Variable Interest Entities

9 Months Ended

Sep. 30, 2019

Variable Interest Entity Disclosures [Abstract]

Variable Interest Entities [Text Block]

Note 4 – Variable Interest Entities

Consolidated VIEs

As of September 30, 2019, we consolidate the following variable interest entities (VIEs):

Gulfstar One

We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines which provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.

Constitution

We own a 41 percent interest in Constitution, a subsidiary that, due to shipper fixed-payment commitments under its long-term firm transportation contracts, is a VIE. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Constitution’s economic performance. We, as operator of Constitution, are responsible for constructing the proposed pipeline, which will extend from Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems in New York. While we previously estimated the total remaining cost of the project to be approximately $740 million, this amount is expected to increase and the revised estimate is being developed. The project costs would be funded with capital contributions from us and the other equity partners on a proportional basis.

In December 2014, Constitution received approval from the FERC to construct and operate its proposed pipeline. However, in April 2016, the New York State Department of Environmental Conservation (NYSDEC) denied the necessary water quality certification under Section 401 of the Clean Water Act for the New York portion of the pipeline. In May 2016, Constitution appealed the NYSDEC’s denial of the Section 401 certification to the United States Court of Appeals for the Second Circuit, but in August 2017 the court issued a decision upholding NYSDEC’s denial. Constitution filed a petition for rehearing with the Second Circuit Court of Appeals, but in October 2017 the court denied our petition.

In October 2017, we filed a petition for declaratory order requesting the FERC to find that, by operation of law, the Section 401 certification requirement for the New York State portion of Constitution’s pipeline project was waived due to the failure by the NYSDEC to act on Constitution’s Section 401 application within a reasonable period of time as required by the express terms of such statute. By orders issued in January 2018 and July 2018, the FERC denied our petition, finding that Section 401 provides that a state waives certification only when it does not act on an application within one year from the date of the application.

Thereafter, we petitioned the D.C. Circuit for review of the FERC’s decision. In November 2018, the D.C. Circuit granted a motion filed by the FERC to hold our appeal in abeyance pending a decision by the court in the Hoopa Valley Tribe v. FERC case. In January 2019, the D.C. Circuit issued its decision in Hoopa Valley Tribe, finding that the applicant’s withdrawal and resubmission of a Clean Water Act Section 401 water quality certification request did not trigger new statutory periods of review for the state agencies, which resulted in the state agencies waiving their Section 401 authority regarding the hydropower project in question. As a result of the Hoopa Valley Tribe decision, the FERC filed a motion for voluntary remand of our appeal, and in February 2019, the D.C. Circuit granted the motion, sending our waiver case back to the FERC to determine whether or not NYSDEC waived its authority under Section 401.

On August 28, 2019, the FERC issued an order finding that NYSDEC waived its water quality certification authority under Section 401 with respect to Constitution. The FERC interpreted the Hoopa Valley Tribe decision to stand for the general principle that where an applicant withdraws and resubmits an application for water quality certification for the purpose of avoiding Section 401’s one-year time limit, and the state agency does not act within one year of the receipt of the original application, the state agency has “failed or refused to act under Section 401” and, therefore, has waived its Section 401 authority.

The equity partners are evaluating the next steps in connection with advancing the project.

At September 30, 2019, capitalized project costs total $376 million, of which we have funded our proportionate share, and are included within Property, plant, and equipment in the Consolidated Balance Sheet. Beginning in April 2016, we discontinued capitalization of development costs related to this project. It is possible that we could incur certain supplier-related costs in the event of a continued prolonged delay or termination of the project.

Cardinal

We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

Northeast JV

As a result of the June 2019 sale of a 35 percent interest in the Northeast JV (see Note 2 – Acquisitions), we now own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

The following table presents amounts included in our Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:

	September 30, 2019			December 31, 2018
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	90		$	33
Trade accounts and other receivables – net	152			62
Other current assets and deferred charges	5			2
Property, plant, and equipment – net	6,167			2,363
Intangible assets – net of accumulated amortization	2,697			1,177
Regulatory assets, deferred charges, and other	13			—
Accounts payable	(54		)	(15		)
Accrued liabilities	(100		)	(115		)
Regulatory liabilities, deferred income, and other	(268		)	(264		)

Nonconsolidated VIEs

Jackalope

At December 31, 2018, we owned a 50 percent interest in Jackalope, which provides gathering and processing services for the Powder River basin and was a VIE due to certain risks shared with customers. In April 2019, we sold our interest in Jackalope for $485 million in cash (see Note 5 – Investing Activities).

Brazos Permian II

We own a 15 percent interest in Brazos Permian II, which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. At September 30, 2019, the carrying value of our equity-method investment in Brazos Permian II was $197 million. Our maximum exposure to loss is limited to the carrying value of our investment.