Item 1.01. Entry into a Material Definitive Agreement.
On July 3, 2020, Dominion Energy, Inc. (Dominion Energy) and Dominion Energy
Questar Corporation (Dominion Questar and together with Dominion Energy, the
Sellers) entered into a Purchase and Sale Agreement (the Purchase Agreement)
with Berkshire Hathaway Energy Company (BHE) pursuant to which Dominion Energy
will sell substantially all of its Gas Transmission & Storage operating segment
assets, including Dominion Energy Gas Holdings, LLC, to BHE (the Transaction).
The transaction is valued at approximately $9.7 billion, consisting of a
purchase price of approximately $4.0 billion in cash (subject to certain
adjustments) and the assumption of approximately $5.7 billion of existing
asset-related long-term debt. Dominion Energy will retain a 50% limited
partnership interest Dominion Energy Cove Point LNG, LP (Cove Point) and its 53%
noncontrolling membership interest in Atlantic Coast Pipeline, LLC (ACP) as well
as the Construction, Operation and Maintenance Agreement dated as of
September 2, 2014 with ACP (the COMA). As a part of the Transaction, 100% of the
general partnership interest, and 25% of the total limited partnership
interests, in Cove Point will be transferred to BHE.
The completion of the Transaction is subject to certain regulatory approvals,
including clearance or approval from the U.S. Department of Energy and the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR). If HSR
approval is not obtained by 75 days following the date of the Purchase
Agreement, Sellers may, at their option, elect to terminate the Transaction with
respect to certain entities, including Dominion Energy Questar Pipeline, LLC
(the Q-Pipe Termination). In the event of a Q-Pipe Termination (as defined
below), BHE will pay Sellers a termination fee and the purchase price for the
remainder of the Transaction will become approximately $2.7 billion in cash
(subject to certain adjustments).
As a condition to closing, unless a Q-Pipe Termination has occurred, a precedent
agreement entered into by and between Dominion Energy and BHE, effective July 3,
2020, regarding future peaking, transportation, and storage arrangements for
Questar Gas Company, a subsidiary of Dominion Energy, must remain in full force
and effect and the filings with FERC contemplated by such agreement must have
been submitted.
In addition, the completion of the Transaction is subject to other customary
closing conditions, including customary conditions regarding the accuracy of the
representations and warranties and compliance by the parties in all material
respects with their respective obligations under the Purchase Agreement. The
Transaction is not subject to a financing condition. The Transaction is expected
to close in the fourth quarter of 2020, subject to satisfaction of the foregoing
conditions, among other things.
At closing, the Sellers and BHE will enter into a transition services agreement
pursuant to which the Sellers will continue to provide certain services in order
to support the ongoing operations of business for up to 24 months. BHE has also
agreed to provide certain services to the Sellers, including making certain
employees available with respect to the ongoing obligations under the COMA.
Pursuant to the Purchase Agreement, employees transferred as part of the
Transaction will have certain employment protections for generally 24 months
following the closing date.
The Purchase Agreement contains customary representations, warranties and
covenants related to the conduct of the business and the Transaction. The
Purchase Agreement also includes customary termination provisions, including if
the closing of the Transaction has not occurred on or before December 31, 2020,
which can be extended to June 30, 2021. The Sellers and Buyer each have agreed
to indemnify the other party for losses arising from certain breaches of
covenants contained in the Purchase Agreement and other liabilities, subject to
certain limitations.
The foregoing description of the Purchase Agreement and the transactions
contemplated thereby is subject to, and qualified in its entirety by, the full
text of the Purchase Agreement, a copy of which is attached hereto as Exhibit
2.1 and is incorporated herein by reference.
The representations and warranties contained in the Purchase Agreement were made
only for the purposes of the Purchase Agreement as of the specific dates therein
and were solely for the benefit of the parties to the Purchase Agreement. The
representations and warranties contained in the Purchase Agreement may be
subject to limitations agreed upon by the parties to the Purchase Agreement and
are qualified by information in confidential disclosure schedules provided in
connection with the signing of the Purchase Agreement. These confidential
disclosure schedules contain information that modifies, qualifies and creates
exceptions to the representations and warranties set forth in the Purchase
Agreement. Moreover, certain representations and warranties in the Purchase
Agreement may be subject to a standard of materiality provided for in the
Purchase Agreement and have been used for the
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purpose of allocating risk among the parties, rather than establishing matters
of fact. Investors should not rely on the representations, warranties and
covenants or any descriptions thereof as characterizations of the actual state
of facts or condition of the parties or any of their respective subsidiaries or
affiliates. Moreover, information concerning the subject matter of the
representations and warranties may change after the date of the Purchase
Agreement, which subsequent information may or may not be fully reflected in
Dominion Energy's or BHE's public disclosures.
Item 7.01 Regulation FD Disclosure.
On July 5, 2020, Dominion Energy issued a press release announcing entry into
the Purchase Agreement and related matters, including the items described below.
The press release is attached as Exhibit 99.1 hereto and is incorporated herein
by reference. On July 6, 2020, Dominion Energy held a conference call with
analysts and investors during which information was provided regarding the
Transaction and related matters, including the items described below. The
investor materials presented on the conference call are attached as Exhibit 99.2
hereto and are incorporated herein by reference.
Stock repurchase program
On July 2, 2020, the Dominion Energy Board of Directors approved a stock
repurchase program of up to $3 billion of Dominion Energy's common stock,
replacing the existing stock repurchase program. Stock repurchases may be made
periodically in open-market transactions, privately negotiated transactions or
otherwise and are subject to market conditions, applicable securities laws and
other factors. Such repurchases will be at times and in amounts that management
deems appropriate. Though this new authority has immediate effect, material
repurchases are planned for late 2020 following the closing of the Transaction.
The Board of Director's authorization does not obligate Dominion Energy to
acquire any particular amount of common stock, and may be modified, suspended or
terminated at any time.
Operating earnings guidance
To reflect the entry into the Purchase Agreement and planned full-year
discontinued operations treatment of the assets to be divested in the
Transaction, on July 5, 2020, Dominion Energy announced revised 2020 operating
earnings guidance of $3.37 to $3.63 per share, compared to previous guidance of
$4.25 to $4.60 per share. Dominion Energy expects 2021 operating earnings per
share to grow around 10 to 11 percent over 2020, reflecting the full-year impact
of planned share repurchases, and by about 6.5 percent annually starting in
2022, off a 2021 base.
Dividend guidance
On July 5, 2020, Dominion Energy announced it expects to target an approximately
65% dividend payout ratio to be effective upon completion of the Transaction.
This new payout would imply a 2021 dividend payment of about $2.50 per share.
The projected reduction in the annual dividend reflects the absence of income
from the divested assets and a revision to Dominion Energy's target payout ratio
to align with industry peers. All dividend declarations are subject to approval
by the Board of Directors.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, including 2020
operating earnings guidance and projected dividends for the remainder of 2020
and beyond which are subject to various risks and uncertainties. Factors that
could cause actual results to differ include, but are not limited to: the
expected timing and likelihood of completion of the proposed transaction with
Berkshire Hathaway Energy; the risk that Dominion Energy or Berkshire Hathaway
Energy may be unable to obtain necessary regulatory approvals for the
transaction or required regulatory approvals may delay the transaction; the risk
that conditions to the closing of the transaction may not be satisfied; the
repurchase of less than $3 billion of Dominion Energy common stock through a
share repurchase program; unusual weather conditions and their effect on energy
sales to customers and energy commodity prices; extreme weather events and other
natural disasters; extraordinary external events, such as the current pandemic
health event resulting from COVID-19; federal, state and local legislative and
regulatory developments; changes to federal, state and local environmental laws
and regulations, including proposed carbon regulations; cost of environmental
compliance; changes in enforcement practices of regulators relating to
environmental standards and litigation exposure for remedial activities; capital
market conditions, including the availability of credit and the ability to
obtain financing on reasonable terms; fluctuations in interest rates; changes in
rating agency requirements or credit ratings and their
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effect on availability and cost of capital; impacts of acquisitions,
divestitures, transfers of assets by Dominion Energy to joint ventures, and
retirements of assets based on asset portfolio reviews; receipt of approvals
for, and timing of, closing dates for acquisitions and divestitures; changes in
demand for Dominion Energy's services; additional competition in Dominion
Energy's industries; changes to regulated rates collected by Dominion Energy;
changes in operating, maintenance and construction costs; timing and receipt of
regulatory approvals necessary for planned construction or expansion projects
and compliance with conditions associated with such regulatory approvals;
adverse outcomes in litigation matters or regulatory proceedings; and the
inability to complete planned construction projects within time frames initially
anticipated. Other risk factors are detailed from time to time in Dominion
Energy's quarterly reports on Form 10-Q and most recent annual report on Form
10-K filed with the Securities and Exchange Commission.
Item 9.01 Financial Statements and Exhibits.
Exhibits
2.1 Purchase and Sale Agreement, dated as of July 3, 2020, by and
among Dominion Energy, Inc., Dominion Energy Questar Corporation
and Berkshire Hathaway Energy Company.*
99.1 Dominion Energy, Inc. press release dated July 5, 2020.**
99.2 Investor materials dated July 5, 2020.**
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
* Filed herewith. Schedules and exhibits have been omitted pursuant to Item
601(b)(2) of Regulation S-K. Dominion Energy agrees to furnish
supplementally to the SEC a copy of any omitted schedule upon request by the
SEC.
** Furnished herewith.
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