (non-economic interest)
General Partner Dominion (non-economic interest)
Noncontrolling interest
Balance at Dec. 31, 2015 $ 3,641.0 $ 1,502.6 $ 600.8 $ 438.8 $ 475.4 $ (12.4) $ 2,138.4
Increase (Decrease) in Partners' Capital [Roll Forward]              
Net income including noncontrolling interest and DCG Predecessor 51.8 23.1 8.1 5.3 9.3 0.4 28.7
Equity contributions from Dominion 244.9 0.0         244.9
Purchase of common units by Dominion 0.0 0.0 (8.1) 8.1      
Distributions (16.8) (16.8) (5.9) (3.9) (6.8) (0.2)  
Unit awards (net of unearned compensation) 0.1 0.1 0.1        
Other 0.1 0.0         0.1
Balance at Mar. 31, 2016 $ 3,921.1 $ 1,509.0 $ 595.0 $ 448.3 $ 477.9 $ (12.2) $ 2,412.1
v3.4.0.3
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating Activities    
Net income including noncontrolling interest and DCG Predecessor $ 51.8 $ 42.8
Adjustments to reconcile net income including noncontrolling interest and DCG Predecessor to net cash provided by operating activities:    
Depreciation and amortization 10.0 10.6
Deferred income taxes 0.0 1.5
Other adjustments to income, net (1.1) 1.0
Changes in:    
Customer and other receivables 1.1 (2.4)
Prepayments 5.0 3.2
Accounts payable 1.8 (0.5)
Payables to affiliates 3.4 1.3
Accrued payroll and taxes (3.1) 0.8
Other operating assets and liabilities (0.4) (1.6)
Net cash provided by operating activities 68.5 56.7
Investing Activities    
Plant construction and other property additions (299.7) (176.1)
Other (0.1) (0.3)
Net cash used in investing activities (299.8) (176.4)
Financing Activities    
Dominion credit facility borrowings 3.6 0.0
Contributions from Dominion 244.9 1.3
Other 0.0 (0.1)
Net cash provided by (used in) financing activities 231.7 (7.7)
Increase (decrease) in cash and cash equivalents 0.4 (127.4)
Cash and cash equivalents at beginning of period 35.0 175.4
Cash and cash equivalents at end of period 35.4 48.0
Significant noncash investing and financing activities:    
Accrued capital expenditures 14.9 111.3
DCG Acquisition through issuance of debt and equity    
Significant noncash investing and financing activities:    
DCG Acquisition through issuance of debt and equity 0.0 497.0
Equity contribution from Dominion to relieve payables to affiliates    
Significant noncash investing and financing activities:    
Equity contribution from Dominion to relieve payables to affiliates 0.0 1.0
Limited Partners | Common Units    
Financing Activities    
Distributions to public unitholders (5.9) (2.8)
Limited Partners | Dominion | Common Units    
Financing Activities    
Distributions to Dominion (3.9) (1.7)
Limited Partners | Dominion | Subordinated Units    
Financing Activities    
Distributions to Dominion (6.8) (4.4)
General Partner | Dominion    
Financing Activities    
Distributions to Dominion $ (0.2) $ 0.0
v3.4.0.3
Description of Business and Basis of Presentation
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business and Basis of Presentation
Description of Business and Basis of Presentation
Description of Business
Dominion Midstream is a Delaware limited partnership formed in March 2014 by Dominion MLP Holding Company, LLC and Dominion Midstream GP, LLC, both indirect wholly-owned subsidiaries of Dominion, to grow a portfolio of natural gas terminaling, processing, storage, transportation and related assets.

Dominion Midstream acquired from Dominion the Preferred Equity Interest and non-economic general partner interest in Cove Point, the owner and operator of the Cove Point LNG Facility and the Cove Point Pipeline. The Preferred Equity Interest is a perpetual, non-convertible preferred equity interest entitled to Preferred Return Distributions so long as Cove Point has sufficient cash and undistributed Net Operating Income (determined on a cumulative basis from the closing of the Offering) from which to make Preferred Return Distributions. Preferred Return Distributions are made on a quarterly basis and are not cumulative. The Preferred Equity Interest is also entitled to the Additional Return Distributions.

On April 1, 2015, Dominion Midstream acquired from Dominion all issued and outstanding membership interests in DCG as described further in Note 2. DCG owns and operates nearly 1,500 miles of FERC-regulated open access, transportation-only interstate natural gas pipeline in South Carolina and southeastern Georgia.

On September 29, 2015, Dominion Midstream acquired a 25.93% noncontrolling partnership interest in Iroquois as described further in Note 7. Iroquois, a Delaware limited partnership, owns and operates a 416-mile FERC-regulated interstate natural gas transmission pipeline that extends from the Canada-U.S. border through the states of New York and Connecticut.

Basis of Presentation
The contribution by Dominion to Dominion Midstream of the general partner interest in Cove Point and a portion of the Preferred Equity Interest is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis is equal to Dominion’s cost basis in the general partner interest in Cove Point and a portion of the Preferred Equity Interest. As discussed in Note 10, Dominion Midstream is the primary beneficiary of, and therefore consolidates, Cove Point. As such, Dominion Midstream’s investment in the Preferred Equity Interest and Cove Point's preferred equity interest are eliminated in consolidation. Dominion's retained common equity interest in Cove Point is reflected as noncontrolling interest.

The DCG Acquisition is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis in DCG is equal to Dominion’s cost basis in the assets and liabilities of DCG. On April 1, 2015, DCG became a wholly-owned subsidiary of Dominion Midstream and is therefore consolidated by Dominion Midstream. The accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of DCG beginning January 31, 2015, the inception date of common control.

The financial statements for all periods presented include costs for certain general, administrative and corporate expenses assigned by DRS or DCGS (Dominion Payroll prior to January 1, 2016) to Dominion Midstream on the basis of direct and allocated methods in accordance with Dominion Midstream's services agreements with DRS and DCGS (Dominion Payroll prior to January 1, 2016). Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DRS or DCGS (Dominion Payroll prior to January 1, 2016) resources that is attributable to the entities, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DRS or DCGS (Dominion Payroll prior to January 1, 2016) department. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
v3.4.0.3
Acquisitions
3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
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 three months ended March 31, 2016, total transaction and 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. Dominion Midstream subsequently reimbursed Dominion for the total transaction and transition costs. 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.
v3.4.0.3
Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies
Interim Financial Information and Estimates
As permitted by the rules and regulations of the SEC, Dominion Midstream's accompanying unaudited Consolidated Financial Statements exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015.

In the opinion of management, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly Dominion Midstream's financial position at March 31, 2016, and its results of operations, cash flows and changes in equity for the three months ended March 31, 2016 and 2015. Such adjustments are normal and recurring in nature unless otherwise noted.

Dominion Midstream makes certain estimates and assumptions in preparing its Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, purchased gas expenses and other factors.
v3.4.0.3
Net Income Per Limited Partner Unit
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Net Income Per Limited Partner Unit
Net Income Per Limited Partner Unit
Net income per limited partner unit applicable to common and subordinated units is computed by dividing the respective limited partners’ interest in net income attributable to Dominion Midstream, after deducting any incentive distributions, by the weighted average number of common units and subordinated units outstanding. Because Dominion Midstream has more than one class of participating securities, the two-class method is used when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units and IDRs.

Dominion Midstream’s net income is allocated to the limited partners in accordance with their respective partnership interests, after giving effect to priority income allocations for incentive distributions, if any, to Dominion, the holder of the IDRs, pursuant to the partnership agreement. The distributions are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to Dominion Midstream's unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of earnings per limited partner unit.

Diluted net income per limited partner unit is the same as basic net income per limited partner unit as there were no potentially dilutive common or subordinated units outstanding at March 31, 2016 and 2015.

The calculation of earnings per limited partner unit is as follows:
 
Three Months Ended
March 31,
 
2016
(millions)
 
Net income attributable to partners
$
23.1

Distributions declared on(1):
 
IDRs(2) 
0.4

Common unitholders
10.3

Subordinated unitholders
7.1

Total distributions declared
17.8

Undistributed earnings
$
5.3


(1)
On April 19, 2016, the Board of Directors of our general partner declared a quarterly cash distribution of $0.2245 per unit, totaling $17.8 million for the three months ended March 31, 2016. This distribution will be paid on May 13, 2016 to unitholders of record on May 3, 2016. The amount of distributions declared for the three months ended March 31, 2016 is based on the units outstanding at that date.
(2)
Dominion is a non-economic general partner that holds all of the IDRs.

 
Three Months Ended
March 31,
 
2015
(millions)
 
Net income attributable to partners
$
11.8

Distributions declared on(1):
 
IDRs(2) 

Common unitholders
5.6

Subordinated unitholders
5.6

Total distributions declared
11.2

Undistributed earnings
$
0.6

(1)
On April 22, 2015, the Board of Directors of our general partner declared a quarterly cash distribution of $0.1750 per unit, totaling $12.1 million for the three months ended March 31, 2015. This distribution was paid on May 15, 2015 to unitholders of record on May 5, 2015. The amount of distributions declared shown above is based on the units outstanding at March 31, 2015, and therefore excludes $0.9 million of distributions that were paid on 5,112,139 common units issued to Dominion on April 1, 2015, in connection with the acquisition of DCG. See Note 2 for further information.
(2)
Dominion is a non-economic general partner that holds all of the IDRs.


Basic and diluted net income per limited partner unit
 
 
 
 
 
Common Units

Subordinated Units

General Partner

Total

(millions, except for weighted average units and per unit data)
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
Distributions declared
$
10.3

$
7.1

$
0.4

$
17.8

Undistributed earnings
3.1

2.2


5.3

Net income attributable to partners
$
13.4

$
9.3

$
0.4

$
23.1

Weighted average units outstanding
45,722,112

31,972,789





Net income per limited partner unit
$
0.29

$
0.29






Basic and diluted net income per limited partner unit
 
 
 
 
 
Common Units

Subordinated Units

General Partner

Total

Three Months Ended March 31, 2015
 
 
 
 
Distributions declared
$
5.6

$
5.6

$

$
11.2

Undistributed earnings
0.3

0.3


0.6

Net income attributable to partners
$
5.9

$
5.9

$

$
11.8

Weighted average units outstanding
31,980,110

31,972,789

 
 
Net income per limited partner unit
$
0.19

$
0.19

 
 
v3.4.0.3
Unit Activity
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Unit Activity
Unit Activity
Activity in the number of units was as follows:
 
Common
 
 
 
 
Public

Dominion

Subordinated

General Partner

Total

 
 
 
 
(non-economic interest)

 
Balance at December 31, 2015
27,867,938

17,846,672

31,972,789


77,687,399

Unit-based compensation
7,761




7,761

Dominion purchase of common units(1)
(377,311
)
377,311




Balance at March 31, 2016
27,498,388

18,223,983

31,972,789


77,695,160

(1)
These shares were purchased by Dominion as part of Dominion's program initiated in September 2015 to purchase from the market up to $50.0 million of common units representing limited partner interests in Dominion Midstream by September 2016 at the discretion of Dominion's management.
v3.4.0.3
Operating Revenue
3 Months Ended
Mar. 31, 2016
Revenue Recognition [Abstract]  
Operating Revenue
Operating Revenue
Dominion Midstream's operating revenue consists of the following:
 
Three Months Ended
March 31,
 
2016
2015
(millions)
 
 
Gas transportation and storage
$
79.1

$
74.7

Other
3.9

3.7

Total operating revenue
$
83.0

$
78.4

v3.4.0.3
Equity Method Investments
3 Months Ended
Mar. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Equity Method Investments
The Consolidated Financial Statements include Dominion Midstream's 25.93% noncontrolling partnership interest in Iroquois, which is accounted for under the equity method. See further discussion of Iroquois in Notes 1 and 10.

During the three months ended March 31, 2016, Dominion Midstream received distributions of $5.8 million from Iroquois. At March 31, 2016, the carrying amount of Dominion Midstream’s investment of $221.1 million exceeded its share of underlying equity in net assets by approximately $122.9 million. The difference reflects equity method goodwill and is not being amortized.

Summarized financial information provided to us by Iroquois for 100% of Iroquois for the three months ended March 31, 2016, is presented below.
(in millions)
Three Months Ended
March 31, 2016
Revenues
$
53.0

Operating income
28.8

Net income
24.6

v3.4.0.3
Regulatory Assets and Liabilities
3 Months Ended
Mar. 31, 2016
Regulated Operations [Abstract]  
Regulatory Assets and Liabilities
Regulatory Assets and Liabilities
Regulatory assets and liabilities include the following:
 
March 31, 2016

December 31, 2015

(millions)
 
 
Regulatory assets:
 
 
Unrecovered gas costs(1)
$
2.2

$
1.4

Other
0.3

0.3

Regulatory assets-current
2.5

1.7

Income taxes recoverable through future rates(2)
2.7

2.5

Regulatory assets-non-current
2.7

2.5

Total regulatory assets
$
5.2

$
4.2

Regulatory liabilities:
 

 

Overrecovered gas costs(1)
$

$
0.1

LNG cargo obligations(3)
1.5

3.0

Customer bankruptcy settlement(4)
3.2

3.1

Other
0.4

0.5

Regulatory liabilities-current
5.1

6.7

Provision for future cost of removal(5)
46.6

45.7

Customer bankruptcy settlement(4)
19.7

20.5

Other
0.6

0.5

Regulatory liabilities-non-current
66.9

66.7

Total regulatory liabilities
$
72.0

$
73.4

(1)
Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
(2)
Amounts to be recovered through future rates to pay income taxes that become payable by unitholders when rate revenue is provided to recover AFUDC-equity when such amounts are recovered through book depreciation.
(3)
Reflects obligations to the Import Shippers for LNG cargo received. See Note 12 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
(4)
Represents the balance of proceeds from the monetization of a bankruptcy claim acquired as part of the DCG Acquisition, which is being amortized into operating revenue through February 2024.
(5)
Rates charged to customers include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.

At March 31, 2016, approximately $2.5 million of regulatory assets represented past expenditures on which Dominion Midstream does not currently earn a return. These expenditures are expected to be recovered within one year.
v3.4.0.3
Regulatory Matters
3 Months Ended
Mar. 31, 2016
Regulated Operations [Abstract]  
Regulatory Matters
Regulatory Matters
FERC regulates the transportation and sale for resale of natural gas in interstate commerce under the NGA and the Natural Gas Policy Act of 1978, as amended. Under the NGA, FERC has authority over rates, terms and conditions of services performed by Cove Point and DCG. FERC also has jurisdiction over siting, construction and operation of natural gas import facilities and interstate natural gas pipeline facilities.

There have been no significant developments regarding the regulatory matters disclosed in Note 12 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015.

In 2014, DCG executed three binding precedent agreements for the approximately $120 million Transco to Charleston Project. In March 2016, DCG filed an application to request FERC authorization to construct and operate the project facilities, which are expected to be placed into service in the fourth quarter of 2017.
v3.4.0.3
Variable Interest Entities
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities
Variable Interest Entities
The primary beneficiary of a VIE is required to consolidate the VIE and to disclose certain information about its significant variable interests in the VIE. The primary beneficiary of a VIE is the entity that has both 1) the power to direct the activities that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.


Cove Point
Dominion Midstream concluded that Cove Point is a VIE due to the limited partners lacking the characteristics of a controlling financial interest. Dominion Midstream is the primary beneficiary of Cove Point as it has the power to direct the activities that most significantly impact its economic performance as well as the obligation to absorb losses and benefits which could be significant to it.

Iroquois
Dominion Midstream previously concluded that Iroquois was a VIE because a non-affiliated Iroquois equity holder had the ability during a limited period of time to transfer its ownership interests to another Iroquois equity holder or its affiliate. As such right no longer exists at March 31, 2016, Dominion Midstream concluded that Iroquois is no longer a VIE.

DRS, DCGS and Dominion Payroll
In connection with the Offering, our general partner entered into a services agreement with DRS. DRS provides administrative, management and other services to Dominion and its subsidiaries as a subsidiary service company. From time to time and at the option of our general partner, our general partner will request that DRS provide, and reimburse DRS for the cost of providing such administrative, management and other services as it deems necessary or appropriate for our operations. We will reimburse our general partner and its affiliates for the associated costs of obtaining these services.

Additionally, in connection with Dominion’s acquisition of DCG, DCG entered into services agreements beginning February 1, 2015 with DRS, for similar services as described above, and with Dominion Payroll, which provides human resources and operations services to Dominion and its subsidiaries as a subsidiary service company. Effective January 1, 2016, DCGS provides these services to Dominion Midstream with Dominion Payroll no longer providing any services to Dominion Midstream.

Dominion Midstream purchased shared services from DRS and DCGS of approximately $6.7 million and $5.0 million, respectively, during the three months ended March 31, 2016. Dominion Midstream purchased shared services from DRS and Dominion Payroll of approximately $3.6 million and $1.9 million, respectively, for the three months ended March 31, 2015. The Consolidated Balance Sheets at March 31, 2016 and December 31, 2015 include amounts due from Dominion Midstream to DRS, DCGS and Dominion Payroll of approximately $5.2 million and $2.8 million, respectively.

Dominion Midstream determined that neither it nor any of its consolidated entities is the primary beneficiary of DRS, DCGS or Dominion Payroll, as neither it nor any of its consolidated entities has both the power to direct the activities that most significantly impact their economic performance as well as the obligation to absorb losses and benefits which could be significant to them. Neither Dominion Midstream nor any of its consolidated entities has any obligation to absorb more than its allocated share of DRS, DCGS or Dominion Payroll costs.
v3.4.0.3
Affiliated Long-Term Debt
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Affiliated Long-Term Debt
Affiliated Long-Term Debt
In connection with the DCG Acquisition, Dominion Midstream issued a two-year, $300.8 million senior unsecured promissory note payable to Dominion, as adjusted for working capital, at an annual fixed interest rate of 0.6%. Interest on the note is payable quarterly, and all principal and accrued interest is due and payable at maturity on April 1, 2017, which under certain conditions can be extended at the option of Dominion Midstream to October 1, 2017. Interest charges related to Dominion Midstream's borrowing from Dominion were $0.5 million for the three months ended March 31, 2016. At March 31, 2016 and December 31, 2015, accrued interest payable to Dominion of $0.5 million was recorded in payables to affiliates on the Consolidated Balance Sheets.

The debt instrument described above is reported at historical cost. At March 31, 2016, the fair value of Dominion Midstream's outstanding debt was $295.9 million. The estimated fair value has been determined using available market information and valuation methodologies considered appropriate by management. The fair value was calculated using market interest rates currently available for issuance of debt with similar terms and remaining maturities. The fair value measurement is classified as Level 2.

The key terms of the note payable to Dominion include a prohibition on the incurrence of additional indebtedness (other than under the credit facility with Dominion discussed in Note 14) and a negative pledge applicable to liens on the assets of Dominion Midstream, but which does not apply to the assets of subsidiaries of Dominion Midstream. The note payable does not include any financial covenants. If Dominion Midstream fails to make payments under the note payable or becomes subject to bankruptcy or other insolvency proceedings, Dominion may accelerate Dominion Midstream’s payment obligations under the note payable.
v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
As a result of issues generated in the ordinary course of business, Dominion Midstream is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by FERC), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for Dominion Midstream to estimate a range of possible loss. For such matters that Dominion Midstream cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that Dominion Midstream is able to estimate a range of possible loss. For legal proceedings and governmental examinations for which Dominion Midstream is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Any estimated range of possible loss may not represent Dominion Midstream’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. Management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on Dominion Midstream’s financial position, liquidity or results of operations.

Cove Point Natural Heritage Trust
Under the terms of the 2005 Agreement, Cove Point is required to make an annual contribution to the Cove Point Natural Heritage Trust, an affiliated non-profit trust focused on the preservation and protection of ecologically sensitive sites at or near Cove Point, of $0.3 million for each year the facility is in operation. These annual payments are recorded in other operations and maintenance expense in the Consolidated Statements of Income. If Cove Point voluntarily tenders title according to the terms of this agreement, no contributions are required. There are no current plans to voluntarily tender title to the Cove Point site.

Surety Bonds
At March 31, 2016, Cove Point had purchased $10.9 million of surety bonds. Under the terms of surety bonds, Cove Point is obligated to indemnify the respective surety bond company for any amounts paid.

Lease Commitments
Dominion Midstream leases various facilities, vehicles and equipment under operating lease arrangements, the majority of which include terms of one year or less, require payments on a monthly or annual basis and can be canceled at any time. Rental expense for Dominion Midstream totaled $0.6 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively. The majority of rent expense is included within other operations and maintenance expense in the Consolidated Statements of Income.
v3.4.0.3
Credit Risk
3 Months Ended
Mar. 31, 2016
Risks and Uncertainties [Abstract]  
Credit Risk
Credit Risk
Credit risk is the risk of financial loss if counterparties fail to perform their contractual obligations. In order to minimize overall credit risk, credit policies are maintained, including the evaluation of counterparty financial condition. In addition, counterparties may make available collateral, including letters of credit, payment guarantees or cash deposits.

Dominion Midstream provides service to approximately 70 customers, including the Storage Customers, marketers or end users and the Import Shippers. The two largest customers comprised approximately 72% and 70% of the total transportation and storage revenues for the three months ended March 31, 2016 and 2015, with Dominion Midstream's largest customer representing approximately 56% and 59% of such amounts in each period, respectively.

Dominion Midstream maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends and other information. At March 31, 2016 and December 31, 2015, the provision for credit losses was less than $0.1 million. Management believes, based on credit policies and the March 31, 2016 provision for credit losses, that it is unlikely that a material adverse effect on financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.
v3.4.0.3
Related-Party Transactions
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related-Party Transactions
Related-Party Transactions
Dominion Midstream engages in related-party transactions primarily with other Dominion subsidiaries (affiliates), including our general partner. Dominion Midstream's receivable and payable balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. Cove Point participates in certain Dominion benefit plans as described in Note 16 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015. In Dominion Midstream's Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, amounts due to Dominion associated with these benefit plans included in pension and other postretirement benefit liabilities were $5.3 million and $5.0 million, respectively, and amounts due from Dominion at March 31, 2016 included in other current assets were $0.2 million. There were no such amounts due from Dominion at December 31, 2015. Transactions related to the DCG Acquisition are described in Notes 2 and 11. A discussion of the remaining significant related party transactions follows.

Transactions with Affiliates
DRS provides accounting, legal, finance and certain administrative and technical services to Dominion Midstream. Effective January 1, 2016, DCGS provides human resources and operations services to Dominion Midstream as a subsidiary service company. Prior to January 1, 2016, Dominion Payroll provided human resources and operations services to Dominion Midstream as a subsidiary service company. Refer to Note 10 for further information.

Dominion may seek reimbursement from DCG for costs incurred related to Dominion's transition services agreement with SCANA to provide administrative functions related to DCG. For the three months ended March 31, 2016, DCG reimbursed Dominion a total of $0.6 million for such costs. During the three months ended March 31, 2015, Dominion did not seek reimbursement for any such costs.

Dominion Midstream provides transportation services to affiliates and affiliates provide goods and services to Dominion Midstream.

Affiliated transactions are presented below:
 
Three Months Ended
March 31,
 
2016
2015
(millions)
 
 
Sales of natural gas transportation services to affiliates
$
0.5

$
0.7

Purchased gas from affiliates
0.1

0.2

Goods and services provided by affiliates to Dominion Midstream(1)
13.3

7.2

(1)
Includes $3.9 million and $2.4 million of capitalized expenditures for the three months ended March 31, 2016 and 2015, respectively.

Dominion Credit Facility
In connection with the Offering, Dominion Midstream entered into a credit facility with Dominion with a borrowing capacity of $300 million. A summary of certain key terms of the credit facility with Dominion is included in Note 20 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015. At March 31, 2016 and December 31, 2015, $9.5 million and $5.9 million was outstanding against the credit facility, respectively. Outstanding borrowings are presented within current liabilities as such amounts could become payable on demand after a 90-day termination notice provided by either party. No such notice has been provided through the date of this filing. Interest charges related to Dominion Midstream's borrowings against the facility were less than $0.1 million for the three months ended March 31, 2016. The facility was undrawn during the three months ended March 31, 2015.

Income Taxes
DCG participated in Dominion's intercompany tax sharing agreement from February 1, 2015 through March 31, 2015. DCG's participation in this tax sharing agreement was subsequently terminated in connection with the DCG Acquisition. At the time of the DCG Acquisition, DCG settled income taxes payable and net deferred income taxes of $13.4 million through an equity transaction with Dominion.

Natural Gas Imbalances
Dominion Midstream maintains natural gas imbalances with affiliates. The imbalances with affiliates are provided below:
 
March 31, 2016

December 31, 2015

(millions)
 
 
Imbalances payable to affiliates
$
3.5

$
0.8



Right of First Offer
In connection with the Offering, Dominion Midstream entered into a right of first offer agreement with Dominion as described in Note 20 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015. There have been no changes to this agreement.

Contributions from Dominion
For the three months ended March 31, 2016, Dominion contributed $244.9 million to Cove Point to fund capital expenditures related to the Liquefaction Project. No such amounts were contributed for the three months ended March 31, 2015. In April 2016, Dominion contributed an additional $85.1 million to Cove Point to fund capital expenditures related to the Liquefaction Project. In February 2015, Dominion contributed $1.3 million in cash to DCG to fund operations.

Transaction and transition costs incurred by the DCG Predecessor were attributed to Dominion Midstream and expensed in operations and maintenance expense in the Consolidated Statements of Income. At the time of the DCG Acquisition, Dominion Midstream settled amounts payable to Dominion of $1.0 million through equity contributions from Dominion.
v3.4.0.3
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Dominion Midstream is organized as an MLP, a pass-through entity for U.S. federal and state income tax purposes. Each unitholder is responsible for taking into account the unitholder’s respective share of Dominion Midstream’s items of taxable income, gain, loss and deduction in the preparation of income tax returns. Upon the closing of the Offering, Cove Point became a pass-through entity for U.S. federal and state income tax purposes. Effective April 1, 2015, the date of the DCG Acquisition, DCG is treated as a component of Dominion Midstream for income tax purposes. Accordingly, Dominion Midstream's Consolidated Financial Statements do not include income taxes for the period subsequent to the Offering, with the exception of income taxes attributable to the DCG Predecessor.

DCG operated as a taxable corporation at the time of Dominion's acquisition of DCG. In March 2015, DCG converted to a single member limited liability company and as a result, became a disregarded entity for income tax purposes and was treated as a taxable division of its corporate parent. Its business activities from January 31, 2015 through March 31, 2015, will be included in the consolidated U.S. federal and certain state income tax returns of Dominion.

Current income taxes for DCG were based on taxable income or loss, determined on a separate company basis, and, where applicable, settled in accordance with the principles of Dominion’s intercompany tax sharing agreement. The settlement of DCG’s federal and state income taxes payable and net deferred income taxes is reflected as an equity transaction in Dominion Midstream’s Consolidated Financial Statements.

For the three months ended March 31, 2016 and 2015, the statutory U.S. federal income tax rate reconciles to the effective income tax rate as follows:
Three Months Ended March 31,
2016
2015
U.S. statutory rate
35.0
 %
35.0
 %
Partnership income not subject to income taxes(1)
(35.0
)
(30.8
)
Increases resulting from:
 
 
State taxes, net of federal benefit(2)

0.4

Effective tax rate
 %
4.6
 %
(1)
Reflects the pass-through entity status of Dominion Midstream, including the operations of DCG subsequent to the DCG Acquisition, and Cove Point.
(2)
2015 amounts are attributable to the operations of DCG prior to the DCG Acquisition.

See Note 21 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015 for additional information.
v3.4.0.3
Operating Segment
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Operating Segment
Operating Segment
Dominion Midstream is organized primarily on the basis of products and services sold in the U.S. Dominion Energy, Dominion Midstream's operating segment, consists of gas transportation, storage and regasification services.

Dominion Midstream also reports a Corporate and Other segment. The Corporate and Other segment primarily includes items attributable to Dominion Midstream's operating segment that are not included in profit measures evaluated by executive management in assessing the segment's performance or in allocating resources.

The following table presents segment information pertaining to Dominion Midstream's operations:
 
 
Dominion Energy

Corporate and
Other

Total

(millions)
 
 
 
Three Months Ended March 31, 2016
 
 
 
Operating revenue
$
83.0

$

$
83.0

Earnings from equity method investee
6.4


6.4

Net income including noncontrolling interest and DCG Predecessor
51.8


51.8

Net income including noncontrolling interest
51.8


51.8

Net income attributable to partners
23.1


23.1

Three Months Ended March 31, 2015
 
 
 

Operating revenue
$
78.4

$

$
78.4

Net income (loss) including noncontrolling interest and DCG Predecessor
43.8

(1.0
)
42.8

Net income including noncontrolling interest
40.5


40.5

Net income attributable to partners
11.8


11.8

v3.4.0.3
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The contribution by Dominion to Dominion Midstream of the general partner interest in Cove Point and a portion of the Preferred Equity Interest is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis is equal to Dominion’s cost basis in the general partner interest in Cove Point and a portion of the Preferred Equity Interest. As discussed in Note 10, Dominion Midstream is the primary beneficiary of, and therefore consolidates, Cove Point. As such, Dominion Midstream’s investment in the Preferred Equity Interest and Cove Point's preferred equity interest are eliminated in consolidation. Dominion's retained common equity interest in Cove Point is reflected as noncontrolling interest.

The DCG Acquisition is considered to be a reorganization of entities under common control. As a result, Dominion Midstream’s basis in DCG is equal to Dominion’s cost basis in the assets and liabilities of DCG. On April 1, 2015, DCG became a wholly-owned subsidiary of Dominion Midstream and is therefore consolidated by Dominion Midstream. The accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of DCG beginning January 31, 2015, the inception date of common control.

The financial statements for all periods presented include costs for certain general, administrative and corporate expenses assigned by DRS or DCGS (Dominion Payroll prior to January 1, 2016) to Dominion Midstream on the basis of direct and allocated methods in accordance with Dominion Midstream's services agreements with DRS and DCGS (Dominion Payroll prior to January 1, 2016). Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DRS or DCGS (Dominion Payroll prior to January 1, 2016) resources that is attributable to the entities, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DRS or DCGS (Dominion Payroll prior to January 1, 2016) department. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
Basis of Accounting
As permitted by the rules and regulations of the SEC, Dominion Midstream's accompanying unaudited Consolidated Financial Statements exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in Dominion Midstream’s Annual Report on Form 10-K for the year ended December 31, 2015.
Estimates
Dominion Midstream makes certain estimates and assumptions in preparing its Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.
v3.4.0.3
Net Income Per Limited Partner Unit (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Schedule of Calculation of Earnings per Unit
The calculation of earnings per limited partner unit is as follows:
 
Three Months Ended
March 31,
 
2016
(millions)
 
Net income attributable to partners
$
23.1

Distributions declared on(1):
 
IDRs(2) 
0.4

Common unitholders
10.3

Subordinated unitholders
7.1

Total distributions declared
17.8

Undistributed earnings
$
5.3


(1)
On April 19, 2016, the Board of Directors of our general partner declared a quarterly cash distribution of $0.2245 per unit, totaling $17.8 million for the three months ended March 31, 2016. This distribution will be paid on May 13, 2016 to unitholders of record on May 3, 2016. The amount of distributions declared for the three months ended March 31, 2016 is based on the units outstanding at that date.
(2)
Dominion is a non-economic general partner that holds all of the IDRs.

 
Three Months Ended
March 31,
 
2015
(millions)
 
Net income attributable to partners
$
11.8

Distributions declared on(1):
 
IDRs(2) 

Common unitholders
5.6

Subordinated unitholders
5.6

Total distributions declared
11.2

Undistributed earnings
$
0.6

(1)
On April 22, 2015, the Board of Directors of our general partner declared a quarterly cash distribution of $0.1750 per unit, totaling $12.1 million for the three months ended March 31, 2015. This distribution was paid on May 15, 2015 to unitholders of record on May 5, 2015. The amount of distributions declared shown above is based on the units outstanding at March 31, 2015, and therefore excludes $0.9 million of distributions that were paid on 5,112,139 common units issued to Dominion on April 1, 2015, in connection with the acquisition of DCG. See Note 2 for further information.
(2)
Dominion is a non-economic general partner that holds all of the IDRs.


Basic and diluted net income per limited partner unit
 
 
 
 
 
Common Units

Subordinated Units

General Partner

Total

(millions, except for weighted average units and per unit data)
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
Distributions declared
$
10.3

$
7.1

$
0.4

$
17.8

Undistributed earnings
3.1

2.2


5.3

Net income attributable to partners
$
13.4

$
9.3

$
0.4

$
23.1

Weighted average units outstanding
45,722,112

31,972,789





Net income per limited partner unit
$
0.29

$
0.29






Basic and diluted net income per limited partner unit
 
 
 
 
 
Common Units

Subordinated Units

General Partner

Total

Three Months Ended March 31, 2015
 
 
 
 
Distributions declared
$
5.6

$
5.6

$

$
11.2

Undistributed earnings
0.3

0.3


0.6

Net income attributable to partners
$
5.9

$
5.9

$

$
11.8

Weighted average units outstanding
31,980,110

31,972,789

 
 
Net income per limited partner unit
$
0.19

$
0.19

 
 
v3.4.0.3
Unit Activity (Tables)
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Schedule of Capital Units
Activity in the number of units was as follows:
 
Common
 
 
 
 
Public

Dominion

Subordinated

General Partner

Total

 
 
 
 
(non-economic interest)

 
Balance at December 31, 2015
27,867,938

17,846,672

31,972,789


77,687,399

Unit-based compensation
7,761




7,761

Dominion purchase of common units(1)
(377,311
)
377,311




Balance at March 31, 2016
27,498,388

18,223,983

31,972,789


77,695,160

(1)
These shares were purchased by Dominion as part of Dominion's program initiated in September 2015 to purchase from the market up to $50.0 million of common units representing limited partner interests in Dominion Midstream by September 2016 at the discretion of Dominion's management.
v3.4.0.3
Operating Revenue (Tables)
3 Months Ended
Mar. 31, 2016
Revenue Recognition [Abstract]  
Operating Revenue
Dominion Midstream's operating revenue consists of the following:
 
Three Months Ended
March 31,
 
2016
2015
(millions)
 
 
Gas transportation and storage
$
79.1

$
74.7

Other
3.9

3.7

Total operating revenue
$
83.0

$
78.4

v3.4.0.3
Equity Method Investments (Tables)
3 Months Ended
Mar. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Summarized Financial Information of Equity Method Investments
Summarized financial information provided to us by Iroquois for 100% of Iroquois for the three months ended March 31, 2016, is presented below.
(in millions)
Three Months Ended
March 31, 2016
Revenues
$
53.0

Operating income
28.8

Net income
24.6

v3.4.0.3
Regulatory Assets and Liabilities (Tables)
3 Months Ended
Mar. 31, 2016
Regulated Operations [Abstract]  
Schedule of Regulatory Assets
Regulatory assets and liabilities include the following:
 
March 31, 2016

December 31, 2015

(millions)
 
 
Regulatory assets:
 
 
Unrecovered gas costs(1)
$
2.2

$
1.4

Other
0.3

0.3

Regulatory assets-current
2.5

1.7

Income taxes recoverable through future rates(2)
2.7

2.5

Regulatory assets-non-current
2.7

2.5

Total regulatory assets
$
5.2

$
4.2

Regulatory liabilities:
 

 

Overrecovered gas costs(1)
$

$
0.1

LNG cargo obligations(3)
1.5

3.0

Customer bankruptcy settlement(4)
3.2

3.1

Other
0.4

0.5

Regulatory liabilities-current
5.1

6.7

Provision for future cost of removal(5)
46.6

45.7

Customer bankruptcy settlement(4)
19.7

20.5

Other
0.6

0.5

Regulatory liabilities-non-current
66.9

66.7

Total regulatory liabilities
$
72.0

$
73.4

(1)
Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
(2)
Amounts to be recovered through future rates to pay income taxes that become payable by unitholders when rate revenue is provided to recover AFUDC-equity when such amounts are recovered through book depreciation.
(3)
Reflects obligations to the Import Shippers for LNG cargo received. See Note 12 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
(4)
Represents the balance of proceeds from the monetization of a bankruptcy claim acquired as part of the DCG Acquisition, which is being amortized into operating revenue through February 2024.
(5)
Rates charged to customers include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
Schedule of Regulatory Liabilities
Regulatory assets and liabilities include the following:
 
March 31, 2016

December 31, 2015

(millions)
 
 
Regulatory assets:
 
 
Unrecovered gas costs(1)
$
2.2

$
1.4

Other
0.3

0.3

Regulatory assets-current
2.5

1.7

Income taxes recoverable through future rates(2)
2.7

2.5

Regulatory assets-non-current
2.7

2.5

Total regulatory assets
$
5.2

$
4.2

Regulatory liabilities:
 

 

Overrecovered gas costs(1)
$

$
0.1

LNG cargo obligations(3)
1.5

3.0

Customer bankruptcy settlement(4)
3.2

3.1

Other
0.4

0.5

Regulatory liabilities-current
5.1

6.7

Provision for future cost of removal(5)
46.6

45.7

Customer bankruptcy settlement(4)
19.7

20.5

Other
0.6

0.5

Regulatory liabilities-non-current
66.9

66.7

Total regulatory liabilities
$
72.0

$
73.4

(1)
Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
(2)
Amounts to be recovered through future rates to pay income taxes that become payable by unitholders when rate revenue is provided to recover AFUDC-equity when such amounts are recovered through book depreciation.
(3)
Reflects obligations to the Import Shippers for LNG cargo received. See Note 12 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
(4)
Represents the balance of proceeds from the monetization of a bankruptcy claim acquired as part of the DCG Acquisition, which is being amortized into operating revenue through February 2024.
(5)
Rates charged to customers include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
v3.4.0.3
Related-Party Transactions (Tables)
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Schedule of Related Party Transactions
Affiliated transactions are presented below:
 
Three Months Ended
March 31,
 
2016
2015
(millions)
 
 
Sales of natural gas transportation services to affiliates
$
0.5

$
0.7

Purchased gas from affiliates
0.1

0.2

Goods and services provided by affiliates to Dominion Midstream(1)
13.3

7.2

(1)
Includes $3.9 million and $2.4 million of capitalized expenditures for the three months ended March 31, 2016 and 2015, respectively.

The imbalances with affiliates are provided below:
 
March 31, 2016

December 31, 2015

(millions)
 
 
Imbalances payable to affiliates
$
3.5

$
0.8

v3.4.0.3
Income Taxes (Tables)
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Schedule of Effective Income Tax Rate Reconciliation
For the three months ended March 31, 2016 and 2015, the statutory U.S. federal income tax rate reconciles to the effective income tax rate as follows:
Three Months Ended March 31,
2016
2015
U.S. statutory rate
35.0
 %
35.0
 %
Partnership income not subject to income taxes(1)
(35.0
)
(30.8
)
Increases resulting from:
 
 
State taxes, net of federal benefit(2)

0.4

Effective tax rate
 %
4.6
 %
(1)
Reflects the pass-through entity status of Dominion Midstream, including the operations of DCG subsequent to the DCG Acquisition, and Cove Point.
(2)
2015 amounts are attributable to the operations of DCG prior to the DCG Acquisition.
v3.4.0.3
Operating Segment (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment
The following table presents segment information pertaining to Dominion Midstream's operations:
 
 
Dominion Energy

Corporate and
Other

Total

(millions)
 
 
 
Three Months Ended March 31, 2016
 
 
 
Operating revenue
$
83.0

$

$
83.0

Earnings from equity method investee
6.4


6.4

Net income including noncontrolling interest and DCG Predecessor
51.8


51.8

Net income including noncontrolling interest
51.8


51.8

Net income attributable to partners
23.1


23.1

Three Months Ended March 31, 2015
 
 
 

Operating revenue
$
78.4

$

$
78.4

Net income (loss) including noncontrolling interest and DCG Predecessor
43.8

(1.0
)
42.8

Net income including noncontrolling interest
40.5


40.5

Net income attributable to partners
11.8


11.8

v3.4.0.3
Description of Business and Basis of Presentation (Details) - mi
Sep. 29, 2015
Apr. 01, 2015
Mar. 31, 2016
Iroquois Gas Transmission System, LP | Partnership Interest      
Subsidiary, Sale of Stock [Line Items]      
Length of FERC regulated interstate natural gas pipeline (nearly 1,500 miles) 416    
Partnership interest percentage acquired in Iroquois 25.93%   25.93%
DCG | Affiliates | Dominion      
Subsidiary, Sale of Stock [Line Items]      
Length of FERC regulated interstate natural gas pipeline (nearly 1,500 miles)   1,500  
v3.4.0.3
Acquisitions -DCG (Details) - DCG - Affiliates - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended
Apr. 01, 2015
Mar. 31, 2016
Partnership Interest    
Business Acquisition [Line Items]    
Number of common units issued 5,112,139  
Dominion    
Business Acquisition [Line Items]    
Total consideration $ 500.8  
Historical cost of assets and liabilities of DCG $ 501.6  
Dominion | Other Operations and Maintenance Expense    
Business Acquisition [Line Items]    
Total transaction costs associated with DCG acquisition   $ 1.3
Dominion | Partnership Interest    
Business Acquisition [Line Items]    
Number of common units issued 5,112,139  
Value of common units issued $ 200.0  
Number of trading days 10 days  
Price per unit $ 39.12  
Dominion | Notes Payable | Senior Unsecured Promissory Note Payable    
Business Acquisition [Line Items]    
Term of senior unsecured promissory note payable 2 years  
Senior unsecured promissory note payable $ 300.8  
Annual interest rate (percentage) 0.60%  
v3.4.0.3
Net Income Per Limited Partner Unit (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended
Apr. 19, 2016
Apr. 22, 2015
Apr. 01, 2015
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Potentially dilutive common or subordinated units outstanding       0 0
Net income attributable to partners       $ 23.1 $ 11.8
Distribution declared on Common and Subordinated unitholders   $ 12.1      
Total distributions declared       17.8 11.2
Undistributed earnings       $ 5.3 $ 0.6
Quarterly distribution per unit   $ 0.1750      
DCG | Affiliates | Partnership Interest          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Distribution declared on Common and Subordinated unitholders     $ 0.9    
Number of common units issued     5,112,139    
Subsequent Event          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Distribution declared on Common and Subordinated unitholders $ 17.8        
Quarterly distribution per unit $ 0.2245        
Common Units          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Net income per limited partner unit (basic and diluted)       $ 0.29 $ 0.19
Subordinated Units          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Net income per limited partner unit (basic and diluted)       $ 0.29 $ 0.19
General Partner          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Net income attributable to partners       $ 0.4 $ 0.0
Incentive distribution holder rights       0.4 [1],[2] 0.0 [3],[4]
Total distributions declared       0.4 0.0
Undistributed earnings       0.0 0.0
Limited Partners | Common Units          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Net income attributable to partners       13.4 5.9
Distribution declared on Common and Subordinated unitholders       10.3 [2] 5.6 [4]
Total distributions declared       10.3 5.6
Undistributed earnings       $ 3.1 $ 0.3
Weighted average units outstanding       45,722,112 31,980,110
Net income per limited partner unit (basic and diluted)       $ 0.29 $ 0.19
Limited Partners | Subordinated Units          
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]          
Net income attributable to partners       $ 9.3 $ 5.9
Distribution declared on Common and Subordinated unitholders       7.1 [2] 5.6 [4]
Total distributions declared       7.1 5.6
Undistributed earnings       $ 2.2 $ 0.3
Weighted average units outstanding       31,972,789 31,972,789
Net income per limited partner unit (basic and diluted)       $ 0.29 $ 0.19
[1] Dominion is a non-economic general partner that holds all of the IDRs.
[2] On April 19, 2016, the Board of Directors of our general partner declared a quarterly cash distribution of $0.2245 per unit, totaling $17.8 million for the three months ended March 31, 2016. This distribution will be paid on May 13, 2016 to unitholders of record on May 3, 2016. The amount of distributions declared for the three months ended March 31, 2016 is based on the units outstanding at that date.
[3] Dominion is a non-economic general partner that holds all of the IDRs.
[4] On April 22, 2015, the Board of Directors of our general partner declared a quarterly cash distribution of $0.1750 per unit, totaling $12.1 million for the three months ended March 31, 2015. This distribution was paid on May 15, 2015 to unitholders of record on May 5, 2015. The amount of distributions declared shown above is based on the units outstanding at March 31, 2015, and therefore excludes $0.9 million of distributions that were paid on 5,112,139 common units issued to Dominion on April 1, 2015, in connection with the acquisition of DCG. See Note 2 for further information.
v3.4.0.3
Unit Activity (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Sep. 30, 2015
Increase (Decrease) in Partners' Capital [Roll Forward]    
Balance at December 31, 2015 77,687,399  
Unit-based compensation 7,761  
Dominion purchase of common units [1] 0  
Balance at March 31, 2016 77,695,160  
Dominion    
Increase (Decrease) in Partners' Capital [Roll Forward]    
Value of shares to be repurchased (up to $50.0 million)   $ 50,000,000.0
General Partner Dominion (non-economic interest) | General Partner Dominion (non-economic interest) | Dominion    
Increase (Decrease) in Partners' Capital [Roll Forward]    
Balance at December 31, 2015 0  
Unit-based compensation 0  
Dominion purchase of common units [1] 0  
Balance at March 31, 2016 0  
Common Units | Common Unitholders and Subordinated Unitholder | Limited Partners    
Increase (Decrease) in Partners' Capital [Roll Forward]    
Balance at December 31, 2015 27,867,938  
Unit-based compensation 7,761  
Dominion purchase of common units [1] (377,311)  
Balance at March 31, 2016 27,498,388  
Common Units | Common Unitholders and Subordinated Unitholder | Limited Partners | Dominion    
Increase (Decrease) in Partners' Capital [Roll Forward]    
Balance at December 31, 2015 17,846,672  
Unit-based compensation 0  
Dominion purchase of common units [1] 377,311  
Balance at March 31, 2016 18,223,983  
Subordinated Units | Common Unitholders and Subordinated Unitholder | Limited Partners | Dominion    
Increase (Decrease) in Partners' Capital [Roll Forward]    
Balance at December 31, 2015 31,972,789  
Unit-based compensation 0  
Dominion purchase of common units [1] 0  
Balance at March 31, 2016 31,972,789  
[1] These shares were purchased by Dominion as part of Dominion's program initiated in September 2015 to purchase from the market up to $50.0 million of common units representing limited partner interests in Dominion Midstream by September 2016 at the discretion of Dominion's management.
v3.4.0.3
Operating Revenue (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenue Recognition [Abstract]    
Gas transportation and storage $ 79.1 $ 74.7
Other 3.9 3.7
Total operating revenue [1] $ 83.0 $ 78.4
[1] See Note 14 for amounts attributable to related parties.
v3.4.0.3
Equity Method Investments (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Sep. 29, 2015
Schedule of Equity Method Investments [Line Items]      
Investment in Equity Method Affiliate $ 221.1 $ 220.5  
Iroquois Gas Transmission System, LP | Partnership Interest      
Schedule of Equity Method Investments [Line Items]      
Partnership interest percentage acquired in Iroquois 25.93%   25.93%
Distributions received from Iroquois $ 5.8    
Investment in Equity Method Affiliate 221.1    
Amount that investment exceeded its share of underlying equity $ 122.9    
Percentage of Iroquois included in summarized financial information 100.00%    
Equity Method Investment, Summarized Financial Information [Abstract]      
Revenues $ 53.0    
Operating income 28.8    
Net income $ 24.6    
v3.4.0.3
Regulatory Assets and Liabilities (Regulatory Assets) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Regulatory Assets [Line Items]    
Regulatory assets-current $ 2.5 $ 1.7
Regulatory assets-non-current 2.7 2.5
Total regulatory assets 5.2 4.2
Past expenditures in which no return is expected $ 2.5  
Recovery period of expenditures 1 year  
Unrecovered gas costs    
Regulatory Assets [Line Items]    
Regulatory assets-current [1] $ 2.2 1.4
Other    
Regulatory Assets [Line Items]    
Regulatory assets-current 0.3 0.3
Income taxes recoverable through future rates    
Regulatory Assets [Line Items]    
Regulatory assets-non-current [2] $ 2.7 $ 2.5
[1] Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
[2] Amounts to be recovered through future rates to pay income taxes that become payable by unitholders when rate revenue is provided to recover AFUDC-equity when such amounts are recovered through book depreciation.
v3.4.0.3
Regulatory Assets and Liabilities (Regulatory Liabilities) (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Regulatory Liabilities [Line Items]    
Regulatory liabilities-current $ 5.1 $ 6.7
Regulatory liabilities-non-current 66.9 66.7
Total regulatory liabilities 72.0 73.4
Overrecovered gas costs    
Regulatory Liabilities [Line Items]    
Regulatory liabilities-current [1] 0.0 0.1
LNG cargo obligations    
Regulatory Liabilities [Line Items]    
Regulatory liabilities-current [2] 1.5 3.0
Customer bankruptcy settlement    
Regulatory Liabilities [Line Items]    
Regulatory liabilities-current [3] 3.2 3.1
Regulatory liabilities-non-current [3] 19.7 20.5
Other    
Regulatory Liabilities [Line Items]    
Regulatory liabilities-current 0.4 0.5
Regulatory liabilities-non-current 0.6 0.5
Provision for future cost of removal    
Regulatory Liabilities [Line Items]    
Regulatory liabilities-non-current [4] $ 46.6 $ 45.7
[1] Reflects unrecovered/overrecovered gas costs, which are subject to annual filings with FERC.
[2] Reflects obligations to the Import Shippers for LNG cargo received. See Note 12 to the Consolidated Financial Statements in Dominion Midstream's Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
[3] Represents the balance of proceeds from the monetization of a bankruptcy claim acquired as part of the DCG Acquisition, which is being amortized into operating revenue through February 2024.
[4] Rates charged to customers include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
v3.4.0.3
Regulatory Matters (Narrative) (Details) - FERC - Transco to Charleston Project - DCG
$ in Millions
12 Months Ended
Dec. 31, 2014
USD ($)
Agreement
Public Utilities, General Disclosures [Line Items]  
Number of binding precedent agreements | Agreement 3
Amount of project | $ $ 120
v3.4.0.3
Variable Interest Entities -DRS, DCGS and Dominion Payroll (Details) - Affiliates - Services provided by Affiliates - Variable Interest Entity, Not Primary Beneficiary - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Variable Interest Entity [Line Items]      
Amounts due from affiliates $ 5.2   $ 2.8
DRS      
Variable Interest Entity [Line Items]      
Services purchased 6.7 $ 3.6  
DCGS      
Variable Interest Entity [Line Items]      
Services purchased $ 5.0    
Dominion Payroll      
Variable Interest Entity [Line Items]      
Services purchased   $ 1.9  
v3.4.0.3
Affiliated Long-Term Debt (Details) - Senior Unsecured Promissory Note Payable - Notes Payable - Dominion - Affiliates - USD ($)
3 Months Ended
Apr. 01, 2015
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]      
Interest charges related to borrowing from Dominion   $ 500,000  
Fair Value, Inputs, Level 2      
Debt Instrument [Line Items]      
Fair value of outstanding debt   295,900,000  
Payables to Affiliates      
Debt Instrument [Line Items]      
Accrued interest payable to Dominion   $ 500,000 $ 500,000
DCG      
Debt Instrument [Line Items]      
Term of senior unsecured promissory note payable 2 years    
Principal amount $ 300,800,000.0    
Annual interest rate (percentage) 0.60%    
v3.4.0.3
Commitments and Contingencies (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Other Operations and Maintenance Expense    
Other Commitments [Line Items]    
Rental expense $ 600,000 $ 700,000
Surety Bond    
Other Commitments [Line Items]    
Total amount of commitment $ 10,900,000  
Maximum    
Other Commitments [Line Items]    
Operating lease arrangements term 1 year  
Annual Contributions to Cove Point Natural Heritage Trust    
Other Commitments [Line Items]    
Total amount of commitment $ 300,000  
Annual Contributions to Cove Point Natural Heritage Trust | Minimum    
Other Commitments [Line Items]    
Total amount of commitment $ 0  
v3.4.0.3
Credit Risk (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
customer
Mar. 31, 2015
customer
Dec. 31, 2015
USD ($)
Customer Concentration Risk | Sales Revenue, Net      
Concentration Risk [Line Items]      
Number of customers 70    
Customer Concentration Risk | Sales Revenue, Net | Two Largest Customers      
Concentration Risk [Line Items]      
Number of customers 2 2  
Percentage of total transportation and storage revenues 72.00% 70.00%  
Customer Concentration Risk | Sales Revenue, Net | Largest Customer      
Concentration Risk [Line Items]      
Percentage of total transportation and storage revenues 56.00% 59.00%  
Credit Concentration Risk | Accounts Receivable      
Concentration Risk [Line Items]      
Provision for credit losses (less than $0.1 million) | $ $ 0.1   $ 0.1
v3.4.0.3
Related-Party Transactions (Details) - USD ($)
1 Months Ended 3 Months Ended
Apr. 01, 2015
Apr. 30, 2016
Feb. 28, 2015
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Oct. 20, 2014
Related Party Transaction [Line Items]              
Imbalances payable to affiliates [1]       $ 3,600,000   $ 1,000,000  
Affiliates              
Related Party Transaction [Line Items]              
Sales of natural gas transportation services to affiliates       500,000 $ 700,000    
Capital expenditures       3,900,000 2,400,000    
Imbalances payable to affiliates       3,500,000   800,000  
Affiliates | Pension and Other Postretirement Benefit Liabilities              
Related Party Transaction [Line Items]              
Amounts due to Dominion associated with benefit plans       5,300,000   5,000,000  
Affiliates | Other Current Assets              
Related Party Transaction [Line Items]              
Amounts due from Dominion       200,000   0  
Affiliates | Dominion | DCG | Partnership Interest              
Related Party Transaction [Line Items]              
Equity contribution from Dominion to relieve payables to affiliates $ 1,000,000            
Affiliates | Reimbursement of transition services costs by affiliate | DCG              
Related Party Transaction [Line Items]              
Goods and services provided by affiliates       600,000      
Affiliates | Purchased gas from affiliates              
Related Party Transaction [Line Items]              
Purchased gas from affiliates       100,000 200,000    
Affiliates | Goods and services provided by affiliates to Cove Point              
Related Party Transaction [Line Items]              
Goods and services provided by affiliates [2]       13,300,000 7,200,000    
Affiliates | Credit Facility with Dominion | Line of Credit              
Related Party Transaction [Line Items]              
Amount outstanding against the credit facility       $ 9,500,000   $ 5,900,000  
Termination notice period       90 days      
Interest charges related to borrowing from Dominion       $ 100,000 100,000    
Affiliates | Credit Facility with Dominion | IPO | Line of Credit              
Related Party Transaction [Line Items]              
Borrowing capacity             $ 300,000,000
Affiliates | Tax Sharing Agreement | DCG | Equity contribution with Dominion related to income taxes              
Related Party Transaction [Line Items]              
Settlement of income taxes payable and net deferred income taxes through an equity transaction with Dominion $ 13,400,000            
Affiliates | Capital Expenditures related to Liquefaction Project | Cove Point              
Related Party Transaction [Line Items]              
Contribution to fund capital expenditures       $ 244,900,000 $ 0    
Affiliates | Capital Expenditures related to Liquefaction Project | Cove Point | Subsequent Event              
Related Party Transaction [Line Items]              
Contribution to fund capital expenditures   $ 85,100,000          
Affiliates | Contribution to Fund Operations | DCG | Predecessor              
Related Party Transaction [Line Items]              
Contribution to fund capital expenditures     $ 1,300,000        
[1] See Note 14 for amounts attributable to related parties.
[2] Includes $3.9 million and $2.4 million of capitalized expenditures for the three months ended March 31, 2016 and 2015, respectively.
v3.4.0.3
Income Taxes (Details)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Tax Disclosure [Abstract]    
U.S. statutory rate 35.00% 35.00%
Partnership income not subject to income taxes [1] (35.00%) (30.80%)
Increases resulting from:    
State taxes, net of federal benefit [2] 0.00% 0.40%
Effective tax rate 0.00% 4.60%
[1] Reflects the pass-through entity status of Dominion Midstream, including the operations of DCG subsequent to the DCG Acquisition, and Cove Point.
[2] 2015 amounts are attributable to the operations of DCG prior to the DCG Acquisition.
v3.4.0.3
Operating Segment (Schedule of Segment Reporting Information, by Segment) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting Information [Line Items]    
Operating revenue [1] $ 83.0 $ 78.4
Earnings from equity method investee 6.4 0.0
Net income (loss) including noncontrolling interest and DCG Predecessor 51.8 42.8
Net income including noncontrolling interest 51.8 40.5
Net income attributable to partners 23.1 11.8
Operating Segments | Dominion Energy    
Segment Reporting Information [Line Items]    
Operating revenue 83.0 78.4
Earnings from equity method investee 6.4  
Net income (loss) including noncontrolling interest and DCG Predecessor 51.8 43.8
Net income including noncontrolling interest 51.8 40.5
Net income attributable to partners 23.1 11.8
Operating Segments | Corporate and Other    
Segment Reporting Information [Line Items]    
Operating revenue 0.0 0.0
Earnings from equity method investee 0.0  
Net income (loss) including noncontrolling interest and DCG Predecessor 0.0 (1.0)
Net income including noncontrolling interest 0.0 0.0
Net income attributable to partners $ 0.0 $ 0.0
[1] See Note 14 for amounts attributable to related parties.
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