ACQUISITIONS AND DISPOSITIONS

Dominion

Acquisition of Dominion Questar

In September 2016, Dominion completed the Dominion Questar Combination and Dominion Questar became a wholly-owned subsidiary of Dominion. Dominion Questar, a Rockies-based integrated natural gas company, included Questar Gas, Wexpro and Questar Pipeline at closing. Questar Gas has regulated gas distribution operations in Utah, southwestern Wyoming and southeastern Idaho. Wexpro develops and produces natural gas from reserves supplied to Questar Gas under a cost-of-service framework. Questar Pipeline provides FERC-regulated interstate natural gas transportation and storage services in Utah, Wyoming and western Colorado. The Dominion Questar Combination provides Dominion with pipeline infrastructure that provides a principal source of gas supply to Western states. Dominion Questar’s regulated businesses also provide further balance between Dominion's electric and gas operations.

In accordance with the terms of the Dominion Questar Combination, at closing, each share of issued and outstanding Dominion Questar common stock was converted into the right to receive $25.00 per share in cash. The total consideration was $4.4 billion based on 175.5 million shares of Dominion Questar outstanding at closing.

Dominion financed the Dominion Questar Combination through the: (1) August 2016 issuance of $1.4 billion of 2016 Equity Units, (2) August 2016 issuance of $1.3 billion of senior notes, (3) September 2016 borrowing of $1.2 billion under a term loan agreement and (4) $500 million of the proceeds from the April 2016 issuance of common stock. See Notes 17 and 19 for more information.

Purchase Price Allocation

Dominion Questar’s assets acquired and liabilities assumed were measured at estimated fair value at the closing date and are included in the Dominion Energy operating segment. The majority of operations acquired are subject to the rate-setting authority of FERC, as well as the Utah Commission and/or the Wyoming Commission and therefore are accounted for pursuant to ASC 980, Regulated Operations. The fair values of Dominion Questar’s assets and liabilities subject to rate-setting and cost recovery provisions provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. As such, the fair values of these assets and liabilities equal their carrying values. Accordingly, neither the assets and liabilities acquired, nor the pro forma financial information, reflect any adjustments related to these amounts.

The fair value of Dominion Questar’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions discussed above was determined using the income approach. In addition, the fair value of Dominion Questar’s 50% interest in White River Hub, accounted for under the equity method, was determined using the market approach and income approach. The valuations are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows and future market prices.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill at the closing date. The goodwill reflects the value associated with enhancing Dominion’s regulated portfolio of businesses, including the expected increase in demand for low-carbon, natural gas-fired generation in the Western states and the expected continued growth of rate-regulated businesses located in a defined service area with a stable regulatory environment. The goodwill recognized is not deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.

The table below shows the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at closing. The allocation is subject to change during the remainder of the measurement period, which ends one year from the closing date, as additional information is obtained about the facts and circumstances that existed at the closing date. Any material adjustments to provisional amounts identified during the measurement period will be recognized and disclosed in the reporting period in which the adjustment amounts are determined. During the fourth quarter, certain modifications were made to preliminary valuation amounts for acquired property, plant and equipment, current liabilities, and deferred income taxes, resulting in a $6 million net decrease to goodwill, which relate primarily to the sale of Questar Fueling Company in December 2016 as further described in the Sale of Questar Fueling Company.



	Amount
(millions)
Total current assets	$	224
Investments⁽¹⁾	58
Property, plant and equipment(2)	4,131
Goodwill	3,105
Total deferred charges and other assets, excluding goodwill	75
Total Assets	7,593
Total current liabilities⁽³⁾	793
Long-term debt⁽⁴⁾	963
Deferred income taxes	801
Regulatory liabilities	259
Asset retirement obligations	160
Other deferred credits and other liabilities	220
Total Liabilities	3,196
Total estimated purchase price	$	4,397


(1)	Includes $40 million for an equity method investment in White River Hub. The fair value adjustment on the equity method investment in White River Hub is considered to be equity method goodwill and is not amortized.


(2)	Nonregulated property, plant and equipment, excluding land, will be depreciated over remaining useful lives primarily ranging from 9 to 18 years.


(3)	Includes $301 million of short-term debt, of which no amounts remain outstanding at December 31, 2016, as well as a $250 million term loan which matures in August 2017 and bears interest at a variable rate.


(4)	Unsecured senior and medium-term notes have maturities which range from 2017 to 2048 and bear interest at rates from 2.98% to 7.20%.

Regulatory Matters

The transaction required approval of Dominion Questar’s shareholders, clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act and approval from both the Utah Commission and the Wyoming Commission. In February 2016, the Federal Trade Commission granted antitrust approval of the Dominion Questar Combination under the Hart-Scott-Rodino Act. In May 2016, Dominion Questar's shareholders voted to approve the Dominion Questar Combination. In August 2016 and September 2016, approvals were granted by the Utah Commission and the Wyoming Commission, respectively. Information regarding the transaction was also provided to the Idaho Public Utilities Commission, who acknowledged the Dominion Questar Combination in October 2016, and directed Dominion Questar to notify the Idaho Public Utilities Commission when it makes filings with the Utah Commission.

With the approval of the Dominion Questar Combination in Utah and Wyoming, Dominion agreed to the following:


•	Contribution of $75 million to Dominion Questar’s qualified and non-qualified defined-benefit pension plans and its other post-employment benefit plans within six months of the closing date. This contribution was made in January 2017


•	Increasing Dominion Questar's historical level of corporate contributions to charities by $1 million per year for at least five years.

•

Withdrawal of Questar Gas' general rate case filed in July 2016 with the Utah Commission and agreement to not file a general rate case with the Utah Commission to adjust its base distribution non-gas rates prior to July 2019, unless otherwise ordered by the Utah Commission. In addition, Questar Gas agreed not to file a general rate case with the Wyoming Commission with a requested rate effective date earlier than January 2020. Questar Gas’ ability to adjust rates through various riders is not affected.

Results of Operations and Pro Forma Information

The impact of the Dominion Questar Combination on Dominion’s operating revenue and net income attributable to Dominion in the Consolidated Statements of Income for the twelve months ended December 31, 2016 was an increase of $379 million and $73 million, respectively.

Dominion incurred transaction and transition costs, of which $58 million was recorded in other operations and maintenance expense for the twelve months ended December 31, 2016, and $16 million was recorded in interest and related charges for the twelve months ended December 31, 2016, in Dominion’s Consolidated Statements of Income. These costs consist of the amortization of financing costs, the charitable contribution commitment described above, employee-related expenses, professional fees, and other miscellaneous costs.

The following unaudited pro forma financial information reflects the consolidated results of operations of Dominion assuming the Dominion Questar Combination had taken place on January 1, 2015. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of the combined company.



	Twelve Months Ended December 31,
	2016⁽¹⁾		2015
(millions, except EPS)
Operating Revenue	$	12,497	$	12,818
Net Income	2,300		2,108
Earnings Per Common Share – Basic	$	3.73	$	3.56
Earnings Per Common Share – Diluted	$	3.73	$	3.55


(1)	Amounts include adjustments for non-recurring costs directly related to the Dominion Questar Combination.

Contribution of Questar Pipeline to Dominion Midstream

In October 2016, Dominion entered into the Contribution Agreement under which Dominion contributed Questar Pipeline to Dominion Midstream. Upon closing of the agreement on December 1, 2016, Dominion Midstream became the owner of all of the issued and outstanding membership interests of Questar Pipeline in exchange for consideration consisting of Dominion Midstream common and convertible preferred units with a combined value of $467 million and cash payment of $823 million, $300 million of which is considered a debt-financed distribution, for a total of $1.3 billion. In addition, under the terms of the Contribution Agreement, Dominion Midstream repurchased 6,656,839 common units from Dominion, and repaid its $301 million promissory note to Dominion in December 2016. The cash proceeds from these transactions were utilized in December 2016 to repay the $1.2 billion term loan agreement borrowed in September 2016. Since Dominion consolidates Dominion Midstream for financial reporting purposes, the transactions associated with the Contribution Agreement were eliminated upon consolidation. See Note 5 for the tax impacts of the transactions.

Sale of Questar Fueling Company

In December 2016, Dominion completed the sale of Questar Fueling Company. The proceeds from the sale were $28 million, net of transaction costs. No gain or loss was recorded in Dominion’s Consolidated Statements of Income, as the sale resulted in measurement period adjustments to the net assets acquired of Dominion Questar. See the Purchase Price Allocation section above for additional details on the measurement period adjustments recorded.

Wholly-Owned Merchant Solar Projects

Acquisitions

The following table presents significant completed acquisitions of wholly-owned merchant solar projects by Dominion. Long-term power purchase, interconnection and operation and maintenance agreements have been executed for all of the projects. Dominion has claimed federal investment tax credits on the projects. These projects are included in the Dominion Generation operating segment.



Completed Acquisition Date	Seller	Number of Projects	Project Location	Project Name(s)	Initial Acquisition Cost (millions)⁽¹⁾		Project Cost (millions)⁽²⁾		Date of Commercial Operations	MW Capacity
March 2014	Recurrent Energy Development Holdings, LLC	6	California	Camelot, Kansas, Kent South, Old River One, Adams East, Columbia 2	$	50	$	428	Fourth quarter 2014	139
November 2014	CSI Project Holdco, LLC	1	California	West Antelope	79		79		November 2014	20
December 2014	EDF Renewable Development, Inc.	1	California	CID	71		71		January 2015	20
April 2015	EC&R NA Solar PV, LLC	1	California	Alamo	66		66		May 2015	20
April 2015	EDF Renewable Development, Inc.	3	California	Cottonwood⁽³⁾	106		106		May 2015	24
June 2015	EDF Renewable Development, Inc.	1	California	Catalina 2	68		68		July 2015	18
July 2015	SunPeak Solar, LLC	1	California	Imperial Valley 2	42		71		August 2015	20
November 2015	EC&R NA Solar PV, LLC	1	California	Maricopa West	65		65		December 2015	20
November 2015	Community Energy, Inc.	1	Virginia	Amazon Solar Farm U.S. East	34		212		October 2016	80


(1)	The purchase price was primarily allocated to Property, Plant and Equipment.


(2)	Includes acquisition cost.


(3)	One of the projects, Marin Carport, began commercial operations in 2016.

In addition during 2016, Dominion acquired 100% of the equity interests of seven solar projects in Virginia, North Carolina and South Carolina for an aggregate purchase price of $32 million, all of which was allocated to property, plant and equipment. The projects are expected to cost approximately $425 million in total once constructed, including initial acquisition costs, and to generate approximately 221 MW combined. One of the projects commenced commercial operations in 2016 and the remaining projects are expected to begin commercial operations in 2017.

In August 2016, Dominion entered into an agreement to acquire 100% of the equity interests of two solar projects in California from Solar Frontier Americas Holding LLC for approximately $128 million in cash. The acquisition is expected to close prior to both projects commencing operations, which is expected by the end of 2017. The projects are expected to cost approximately $130 million once constructed, including the initial acquisition cost, and to generate approximately 50 MW combined.

In September 2016, Dominion entered into an agreement to acquire 100% of the equity interests of a solar project in Virginia from Community Energy Solar, LLC. The acquisition is expected to close during the first quarter of 2017, prior to the project commencing operations by the end of 2017, for an amount to be determined based on the costs incurred through closing. The project is expected to cost approximately $210 million, including the initial acquisition cost, and to generate approximately 100 MW.

In January 2017, Dominion entered into an agreement to acquire 100% of the equity interests of a solar project in North Carolina from Cypress Creek Renewables, LLC for $154 million in cash. The acquisition is expected to close during the second quarter of 2017, prior to the project commencing commercial operations, which is expected by the end of the third quarter of 2017. The project is expected to cost $160 million once constructed, including the initial acquisition cost, and to generate approximately 79 MW.

Sale of Interest in Merchant Solar Projects

In September 2015, Dominion signed an agreement to sell a noncontrolling interest (consisting of 33% of the equity interests) in all of its then currently wholly-owned merchant solar projects, 24 solar projects totaling 425 MW, to SunEdison, including projects discussed in the table above. In December 2015, the sale of interest in 15 of the solar projects closed for $184 million with the sale of interest in the remaining projects completed in January 2016 for $117 million. Upon closing, SunEdison sold its interest in these projects to Terra Nova Renewable Partners. Terra Nova Renewable Partners has a future option to buy all or a portion of Dominion's remaining 67% ownership in the projects upon the occurrence of certain events, none of which are expected to occur in 2017.

Non-Wholly-Owned Merchant Solar Projects

Acquisitions of Four Brothers and Three Cedars

In June 2015, Dominion acquired 50% of the units in Four Brothers from SunEdison for $64 million of consideration, consisting of $2 million in cash and a $62 million payable. Dominion has no remaining obligation related to this payable as of December 31, 2016. Four Brothers operates four solar projects located in Utah, which produce and sell electricity and renewable energy credits. The facilities began commercial operations during the third quarter of 2016, generating 320 MW, at a cost of approximately $670 million.

In September 2015, Dominion acquired 50% of the units in Three Cedars from SunEdison for $43 million of consideration, consisting of $6 million in cash and a $37 million payable. As of December 31, 2016, a $2 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Three Cedars operates three solar projects located in Utah, which produce and sell electricity and renewable energy credits. The facilities began commercial operations during the third quarter of 2016, generating 210 MW, at a cost of approximately $450 million.

The Four Brothers and Three Cedars facilities operate under long-term power purchase, interconnection and operation and maintenance agreements. Dominion will claim 99% of the federal investment tax credits on the projects.

Dominion owns 50% of the voting interests in Four Brothers and Three Cedars and has a controlling financial interest over the entities through its rights to control operations. The allocation of the $64 million purchase price for Four Brothers resulted in $89 million of property, plant and equipment and $25 million of noncontrolling interest. The allocation of the $43 million purchase price for Three Cedars resulted in $65 million of property, plant and equipment and $22 million of noncontrolling interest. The noncontrolling interest for each entity was measured at fair value using the discounted cash flow method, with the primary components of the valuation being future cash flows (both incoming and outgoing) and the discount rate. Dominion determined its discount rate based on the cost of capital a utility-scale investor would expect, as well as the cost of capital an individual project developer could achieve via a combination of nonrecourse project financing and outside equity partners. The acquired assets of Four Brothers and Three Cedars are included in the Dominion Generation operating segment.

Dominion has assumed the majority of the agreements to provide administrative and support services in connection with operations and maintenance of the facilities and technical management services of the solar facilities. Costs related to services to be provided under these agreements were immaterial for the years ended December 31, 2016 and 2015. Subsequent to Dominion’s acquisition of Four Brothers and Three Cedars, SunEdison made contributions to Four Brothers and Three Cedars of $292 million in aggregate through December 31, 2016, which are reflected as noncontrolling interests in the Consolidated Balance Sheets.

In November 2016, NRG acquired the 50% of units in Four Brothers and Three Cedars previously held by SunEdison.

Dominion Midstream Acquisition of Interest in Iroquois

In September 2015, Dominion Midstream acquired from NG and NJNR a 25.93% noncontrolling partnership interest in Iroquois, which owns and operates a 416-mile, FERC-regulated natural gas transmission pipeline in New York and Connecticut. In exchange for this partnership interest, Dominion Midstream issued 8.6 million common units representing limited partnership interests in Dominion Midstream (6.8 million common units to NG for its 20.4% interest and 1.8 million common units to NJNR for its 5.53% interest). The investment was recorded at $216 million based on the value of Dominion Midstream's common units at closing. These common units are reflected as noncontrolling interest in Dominion's Consolidated Financial Statements. Dominion Midstream's noncontrolling partnership interest is reflected in the Dominion Energy operating segment. In addition to this acquisition, Dominion Gas currently holds a 24.07% noncontrolling partnership interest in Iroquois. Dominion Midstream and Dominion Gas each account for their interest in Iroquois as an equity method investment. See Notes 9 and 15 for more information regarding Iroquois.

Acquisition of DCG

In January 2015, Dominion completed the acquisition of 100% of the equity interests of DCG from SCANA Corporation for $497 million in cash, as adjusted for working capital. DCG owns and operates nearly 1,500 miles of FERC-regulated interstate natural gas pipeline in South Carolina and southeastern Georgia. This acquisition supports Dominion’s natural gas expansion into the southeastern U.S. The allocation of the purchase price resulted in $277 million of net property, plant and equipment, $250 million of goodwill, of which approximately $225 million is expected to be deductible for income tax purposes, and $38 million of regulatory liabilities. The goodwill reflects the value associated with enhancing Dominion's regulated gas position, economic value attributable to future expansion projects as well as increased opportunities for synergies. The acquired assets of DCG are included in the Dominion Energy operating segment.

On March 24, 2015, DCG converted to a limited liability company under the laws of South Carolina and changed its name from Carolina Gas Transmission Corporation to DCG. On April 1, 2015, Dominion contributed 100% of the issued and outstanding membership interests of DCG to Dominion Midstream in exchange for total consideration of $501 million, as adjusted for working capital. Total consideration to Dominion consisted of the issuance of a two-year, $301 million senior unsecured promissory note payable by Dominion Midstream at an annual interest rate of 0.6%, and 5,112,139 common units, valued at $200 million, representing limited partner interests in Dominion Midstream. The number of units was based on the volume weighted average trading price of Dominion Midstream's common units for the ten trading days prior to April 1, 2015, or $39.12 per unit. Since Dominion consolidates Dominion Midstream for financial reporting purposes, this transaction was eliminated upon consolidation and did not impact Dominion's financial position or cash flows.

Sale of Electric Retail Energy Marketing Business

In March 2014, Dominion completed the sale of its electric retail energy marketing business. The proceeds were $187 million, net of transaction costs. The sale resulted in a gain, subject to post-closing adjustments, of $100 million ($57 million after-tax) net of a $31 million write-off of goodwill, and is included in other operations and maintenance expense in Dominion's Consolidated Statements of Income. The sale of the electric retail energy marketing business did not qualify for discontinued operations classification.

Virginia Power

Acquisition of Solar Project

In December 2015, Virginia Power completed the acquisition of 100% of a solar development project in North Carolina from Morgans Corner for $47 million, all of which was allocated to property, plant and equipment. The project was placed into service in December 2015 with a total cost of $49 million, including the initial acquisition cost. The project generates 20 MW. The output generated by the project is used to meet a ten year non-jurisdictional supply agreement with the U.S. Navy, which has the unilateral option to extend for an additional ten years. In October 2015, the North Carolina Commission granted the transfer of the existing CPCN from Morgans Corner to Virginia Power. The acquired asset is included in the Virginia Power Generation operating segment.

Dominion and Dominion Gas

Blue Racer

See Note 9 for a discussion of transactions related to Blue Racer.

Assignments of Shale Development Rights

See Note 10 for a discussion of assignments of shale development rights.