Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Page Number
Dominion Energy, Inc.
Report of Independent Registered Public Accounting Firm71
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 201774
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 201775
Consolidated Balance Sheets at December 31, 2019 and 201876
Consolidated Statements of Equity at December 31, 2019, 2018 and 2017 and for the years then ended78
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 201779
Virginia Electric and Power Company
Report of Independent Registered Public Accounting Firm81
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 201782
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 201783
Consolidated Balance Sheets at December 31, 2019 and 201884
Consolidated Statements of Common Shareholder’s Equity at December 31, 2019, 2018 and 2017 and for the years then ended86
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 201787
Dominion Energy Gas Holdings, LLC
Report of Independent Registered Public Accounting Firm89
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 201790
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 201791
Consolidated Balance Sheets at December 31, 2019 and 201892
Consolidated Statements of Equity at December 31, 2019, 2018 and 2017 and for the years then ended94
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 201795
Combined Notes to Consolidated Financial Statements97
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Report of Independent Registered

Public Accounting Firm

To the Shareholders and the Board of Directors of

Dominion Energy, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Dominion Energy, Inc. and subsidiaries (“Dominion Energy”) at December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Dominion Energy at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Dominion Energy’s internal control over financial reporting at December 31, 2019, based on criteria established in

Internal Control—Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2020, expressed an unqualified opinion on Dominion Energy’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of Dominion Energy’s management. Our responsibility is to express an opinion on Dominion Energy’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Dominion Energy in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit

committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Investments—Equity Method Investment Impairment Evaluation—Refer to Note 9 to the Consolidated Financial Statements

Critical Audit Matter Description

The investment balance of Dominion Energy’s equity method investment in Atlantic Coast Pipeline, LLC (“Atlantic Coast Pipeline”) was $1.1 billion at December 31, 2019. The Atlantic Coast Pipeline project is the subject of challenges in federal courts, including, among others, challenges of the Atlantic Coast Pipeline project’s biological opinion and incidental take statement, permits providing right of way crossings of certain federal lands, the U.S. Army Corps of Engineers 404 permit, the air permit for a compressor station at Buckingham, Virginia, and the Federal Energy Regulatory Commission (“FERC”) order approving the Certificate of Public Convenience and Necessity. The delays in obtaining and maintaining permits necessary for construction along with construction delays due to judicial actions have impacted the cost and schedule for the Atlantic Coast Pipeline project; project construction is expected to be completed by the end of 2021, with full

in-service

in early 2022 with project costs estimated to be approximately $8 billion, excluding financing costs. Atlantic Coast Pipeline has reached agreements in principle with major customers to amend the contracted rate to share in certain delay cost increases, pending certain regulatory approvals.

Dominion Energy evaluated the carrying amount of its equity method investment in Atlantic Coast Pipeline for an other-than-temporary impairment and determined that it was not impaired. The estimation of the fair value of Dominion Energy’s investment in Atlantic Coast Pipeline, contained in the other-than-temporary impairment evaluation, involved significant judgments related to the resolution of outstanding permitting issues within the project timeframe and the likelihood of obtaining amended contacts with the customers.

Auditing management’s judgments regarding the resolution of outstanding permitting issues within the project timeframe and the likelihood of obtaining amended contacts with the customers involved especially subjective and complex judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to this critical audit matter included the following, among others:

•We tested the effectiveness of controls over management’s impairment analysis, including determination of the judgments regarding the resolution of the outstanding permitting issues within the project timeframe and the likelihood of obtaining amended contacts with the customers.
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•We evaluated the reasonableness of management’s permitting, project timeframe, and customer contract assumptions by:
•Assessing the reasonableness of management’s plans to resolve outstanding permitting issues and the corresponding impact on project timeframes by inquiring with legal counsel and executive management and considering other potential outcomes.
•Assessing the reasonableness of the various projected in-service dates by inquiring with Atlantic Cost Pipeline’s project managers and engineers and comparing the in-service dates to the project’s timeframe.
•Obtaining and reading correspondence between Atlantic Coast Pipeline and the third-party pipeline construction contractor regarding the feasibility of the various projected in-service dates assumed by management.
•Obtaining and reading correspondence, including draft terms, between Atlantic Coast Pipeline and major customers.
•Searching for disconfirming evidence by listening to earnings calls, reading press releases, news articles and other publicly available information.
•We read and analyzed the minutes of the Board of Managers of Atlantic Coast Pipeline for discussions of changes in legal, regulatory, or business factors which could impact management’s assumptions of the resolution of the outstanding permitting issues within the project timeframe and the likelihood of obtaining amended contacts with the customers.

Preferred Stock—2019 Corporate Units—Refer to Notes 8 & 19 to the Consolidated Financial Statements

Critical Audit Matter Description

In June 2019, Dominion Energy issued $1.6 billion of 2019 Equity Units, initially in the form of 2019 Series A Corporate Units (the “2019 Equity Units”). Each 2019 Series A Corporate Unit consists of a stock purchase contract and a 1/10, or 10% undivided beneficial ownership interest in one share of Series A Preferred Stock. Beginning in June 2022, the Series A Preferred Stock is convertible at the option of the holder into Dominion Energy common stock under a formula based upon the average closing price of Dominion Energy common stock prior to the conversion date. The Series A Preferred Stock is redeemable in cash by Dominion Energy beginning September 2022 at the liquidation preference. Settlement of any conversion is payable in cash, common stock, or a combination thereof, at Dominion Energy’s election.

The stock purchase contracts obligate the holders to purchase shares of Dominion Energy common stock in June 2022. The purchase price to be paid under the stock purchase contracts is $100 per Corporate Unit and the number of shares to be purchased will be determined under a formula based on the average closing price of Dominion Energy common stock near the settlement date. The Series A Preferred Stock was pledged upon issuance as collateral to secure the purchase of common stock under the related stock purchase contracts. Dominion Energy identified no items that should be recorded as derivative instruments and

recorded the present value of the stock purchase contract payments as a liability offset to common stock and has recorded the Series A Preferred Stock within equity.

Given the complexity of the 2019 Equity Units structure and the judgments involved in applying the relevant accounting standards, auditing management’s conclusions on the balance sheet classification of the 2019 Equity Units involved the need for specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to this critical audit matter included the following, among others:

•We tested the effectiveness of controls over management’s technical accounting assessment of the balance sheet classification of the components of the 2019 Equity Units.
•We read the applicable agreements and compared the key terms from the agreements to management’s analysis of the transaction.
•With the assistance of professionals in our firm having expertise in accounting for debt and equity instruments, we evaluated management’s conclusions regarding the balance sheet classification of the components of the 2019 Equity Units through evaluation of the terms within the applicable agreements and considering the applicable generally accepted accounting standards.
•We evaluated Dominion Energy’s disclosures related to the financial statement impacts of the transaction.

Regulatory Assets and Liabilities—Impact of Rate Regulation on the Consolidated Financial Statements—Refer to Notes 2, 12 and 13 to the Consolidated Financial Statements

Critical Audit Matter Description

Dominion Energy, through its regulated electric and gas subsidiaries, is subject to rate regulation by certain state public utility commissions and FERC (collectively, the “relevant commissions”) which have jurisdiction with respect to the rates of electric utility and natural gas distribution and transmission companies. Management has determined its rate-regulated subsidiaries meet the requirements under accounting principles generally accepted in the United States of America to apply the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant and equipment, net; regulatory assets; regulatory liabilities; operating revenues; other operations and maintenance expense; and depreciation, depletion and amortization expense, collectively, the “financial statement impacts of rate regulation.”

Revenue provided by Dominion Energy’s electric transmission, distribution and generation operations and its gas transmission and distribution operations is based primarily on rates approved by the relevant commissions. Further, Virginia Electric and Power Company’s (“Virginia Power”) retail base rates, terms and conditions for generation and distribution services to customers in Virginia are reviewed by the Virginia Commission in a proceeding that involves the determination of Virginia Power’s actual earned return on equity (“ROE”) during a historic test period, and the determination of Virginia Power’s authorized

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ROE prospectively. Under certain circumstances, Virginia Power may be required to refund a portion of its earnings to customers.

When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, these costs that otherwise would be expensed by nonregulated companies are deferred as regulatory assets. Likewise, regulatory liabilities are recognized when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have yet to be incurred. Dominion Energy evaluates whether recovery of its regulatory assets through future rates is probable as well as whether a regulatory liability due to customers is probable and makes various assumptions in its analyses. These analyses are generally based on orders issued by regulatory commissions, legislation and judicial actions; past experience; discussions with applicable regulatory authorities and legal counsel; forecasted earnings; and considerations around the likelihood of impacts from events such as unusual weather conditions, extreme weather events, and other natural disasters, and unplanned outages of facilities.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about the financial statement impacts of rate regulation. Management judgments include assessing the likelihood of (1) recovery of its regulatory assets through future rates and (2) whether a regulatory liability is due to customers. Given management’s accounting judgments are based on assumptions about the outcome of future decisions by the relevant commissions, auditing these judgments required specialized knowledge of the accounting for rate regulation and the rate setting process due to its inherent complexities.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the assessment of whether recovery of regulatory assets through future rates or a regulatory liability due to customers is probable included the following, among others:

•We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) recovery of regulatory assets through future rates, and (2) whether a regulatory liability is due to customers. We also tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may impact the assessment of whether recovery of regulatory assets through future rates or a regulatory liability due to customers is probable.
•We evaluated Dominion Energy’s disclosures related to the consolidated financial statement impacts of rate regulation.
•We read and evaluated orders issued by the relevant commissions, as well as relevant regulatory statutes, interpretations, procedural memorandums, filings made by interveners, existing laws and other publicly available information to assess whether this external information was properly considered by management in concluding upon the financial statement impacts of rate regulation.
•We considered the likelihood of (1) recovery of regulatory assets through future rates and (2) whether a regulatory liability is due to customers based on precedence established by the relevant commissions’ previous orders and Dominion Energy’s past experience with the relevant commissions.
•For regulatory matters in process, we inspected associated documents and testimony filed with the relevant commissions for any evidence that might contradict management’s assertions.
•We read and analyzed the minutes of the Boards of Directors of Dominion Energy and Dominion Energy’s rate-regulated subsidiaries for discussions of changes in legal, regulatory, or business factors which could impact management’s conclusions with respect to the financial statement impacts of rate regulation.

/s/ Deloitte & Touche LLP

Richmond, Virginia

February 28, 2020

We have served as Dominion Energy’s auditor since 1988.

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Dominion Energy, Inc.

Consolidated Statements of Income

Year Ended December 31,201920182017
(millions, except per share amounts)
Operating Revenue (1)$16,572$13,366$12,586
Operating Expenses
Electric fuel and other energy-related purchases2,9382,8142,301
Purchased electric capacity881226
Purchased gas1,536645701
Other operations and maintenance4,4283,4583,200
Depreciation, depletion and amortization2,6552,0001,905
Other taxes1,040703668
Impairment of assets and related charges1,53540315
Gains on sales of assets(162)(380)(147)
Total operating expenses14,0589,7658,649
Income from operations2,5143,6013,937
Other income (1)9861,021358
Interest and related charges1,7731,4931,205
Income from operations including noncontrolling interests before income tax expense (benefit)1,7273,1293,090
Income tax expense (benefit)351580(30)
Net Income Including Noncontrolling Interests1,3762,5493,120
Noncontrolling Interests18102121
Net Income Attributable to Dominion Energy$1,358$2,447$2,999
Earnings Per Common Share
Net income attributable to Dominion Energy—Basic$1.66$3.74$4.72
Net income attributable to Dominion Energy—Diluted$1.62$3.74$4.72
(1)See Note 9 for amounts attributable to related parties.

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

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Dominion Energy, Inc.

Consolidated Statements of Comprehensive Income

Year Ended December 31,201920182017
(millions)
Net Income Including Noncontrolling Interests$1,376$2,549$3,120
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities, net of $35, $(10) and $(3) tax(110)308
Changes in unrealized net gains (losses) on investment securities, net of $(14), $5 and $(121) tax39(18)215
Changes in net unrecognized pension and other postretirement benefit costs, net of $(4), $75 and $32 tax(22)(215)(69)
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities, net of $21, $(35) and $18 tax(62)102(29)
Net realized (gains) losses on investment securities, net of $1, $(2) and $21 tax(4)5(37)
Net pension and other postretirement benefit costs, net of $(23), $(21) and $(32) tax667850
Changes in other comprehensive gains (losses) from equity method investees, net of $—, $(1) and $(2) tax—13
Total other comprehensive income (loss)(93)(17)141
Comprehensive income including noncontrolling interests1,2832,5323,261
Comprehensive income attributable to noncontrolling interests18103122
Comprehensive income attributable to Dominion Energy$1,265$2,429$3,139

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

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Dominion Energy, Inc.

Consolidated Balance Sheets

At December 31,20192018
(millions)
Assets
Current Assets
Cash and cash equivalents$166$268
Customer receivables (less allowance for doubtful accounts of $20 and $14)2,2781,749
Other receivables (less allowance for doubtful accounts of $3 and $4 (1 )367331
Inventories:
Materials and supplies1,1931,039
Fossil fuel412287
Gas stored13792
Prepayments328265
Regulatory assets879496
Other328634
Total current assets6,0885,161
Investments
Nuclear decommissioning trust funds6,1924,938
Investment in equity method affiliates1,6461,278
Other379344
Total investments8,2176,560
Property, Plant and Equipment
Property, plant and equipment97,46676,578
Accumulated depreciation, depletion and amortization(28,384)(22,018)
Total property, plant and equipment, net69,08254,560
Deferred Charges and Other Assets
Goodwill8,9466,410
Pension and other postretirement benefit assets1,7081,279
Intangible assets, net791670
Regulatory assets7,6872,676
Other1,304598
Total deferred charges and other assets20,43611,633
Total assets$103,823$77,914
(1)See Note 9 for amounts attributable to related parties.
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At December 31,20192018
(millions)
Liabilities and Equity
Current Liabilities
Securities due within one year$3,162$3,624
Credit facility borrowings—73
Short-term debt911334
Accounts payable1,115914
Accrued interest, payroll and taxes1,323836
Regulatory liabilities497356
Reserves for SCANA legal proceedings696—
Other (1)2,2351,510
Total current liabilitie s9,9397,647
Long-Term Debt
Long-term debt30,31326,293
Junior subordinated notes3,4063,430
Remarketable subordinated notes—1,386
Finance leases10535
Total long-term debt33,82431,144
Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits6,2775,116
Regulatory liabilities11,0016,840
Asset retirement obligations4,8662,250
Pension and other postretirement benefit liability2,3662,328
Other (1)1,517541
Total deferred credits and other liabilities26,02717,075
Total liabilities69,79055,866
Commitments and Contingencies (see Note 23)
Equity
Preferred stock (See Note 19)2,387—
Common stock – no par ( 2 )23,82412,588
Retained earnings7,5769,219
Accumulated other comprehensive loss(1,793)(1,700)
Total shareholders’ equity31,99420,107
Noncontrolling interests2,0391,941
Total equity34,03322,048
Total liabilities and equity$103,823$77,914
(1)See Note 9 for amounts attributable to related parties.
(2)1.8 billion shares authorized; 838 million shares and 681 million shares outstanding at December 31, 2019 and 2018, respectively.

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

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Dominion Energy, Inc.

Consolidated Statements of Equity

Preferred StockCommon StockDominion Energy Shareholders
SharesAmountSharesAmountRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Shareholders’ EquityNoncontrolling InterestsTotal Equity
(millions except per share amounts)
December 31, 2016628$8,550$6,854$ (799)$14,605$ 2,235$16,840
Net income including noncontrolling interests2,9992,9991213,120
Contributions from NRG to Four Brothers and Three Cedars—99
Issuance of common stock171,3021,3021,302
Sale of Dominion Energy Midstream common units—net of offering costs—1818
Stock awards (net of change in unearned compensation)222222
Dividends ($3.035 per common share) and distributions(1,931)(1,931)(156)(2,087)
Other comprehensive income, net of tax1401401141
Other(9)1455
December 31, 2017645$9,865$7,936$ (659)$17,142$ 2,228$19,370
Cumulative-effect of changes in accounting principles(127)1,029(1,023)(121)1276
Net income including noncontrolling interests2,4472,4471022,549
Issuance of common stock362,4612,4612,461
Sale of Dominion Energy Midstream common units—net of offering costs—44
Remeasurement of noncontrolling interest in Dominion Energy Midstream375375(375)—
Stock awards (net of change in unearned compensation)222222
Dividends ($3.34 per common share) and distributions(2,185)(2,185)(146)(2,331)
Other comprehensive income (loss), net of tax(18)(18)1(17)
Other(8)(8)(16)(16)
December 31, 2018681$12,588$9,219$(1,700)$20,107$ 1,941$22,048
Net income including noncontrolling interests1,3581,358181,376
Issuance of Stock22,387393,0145,4015,401
Stock purchase contract component of 2019 Equity Units(264)(264)(264)
Acquisition of SCANA966,8186,8186,818
Acquisition of public interest in Dominion Energy Midstream221,1811,181(1,221)(40)
Sale of interest in Cove Point4764761,3861,862
Stock awards (net of change in unearned compensation)242424
Preferred stock dividends (See Note 19)(17)(17)(17)
Common dividends ($3.67 per common share) and distributions(2,983)(2,983)(85)(3,068)
Other comprehensive loss, net of tax(93)(93)(93)
Other(13)(1)(14)(14)
December 31, 20192$2,387838$23,824$7,576$(1,793)$31,994$ 2,039$34,033

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

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Dominion Energy, Inc.

Consolidated Statements of Cash Flows

Year Ended December 31,201920182017
(millions)
Operating Activities
Net income including noncontrolling interests$1,376$2,549$3,120
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation, depletion and amortization (including nuclear fuel)2,9772,2802,202
Deferred income taxes and investment tax credits216517(3)
Proceeds from assignment of tower rental portfolio——91
Contribution to pension plan(21)—(75)
Provision for refunds and rate credits to electric utility customers80077—
Impairment of assets and other charges1,33339515
Charge related to a voluntary retirement program320——
Gains on sales of assets and equity method investments(167)(1,006)(148)
Net (gains) losses on nuclear decommissioning trusts funds and other investments(626)102(117)
Charges associated with equity method investments——158
Charge (revision) for future ash pond and landfill closure costs(113)81—
Other adjustments(5)1933
Changes in:
Accounts receivable(71)(110)(103)
Inventories(90)(29)15
Deferred fuel and purchased gas costs, net195(247)(71)
Prepayments(225)(51)(62)
Accounts payable(225)67(89)
Accrued interest, payroll and taxes(78)(12)64
Customer deposits(101)5415
Margin deposit assets and liabilities60—(10)
Net realized and unrealized changes related to derivative activities4318144
Asset retirement obligations41(35)(94)
Pension and other postretirement benefits(148)(114)(177)
Other operating assets and liabilities(287)55(306)
Net cash provided by operating activities5,2044,7734,502
Investing Activities
Plant construction and other property additions (including nuclear fuel)(4,980)(4,254)(5,504)
Cash and restricted cash acquired in the SCANA Combination389——
Acquisition of solar development projects(341)(151)(405)
Proceeds from sales of securities1,7121,8041,831
Purchases of securities(1,749)(1,894)(1,940)
Proceeds from sales of assets and equity method investments4472,542138
Contributions to equity method affiliates(209)(428)(370)
Distributions from equity method affiliates936275
Other100(13)33
Net cash used in investing activities(4,622)(2,358)(5,942)
Financing Activities
Issuance (repayment) of short-term debt, net404(2,964)143
Issuance of short-term notes3,0001,450—
Repayment and repurchase of short-term notes(3,000)(1,450)(250)
Credit facility borrowings—73—
Repayment of credit facility borrowings(113)——
Issuance and remarketing of long-term debt4,3746,3623,880
Repayment and repurchase of long-term debt (including redemption premiums)(9,116)(5,682)(1,572)
Proceeds from sale of interest in Cove Point2,078——
Net proceeds from issuance of Dominion Energy Midstream common units—418
Issuance of 2019 Equity Units1,582——
Issuance of Series B Preferred Stock791——
Issuance of common stock2,5152,4611,302
Common dividend payments(2,983)(2,185)(1,931)
Other(236)(278)(287)
Net cash provided by (used in) financing activities(704)(2,209)1,303
Increase (decrease) in cash, restricted cash and equivalents(122)206(137)
Cash, restricted cash and equivalents at beginning of period391185322
Cash, restricted cash and equivalents at end of period$269$391$185
Supplemental Cash Flow Information
Cash paid during the year for:
Interest and related charges, excluding capitalized amounts$1,643$1,3621,083
Income taxes106899
Significant noncash investing and financing activities: (1)(2)(3)(4)(5)
Accrued capital expenditures555307343
Leases (6)157——
Receivables from sales of assets and equity method investments5159—
Guarantee provided by equity method affiliate——30
(1)See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.
(2)See Note 3 for noncash investing and financing activities related to the SCANA Combination.
(3)See Note 5 for noncash activities related to the sale of a noncontrolling interest in Cove Point.
(4)See Note 9 for noncash investing activities related to the acquisition of a noncontrolling interest in Wrangler.
(5)See Notes 18,19 and 20 for noncash financing activities related to the acquisition of the public interest in Dominion Energy Midstream, the remarketing of RSNs, the issuance of stock purchase contracts associated with the 2019 Equity Units and the contribution of stock to Dominion Energy’s qualified defined benefit pension plan.
( 6 )Includes $113 million of finance leases and $44 million of operating leases.

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

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

Virginia Electric and Power Company

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Virginia Electric and Power Company (a wholly-owned subsidiary of Dominion Energy, Inc.) and subsidiaries (“Virginia Power”) at December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, common shareholder’s equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Virginia Power at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of Virginia Power’s management. Our responsibility is to express an opinion on Virginia Power’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Virginia Power in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Virginia Power is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of Virginia Power’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Richmond, Virginia

February 28, 2020

We have served as Virginia Power’s auditor since 1988.

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Virginia Electric and Power Company

Consolidated Statements of Income

Year Ended December 31,201920182017
(millions)
Operating Revenue (1)$8,108$7,619$7,556
Operating Expenses
Electric fuel and other energy-related purchases (1)2,1782,3181,909
Purchased electric capacity401226
Other operations and maintenance:
Affiliated suppliers367305309
Other1,3761,3711,169
Depreciation and amortization1,2231,1321,141
Other taxes328300290
Impairment of assets and other charges757——
Total operating expenses6,2695,5484,824
Income from operations1,8392,0712,732
Other income982276
Interest and related charges (1)524511494
Income from operations before income tax expense1,4131,5822,314
Income tax expense264300774
Net Income$1,149$1,282$1,540
(1)See Note 25 for amounts attributable to affiliates.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

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Virginia Electric and Power Company

Consolidated Statements of Comprehensive Income

Year Ended December 31,201920182017
(millions)
Net Income$1,149$1,282$1,540
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities, net of $8, $(1) and $3 tax(22)1(5)
Changes in unrealized net gains (losses) on nuclear decommissioning trust funds, net of $(2), $— and $(16) tax5—24
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities, net of $—, $— and $— tax111
Net realized (gains) losses on nuclear decommissioning trust funds, net of $1, $— and $3 tax(1)—(4)
Other comprehensive income (loss)(17)216
Comprehensive income$1,132$1,284$1,556

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

83

Virginia Electric and Power Company

Consolidated Balance Sheets

At December 31,20192018
(millions)
Assets
Current Assets
Cash and cash equivalents$17$29
Customer receivables (less allowance for doubtful accounts of $9 at both dates)1,163999
Other receivables (less allowance for doubtful accounts of $2 and $3)10676
Affiliated receivables27101
Inventories (average cost method):
Materials and supplies549550
Fossil fuel324287
Prepayments2728
Regulatory assets433424
Other (1)3077
Total current assets2,6762,571
Investments
Nuclear decommissioning trust funds2,8812,369
Other33
Total investments2,8842,372
Property, Plant and Equipment
Property, plant and equipment47,03844,524
Accumulated depreciation and amortization(14,156)(14,003)
Total property, plant and equipment, net32,88230,521
Deferred Charges and Other Assets
Pension and other postretirement benefit assets (1)287254
Intangible assets, net271250
Regulatory assets1,863737
Other (1)565175
Total deferred charges and other assets2,9861,416
Total assets$41,428$36,880
(1)See Note 25 for amounts attributable to affiliates.
84
At December 31,20192018
(millions)
Liabilities And Common Shareholder’s Equity
Current Liabilities
Securities due within one year$4$350
Short-term debt243314
Accounts payable334339
Payables to affiliates210209
Affiliated current borrowings107224
Accrued interest, payroll and t axes253248
Asset retirement obligations340245
Regulatory liabilities167299
Derivative liabilities (1)24325
Customer deposits121121
Other current liabilities450441
Total current liabilities2,4722,815
Long-Term Debt
Long-term debt12,32511,320
Finance leases161
Total long-term debt12,34111,321
Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits2,9623,017
Asset retirement obligations3,2411,200
Regulatory liabilities5,0744,647
Pension and other postretirement benefit liability (1)782632
Other (1)567201
Total deferred credits and other liabilities12,6269,697
Total liabilities27,43923,833
Commitments and Contingencies (see Note 23)
Common Shareholder’s Equity
Common stock – no par (2)5,7385,738
Other paid-in capital1,1131,113
Retained earnings7,1676,208
Accumulated other comprehensive loss(29)(12)
Total common shareholder’s equity13,98913,047
Total liabilities and shareholder’s equity$41,428$36,880
(1)See Note 25 for amounts attributable to affiliates.
(2)500,000 shares authorized; 274,723 shares outstanding at December 31, 2019 and 2018.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

85

Virginia Electric and Power Company

Consolidated Statements of Common Shareholder’s Equity

Common StockOther Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
SharesAmount
(millions, except for shares)(thousands)
December 31, 2016275$5,738$1,113$4,968$ 46$11,865
Net income1,5401,540
Dividends(1,199)(1,199)
Other comprehensive income, net of tax1616
Other22
December 31, 20172755,7381,1135,3116212,224
Cumulative-effect of changes in accounting principles79(76)3
Net income1,2821,282
Dividends(464)(464)
Other comprehensive income, net of tax22
December 31, 20182755,7381,1136,208(12)13,047
Net income1,1491,149
Dividends(190)(190)
Other comprehensive loss, net of tax(17)(17)
December 31, 2019275$5,738$1,113$7,167$(29)$13,989

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

86

Virginia Electric and Power Company

Consolidated Statements of Cash Flows

Year Ended December 31,201920182017
(millions)
Operating Activities
Net income$1,149$1,282$1,540
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including nuclear fuel)1,3921,3091,333
Deferred income taxes and investment tax credits(80)224269
Proceeds from assignment of rental portfolio——91
Charge (revision) for future ash pond and landfill closure costs(113)81—
Impairment of assets and other charges624——
Provision for rate credits to customers—77—
Charge related to a voluntary retirement program116——
Other adjustments(86)(21)(36)
Changes in:
Accounts receivable(196)(60)(27)
Affiliated receivables and payables75(14)125
Inventories(56)133
Prepayments1(1)3
Deferred fuel expenses, net243(269)(59)
Accounts payable(31)(26)(42)
Accrued interest, payroll and taxes5(8)17
Net realized and unrealized changes related to derivative activities2111913
Asset retirement obligations51(54)(88)
Other operating assets and liabilities(331)188(181)
Net cash provided by operating activities2,7842,8402,961
Investing Activities
Plant construction and other property additions(2,642)(2,228)(2,496)
Purchases of nuclear fuel(157)(173)(192)
Acquisition of solar development projects(182)(141)(41)
Proceeds from sales of securities858887849
Purchases of securities(905)(925)(884)
Other(37)(63)(41)
Net cash used in investing activities(3,065)(2,643)(2,805)
Financing Activities
Issuance (repayment) of short-term debt, net(71)(228)477
Issuance (repayment) of affiliated current borrowings, net(117)191(229)
Issuance and remarketing of long-term debt1,2481,3001,500
Repayment and repurchase of long-term debt(591)(964)(681)
Common dividend payments to parent(190)(464)(1,199)
Other(12)(18)(11)
Net cash provided by (used in) financing activities267(183)(143)
Increase (decrease) in cash, restricted cash and equivalents(14)1413
Cash, restricted cash and equivalents at beginning of year382411
Cash, restricted cash and equivalents at end of year$24$38$24
Supplemental Cash Flow Information
Cash paid during the year for:
Interest and related charges, excluding capitalized amounts$495$498$458
Income taxes272128362
Significant noncash investing and financing activities: (1)
Accrued capital expenditures292204169
Leases (2)55——
(1)See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.
(2)Includes $20 million of finance leases and $35 million of operating leases.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

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88

Report of Independent Registered Public Accounting Firm

To the Board of Directors of

Dominion Energy Gas Holdings, LLC

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Dominion Energy Gas Holdings, LLC (a wholly-owned subsidiary of Dominion Energy, Inc.) and subsidiaries (“Dominion Energy Gas”) at December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Dominion Energy Gas at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of Dominion Energy Gas’ management. Our responsibility is to express an opinion on Dominion Energy Gas’ consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Dominion Energy Gas in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Dominion Energy Gas is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of Dominion Energy Gas’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Richmond, Virginia

February 28, 2020

We have served as Dominion Energy Gas’ auditor since 2012.

89

Dominion Energy Gas Holdings, LLC

Consolidated Statements of Income

Year Ended December 31,201920182017
(millions)
Operating Revenue (1)$2,169$1,996$1,523
Operating Expenses
Purchased (excess) gas (1)7(10)109
Other energy-related purchases244
Other operations and maintenance:
Affiliated suppliers168132123
Other (1)556584449
Depreciation and amortization367333242
Other taxes15412099
Impairment of assets and related charges1316315
Gains on sales of assets(2)(117)(70)
Total operating expenses1,2651,209971
Income from continuing operations904787552
Earnings from equity method investees435447
Other income1668962
Interest and related charges (1)31117460
Income from continuing operations before income tax expense802756601
Income tax expense (benefit)101124(65)
Net Income from Continuing Operations701632666
Net Income from discontinued operations (2)14124163
Net Income including noncontrolling interests842656829
Noncontrolling interests121175126
Net Income Attributable to Dominion Energy Gas$721$481$703
(1)See Note 25 for amounts attributable to related parties.
(2)Includes income tax expense of $33 million, less than $1 million and $91 million in 2019, 2018 and 2017, respectively.

The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.

90

Dominion Energy Gas Holdings, LLC

Consolidated Statements of Comprehensive Income

Year Ended December 31,201920182017
(millions)
Net Income including noncontrolling interests$842$656$829
Other comprehensive income (loss), net of taxes:
Net deferred gains (losses) on derivatives-hedging activities, net of $22, $5 and $(3) tax(61)(16)6
Changes in net unrecognized pension benefit (costs) , net of $(13), $20 and $(8) tax33(52)20
Amounts reclassified to net income:
Net derivative (gains) losses-hedging activities, net of $(2), $(7) and $2 tax519(4)
Net pension and other postretirement benefit costs, net of $(2), $(2) and $(2) tax544
Total other comprehensive income (loss)(18)(45)26
Comprehensive income including noncontrolling interests824611855
Comprehensive income attributable to noncontrolling interests120175127
Comprehensive income attributable to Dominion Energy Gas$704$436$728

The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.

91

Dominion Energy Gas Holdings, LLC

Consolidated Balance Sheets

At December 31,20192018
(millions)
Assets
Current Assets
Cash and cash equivalents$27$99
Customer receivables (less allowance for doubtful accounts of $2 and less than $1) (1)173187
Other receivables (1)2618
Affiliated receivables362319
Affiliated notes receivable—819
Inventories:
Materials and supplies12095
Gas stored22
Prepayments7377
Gas imbalances (1)52187
Current assets of discontinued operations—444
Other23101
Total current assets8582,348
Investments
Affiliated notes receivables3,4374,317
Investment in equity method affiliates312339
Total investments3,7494,656
Property, Plant and Equipment
Property, plant and equipment15,16614,700
Accumulated depreciation and amortization(3,538)(3,219)
Total property, plant and equipment, net11,62811,481
Deferred Charges and Other Assets
Goodwill1,4711,471
Intangible assets, net106115
Pension and other postretirement benefit assets (1)840705
Regulatory assets4052
Other (1)9274
Total deferred charges and other assets2,5492,417
Noncurrent Assets of Discontinued Operations—5,849
Total assets$18,784$26,751
(1)See Note 25 for amounts attributable to related parties.
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At December 31,20192018
(millions)
Liabilities and Equity
Current Liabilities
Securities due within one year$700$748
Credit facility borrowings—73
Short-term debt6210
Accounts payable5976
Payables to affiliates82124
Affiliated current borrowings2603,097
Accrued interest, payroll and taxe s128116
Current liabilities of discontinued operations—1,273
Other (1)161238
Total current liabilities1,4525,755
Long-Term Debt
Long-term debt4,8217,022
Finance leases5—
Total Long-Term Debt4,8267,022
Deferred Credits and Other Liabilities
Deferred income taxes and investment tax credits1,2881,330
Regulatory liabilities800765
Other189118
Total deferred credits and other liabilities2,2772,213
Noncurrent Liabilities of Discontinued Operations—2,896
Total liabilities8,55517,886
Commitments and Contingencies (see Note 23)
Equity
Predecessor equity—1,804
Membership interests9,0314,566
Accumulated other comprehensive loss(187)(169)
Total members’ equity8,8446,201
Noncontrolling interests1,3852,664
Total equity10,2298,865
Total liabilities and equity$18,784$26,751
(1)See Note 25 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.

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Dominion Energy Gas Holdings, LLC

Consolidated Statements of Equity

Predecessor EquityMembership InterestsAccumulated Other Comprehensive Income (Loss)Total Members’ EquityNoncontrolling InterestsTotal
(millions)
December 31, 2016$ 1,438$3,659$(123)$4,974$ 2,713$7,687
Net income including noncontrolling interests88615703126829
Sale of Dominion Energy Midstream common units—net of offering costs—1818
Dividends and distributions(19)(15)(34)(87)(121)
Distributions to noncontrolling interests(193)(193)193—
Equity contributions from Dominion Energy4444751
Other comprehensive income, net of tax2525126
Other3255
December 31, 20171,3614,261(98)5,5242,9718,495
Cumulative-effect of changes in accounting principles29(26)33
Net income including noncontrolling interests180301481175656
Sale of Dominion Energy Midstream common units—net of offering costs—44
Remeasurement of noncontrolling interest in Dominion Energy Midstream375375(375)—
Dividends and distributions(133)(25)(158)(138)(296)
Distributions to noncontrolling interests(27)(27)27
Equity contributions from Dominion Energy484848
Other comprehensive loss, net of tax(45)(45)(45)
December 31, 20181,8044,566(169)6,2012,6648,865
Net income including noncontrolling interests232489721121842
Acquisition of public interest in Dominion Energy Midstream1,1811,181(1,221)(40)
Dividends and distributions(457)(457)(179)(636)
Equity contributions from Dominion Energy3,3853,3853,385
Dominion Energy Gas Restructuring(6,145)3,978(1)(2,168)(2,168)
Other comprehensive loss, net of tax(17)(17)(1)(18)
Other(2)(2)1(1)
December 31, 2019$ —$9,031$(187)$8,844$ 1,385$10,229

The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.

94

Dominion Energy Gas Holdings, LLC

Consolidated Statements of Cash Flows

Year Ended December 31,201920182017
(millions)
Operating Activities
Net Income including noncontrolling interests$842$656$829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization445424328
Deferred income taxes and investment tax credits(3)380(19)
Charge related to a voluntary retirement program20——
Gains on sales of assets(7)(109)(70)
Impairment of assets and related charges1338515
Other adjustments692114
Changes in:
Accounts receivable69(101)(4)
Affiliated receivables and payables(51)(310)26
Inventories(50)(28)(5)
Prepayments59(23)(20)
Accounts payable(109)1(7)
Accrued interest, payroll and taxes(52)2226
Pension and other postretirement benefits(142)(153)(143)
Other operating assets and liabilities(37)30(13)
Net cash provided by operating activities1,0661,195957
Investing Activities
Plant construction and other property additions(704)(1,109)(1,815)
Loan to Dominion Energy(1,757)——
Loan to East Ohio(115)——
Loan to Dominion Energy from Cove Point—(2,986)—
Repayment of loan by Dominion Energy to Cove Point2,986——
Repayment of loan to East Ohio115——
Repayment of affiliated notes receivable, net647—32
Proceeds from assignments of shale development rights—10970
Other(22)(20)(27)
Net cash provided by (used in) investing activities1,150(4,006)(1,740)
Financing Activities
Issuance (repayment) of short-term debt, net52(619)169
Issuance (repayment) of affiliated current borrowings, net(2,837)291628
Issuance of long-term debt1,5003,750—
Issuance of affiliated long-term debt395——
Repayment of long-term debt(3,750)(255)—
Repayment of affiliated long-term debt(395)——
Credit facility borrowings—73—
Repayment of credit facility borrowings(73)——
Net proceeds from sale of Dominion Energy Midstream common units—418
Contributions from Dominion Energy3,3852525
Dividends and distributions(636)(296)(121)
Other(16)(21)—
Net cash provided by (used in) financing activities(2,375)2,952719
Increase (decrease) in cash, restricted cash and cash equivalents(159)141(64)
Cash, restricted cash and equivalents at beginning of year19857121
Cash, restricted cash and equivalents at end of year$39$198$57
Supplemental Cash Flow Information
Cash paid during the year for:
Interest and related charges, excluding capitalized amounts$291$162$55
Income taxes657911
Significant noncash investing and financing activities: (1)(2)
Accrued capital expenditures255969
Equity contributions from Dominion Energy—2326
Finance leases6——
(1)See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for lease arrangements.
(2)See Notes 3 and 25 for noncash investing and financing activities related to the Dominion Energy Gas Restructuring and related-party transactions.

The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.

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96

Combined Notes to Consolidated Financial Statements

Note 1. Nature Of Operations

Dominion Energy, headquartered in Richmond, Virginia, is one of the nation’s largest producers and transporters of energy. Dominion Energy’s operations are conducted through various subsidiaries, including Virginia Power and Dominion Energy Gas. Dominion Energy’s operations also include DESC, an equity investment in Atlantic Coast Pipeline and regulated gas distribution operations primarily in the eastern and Rocky Mountain regions of the U.S. Dominion Energy’s nonregulated operations include merchant generation and retail energy marketing operations. See Note 3 for a description of operations acquired in the SCANA Combination.

Beginning December 2019, Dominion Energy manages its daily operations through five primary operating segments: Dominion Energy Virginia, Gas Transmission & Storage, Gas Distribution, Dominion Energy South Carolina and Contracted Generation. Dominion Energy also reports a Corporate and Other segment, which includes its corporate, service company and other functions (including unallocated debt). In addition, Corporate and Other includes specific items attributable to Dominion Energy’s operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.

Virginia Power is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and northeastern North Carolina. Virginia Power is a member of PJM, an RTO, and its electric transmission facilities are integrated into the PJM wholesale electricity markets. All of Virginia Power’s stock is owned by Dominion Energy.

Beginning in December 2019, Virginia Power manages its daily operations through one primary operating segment: Dominion Energy Virginia. It also reports a Corporate and Other segment that primarily includes specific items attributable to its operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.

Dominion Energy Gas is a holding company that conducts business activities through FERC-regulated interstate natural gas transmission pipeline and underground storage systems in the eastern and Rocky Mountain regions of the U.S., as well as the Cove Point LNG Facility. In addition, Dominion Energy Gas owns a 50% noncontrolling interest in both Iroquois and White River Hub. See Note 3 for more information on the Dominion Energy Gas Restructuring. All of Dominion Energy Gas’ membership interests are held by Dominion Energy.

Beginning in December 2019, Dominion Energy Gas manages its daily operations through one primary operating segment: Gas Transmission & Storage. It also reports a Corporate and Other segment that primarily includes specific items attributable to its operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources and the effect of certain items recorded at Dominion Energy Gas as a result of Dominion Energy’s basis in the net assets contributed. In addition, Corporate and Other includes the net impact of discontinued operations, which is discussed in Note 3.

See Note 26 for further discussion of the Companies’ operating segments.

Note 2. Significant Accounting Policies

General

The Companies make certain estimates and assumptions in preparing their 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, expenses and cash flows for the periods presented. Actual results may differ from those estimates.

The Companies’ Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts, those of their respective majority-owned subsidiaries and

non-wholly-owned

entities in which they have a controlling financial interest. For certain partnership structures, income is allocated based on the liquidation value of the underlying contractual arrangements. At December 31, 2019 Dominion Energy owns 50% of the voting interests in Four Brothers and Three Cedars and has a controlling financial interest over the entities through its right to control operations. In August 2018, NRG’s ownership interest in Four Brothers and Three Cedars was transferred to GIP. GIP’s ownership interest in Four Brothers and Three Cedars, Terra Nova Renewable Partners’ 33% interest in certain Dominion Energy’s merchant solar projects, Brookfield’s 25% interest in Cove Point and the non-Dominion Energy held interest in Dominion Energy Midstream (through January 2019) are reflected as noncontrolling interest in Dominion Energy’s Consolidated Financial Statements. Terra Nova Renewable Partners has a future option to buy all or a portion of Dominion Energy’s remaining 67% ownership in certain merchant projects upon the occurrence of certain events, none of which are expected to occur in 2020. Brookfield’s

% interest in Cove Point and the public’s ownership interest in Dominion Energy Midstream (through January 2019)

are

reflected as noncontrolling interest in Dominion Energy Gas’ Consolidated Financial Statements.

The Companies report certain contracts, instruments and investments at fair value. See Note 6 for further information on fair value measurements.

The Companies consider acquisitions or dispositions in which substantially all of the fair value of the gross assets acquired or disposed of is concentrated into a single identifiable asset or group of similar identifiable assets to be an acquisition or a disposition of an asset, rather than a business. See Notes 3 and 10 for further information on such transactions.

Dominion Energy maintains pension and other postretirement benefit plans. Virginia Power and Dominion Energy Gas participate in certain of these plans. See Note 22 for further information on these plans.

Certain amounts in the Companies’ 2018 and 2017 Consolidated Financial Statements and Notes have been reclassified to conform to the 2019 presentation for comparative purposes; however, such reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows.

Amounts disclosed for Dominion Energy are inclusive of Virginia Power and/or Dominion Energy Gas, where applicable.

Operating Revenue

Operating revenue is recorded on the basis of services rendered, commodities delivered, or contracts settled and includes amounts

97

Combined Notes to Consolidated Financial Statements, Continued

yet to be billed to customers. Dominion Energy and Virginia Power collect sales, consumption and consumer utility taxes and Dominion Energy Gas collects sales taxes; however, these amounts are excluded from revenue. Dominion Energy’s customer receivables at December 31, 2019 and 2018 included $896 million and $626 million, respectively, of accrued unbilled revenue based on estimated amounts of electricity and natural gas delivered but not yet billed to its utility customers. Virginia Power’s customer receivables at December 31, 2019 and 2018 included $512 million and $392 million, respectively, of accrued unbilled revenue based on estimated amounts of electricity delivered but not yet billed to its customers. Dominion Energy Gas’ customer receivables at December 31, 2019 and 2018 included $104 million and $101 million, respectively, of accrued unbilled revenue based on estimated amounts of natural gas delivered but not yet billed to its customers. See Note 25 for amounts attributable to related parties.

The primary types of sales and service activities reported as operating revenue for Dominion Energy, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, are as follows:

Revenue from Contracts with Customers

•Regulated electric sales consist primarily of state-regulated retail electric sales, and federally-regulated wholesale electric sales and electric transmission services;
•Nonregulated electric sales consist primarily of sales of electricity at market-based rates and contracted fixed rates, and associated hedging activity;
•Regulated gas sales consist primarily of state-regulated natural gas sales and related distribution services;
•Nonregulated gas sales consist primarily of sales of natural gas production at market-based rates and contracted fixed prices, sales of gas purchased from third parties and associated hedging activity;
•Regulated gas transportation and storage sales consist of FERC-regulated sales of transmission and storage services and state-regulated gas distribution charges to retail distribution service customers opting for alternate suppliers and sales of gathering services;
•Nonregulated gas transportation and storage sales consist primarily of LNG terminalling services;
•Other regulated revenue consists primarily of miscellaneous service revenue from electric and gas distribution operations and sales of excess electric capacity and other commodities; and
•Other nonregulated revenue consists primarily of NGL gathering and processing, sales of NGL production and condensate, extracted products and associated hedging activity. Other nonregulated revenue also includes services performed for Atlantic Coast Pipeline, sales of energy-related products and services from Dominion Energy’s retail energy marketing operations, service concession arrangements and gas processing and handling revenue.

Other Revenue

•Other revenue consists primarily of alternative revenue programs, gains and losses from derivative instruments not subject to hedge accounting and lease revenues.

The primary types of sales and service activities reported as operating revenue for Dominion Energy, prior to the adoption of revised guidance for revenue recognition from contracts with customers, were as follows:

•Regulated electric sales consisted primarily of state-regulated retail electric sales, and federally-regulated wholesale electric sales and electric transmission services;
•Nonregulated electric sales consisted primarily of sales of electricity at market-based rates and contracted fixed rates, and associated derivative activity;
•Regulated gas sales consisted primarily of state- and FERC-regulated natural gas sales and related distribution services and associated derivative activity;
•Nonregulated gas sales consisted primarily of sales of natural gas production at market-based rates and contracted fixed prices, sales of gas purchased from third parties, gas trading and marketing revenue and associated derivative activity;
•Gas transportation and storage sales consisted primarily of FERC-regulated sales of transmission and storage services. Also included were state-regulated gas distribution charges to retail distribution service customers opting for alternate suppliers and sales of gathering services; and
•Other revenue consisted primarily of sales of NGL production and condensate, extracted products and associated derivative activity. Other revenue also included miscellaneous service revenue from electric and gas distribution operations, sales of energy-related products and services from Dominion Energy’s retail energy marketing operations and gas processing and handling revenue.

The primary types of sales and service activities reported as operating revenue for Virginia Power, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, are as follows:

Revenue from Contracts with Customers

•Regulated electric sales consist primarily of state-regulated retail electric sales and federally-regulated wholesale electric sales and electric transmission services;
•Other regulated revenue consists primarily of sales of excess capacity and other commodities and miscellaneous service revenue from electric distribution operations; and
•Other nonregulated revenue consists primarily of sales to non-jurisdictional customers from certain solar facilities, revenue from renting space on certain electric transmission poles and distribution towers and service concession arrangements.

Other Revenue

•Other revenue consists primarily of alternative revenue programs, gains and losses from derivative instruments not subject to hedge accounting and lease revenues.

The primary types of sales and service activities reported as operating revenue for Virginia Power, prior to the adoption of revised guidance for revenue recognition from contracts with customers, were as follows:

•Regulated electric sales consisted primarily of state-regulated retail electric sales, and federally-regulated wholesale electric sales and electric transmission services; and
98
•Other revenue consisted primarily of miscellaneous service revenue from electric distribution operations and miscellaneous revenue from generation operations, including sales of capacity and other commodities.

The primary types of sales and service activities reported as operating revenue for Dominion Energy Gas, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, are as follows:

Revenue from Contracts with Customers

•Regulated gas sales—wholesale consist primarily of sales of natural gas to wholesale customers as permitted by FERC under DETI’s operating tariff;
•Nonregulated gas sales consist primarily of sales of gas purchased from third parties and royalty revenues;
•Regulated gas transportation and storage sales consist of FERC-regulated sales of transmission and storage services;
•Nonregulated gas transportation and storage sales consist primarily of LNG terminalling services
•Management service revenue consists primarily of services performed for Atlantic Coast Pipeline;
•Other regulated revenue consists primarily of miscellaneous regulated revenues; and
•Other nonregulated revenue consists primarily of miscellaneous service revenue.

Other Revenue

•Other revenue consists primarily of gains and losses from derivative instruments not subject to hedge accounting.

The primary types of sales and service activities reported as operating revenue for Dominion Energy Gas, prior to the adoption of revised guidance for revenue recognition from contracts with customers, were as follows:

•Regulated gas sales consisted primarily of sales of natural gas to wholesale customers as permitted by FERC under DETI’s operating tariff;
•Nonregulated gas sales consisted primarily of sales of natural gas production at market-based rates and contracted fixed prices and sales of gas purchased from third parties. Revenue from sales of gas production was recognized based on actual volumes of gas sold to purchasers and was reported net of royalties;
•Gas transportation and storage sales consisted primarily of FERC-regulated sales of transmission and storage services; and
•Other revenue consisted primarily of miscellaneous service revenue, gas processing and handling revenue.

O

perating

revenue for East Ohio and DGP consists primarily of state-regulated natural gas sales and related distribution services, state-regulated gas distribution charges to retail distribution service customers opting for alternate suppliers and sales of NGL gathering and processing activities, and is included in net income from discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income

through November 6, 2019.

Dominion Energy and Virginia Power record refunds to customers as required by state commissions as a reduction to regulated electric sales or regulated gas sales, as applicable. Dominion Energy and Virginia Power’s revenue accounted for under the

alternative revenue program guidance primarily consists of the equity return for under-recovery of certain riders. Alternative revenue programs compensate Dominion Energy and Virginia Power for certain projects and initiatives. Revenues arising from these programs are presented separately from revenue arising from contracts with customers in the categories above.

Revenues from electric and gas sales are recognized over time, as the customers of the Companies consume gas and electricity as it is delivered. Transportation and storage contracts are primarily stand-ready service contracts that include fixed reservation and variable usage fees. LNG terminalling services are also stand-ready service contracts, primarily consisting of fixed fees, offset by service credits associated with the

start-up

phase of the Liquefaction Facility. Fixed fees are recognized ratably over the life of the contract as the stand-ready performance obligation is satisfied, while variable usage fees are recognized when Dominion Energy and Dominion Energy Gas have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance obligation completed to date. Sales of products and services, including NGLs, typically transfer control and are recognized as revenue upon delivery of the product or service. The customer is able to direct the use of, and obtain substantially all of the benefits from, the product at the time the product is delivered. The contract with the customer states the final terms of the sale, including the description, quantity and price of each product or service purchased. Payment for most sales and services varies by contract type, but is typically due within a month of billing.

Dominion Energy and Dominion Energy Gas typically receive or retain NGLs and natural gas from customers when providing natural gas processing, transportation or storage services. Dominion Energy and Dominion Energy Gas record the fair value of NGLs received during natural gas processing as service revenue recognized over time, and continue to recognize revenue from the subsequent sale of the NGLs to customers upon delivery. Dominion Energy and Dominion Energy Gas typically retain natural gas under certain transportation service arrangements that are intended to facilitate performance of the service and allow for natural losses that occur. As the intent of the allowance is to enable fulfillment of the contract rather than to provide compensation for services, the fuel allowance is not included in revenue.

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, collateral requirements and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition, counterparties may make available collateral, including letters of credit or cash held as margin deposits, as a result of exceeding agreed-upon credit limits, or may be required to prepay the transaction.

The Companies maintain a provision for credit losses based on factors surrounding the credit risk of their customers, historical trends and other information. Management believes, based on credit policies and the December 31, 2019 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

99

Combined Notes to Consolidated Financial Statements, Continued

result of counterparty nonperformance. Effective January 2020, expected credit losses will be estimated and recorded based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets held at amortized cost as well as expected credit losses on commitments with respect to financial guarantees.

Electric Fuel, Purchased Energy and Purchased

Gas-Deferred

Costs

Where permitted by regulatory authorities, the differences between Dominion Energy and Virginia Power’s actual electric fuel and purchased energy expenses and Dominion Energy and Dominion Energy Gas’ purchased gas expenses and the related levels of recovery for these expenses in current rates are deferred and matched against recoveries in future periods. The deferral of costs in excess of current period fuel rate recovery is recognized as a regulatory asset, while rate recovery in excess of current period fuel expenses is recognized as a regulatory liability.

Of the cost of fuel used in electric generation and energy purchases to serve Virginia utility customers, at December 31, 2019, approximately 84% is subject to Virginia Power’s deferred fuel accounting, while substantially all of the remaining amount is subject to recovery through similar mechanisms.

Virtually all of East Ohio, Questar Gas, Hope, DESC and PSNC’s natural gas purchases are either subject to deferral accounting or are recovered from the customer in the same accounting period as the sale.

Income Taxes

A consolidated federal income tax return is filed for Dominion Energy and its subsidiaries, including Virginia Power and Dominion Energy Gas’ subsidiaries. In addition, where applicable, combined income tax returns for Dominion Energy and its subsidiaries are filed in various states; otherwise, separate state income tax returns are filed.

Although Dominion Energy Gas and certain of its subsidiaries are disregarded for income tax purposes, a provision for income taxes is recognized to reflect the inclusion of its business activities in the tax returns of its parent, Dominion Energy. Virginia Power and Dominion Energy Gas participate in intercompany tax sharing agreements with Dominion Energy and its subsidiaries. Current income taxes are based on taxable income or loss and credits determined on a separate company basis.

Under the agreements, if a subsidiary incurs a tax loss or earns a credit, recognition of current income tax benefits is limited to refunds of prior year taxes obtained by the carryback of the net operating loss or credit or to the extent the tax loss or credit is absorbed by the taxable income of other Dominion Energy consolidated group members. Otherwise, the net operating loss or credit is carried forward and is recognized as a deferred tax asset until realized.

The 2017 Tax Reform Act included a broad range of tax reform provisions affecting the Companies, including changes in corporate tax rates and business deductions. The 2017 Tax Reform Act reduces the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. Deferred tax assets and liabilities are classified as noncurrent in the Consolidated Balance Sheets and measured at the enacted tax rate expected to apply when temporary differences are realized or

settled. Thus, at the date of enactment, federal deferred taxes were remeasured based upon the new 21% tax rate. The total effect of tax rate changes on deferred tax balances was recorded as a component of the income tax provision related to continuing operations for the period in which the law is enacted, even if the assets and liabilities relate to other components of the financial statements, such as items of accumulated other comprehensive income. For Dominion Energy subsidiaries that are not rate-regulated utilities, existing deferred income tax assets or liabilities were adjusted for the reduction in the corporate income tax rate and allocated to continuing operations. Dominion Energy’s rate-regulated utility subsidiaries likewise were required to adjust deferred income tax assets and liabilities for the change in income tax rates. However, if it is probable that the effect of the change in income tax rates will be recovered or refunded in future rates, the regulated utility recorded a regulatory asset or liability instead of an increase or decrease to deferred income tax expense.

Accounting for income taxes involves an asset and liability approach. Deferred income tax assets and liabilities are provided, representing future effects on income taxes for temporary differences between the bases of assets and liabilities for financial reporting and tax purposes. Accordingly, deferred taxes are recognized for the future consequences of different treatments used for the reporting of transactions in financial accounting and income tax returns. The Companies establish a valuation allowance when it is

more-likely-than-not

that all, or a portion, of a deferred tax asset will not be realized. Where the treatment of temporary differences is different for rate-regulated operations, a regulatory asset is recognized if it is probable that future revenues will be provided for the payment of deferred tax liabilities.

The Companies recognize positions taken, or expected to be taken, in income tax returns that are

more-likely-than-not

to be realized, assuming that the position will be examined by tax authorities with full knowledge of all relevant information.

If it is not

more-likely-than-not

that a tax position, or some portion thereof, will be sustained, the related tax benefits are not recognized in the financial statements. Unrecognized tax benefits may result in an increase in income taxes payable, a reduction of income tax refunds receivable or changes in deferred taxes. Also, when uncertainty about the deductibility of an amount is limited to the timing of such deductibility, the increase in income taxes payable (or reduction in tax refunds receivable) is accompanied by a decrease in deferred tax liabilities. Except when such amounts are presented net with amounts receivable from or amounts prepaid to tax authorities, noncurrent income taxes payable related to unrecognized tax benefits are classified in other deferred credits and other liabilities on the Consolidated Balance Sheets and current payables are included in accrued interest, payroll and taxes on the Consolidated Balance Sheets.

The Companies recognize interest on underpayments and overpayments of income taxes in interest expense and other income, respectively. Penalties are also recognized in other income.

Interest expense for the Companies was immaterial in 2019 and 2018. Dominion Energy and Virginia Power both recognized interest income of $11 million in 2017. Dominion Energy Gas’ interest was immaterial in 2017. The Companies’ penalties were immaterial in 2019, 2018 and 2017.

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At December 31, 2019, Virginia Power had an income

tax-related

affiliated payable of $35 million, comprised of $15 million of federal income taxes and $20 million of state income taxes due to Dominion Energy. Dominion Energy Gas also had a net affiliated receivable of $209 million due from Dominion Energy, representing $212 million of federal income taxes receivable and $3 million of state income taxes payable to Dominion Energy. The net affiliated receivables are expected to be received from Dominion Energy.

In addition, Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2019 included $10 million of state income taxes receivable. State income taxes receivable at Virginia Power were immaterial at December 31, 2019.

At December 31, 2018, Virginia Power had an income

tax-related

affiliated receivable of $36 million, comprised of $34 million of federal income taxes and $2 million of state income taxes due from Dominion Energy. Dominion Energy Gas also had a net affiliated receivable of $271 million due from Dominion Energy, representing $277 million of federal income taxes receivable and $6 million of state income taxes payable to Dominion Energy. Virginia Power’s net affiliated receivables were received from Dominion Energy, and Dominion Energy Gas’ affiliated receivables are expected to be received from Dominion Energy.

In addition, Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2018 included $15 million of state income taxes receivable. State income taxes receivable at Virginia Power were immaterial at December 31, 2018.

Investment tax credits are recognized by nonregulated operations in the year qualifying property is placed in service. For regulated operations, investment tax credits are deferred and amortized over the service lives of the properties giving rise to the credits. Production tax credits are recognized as energy is generated and sold.

Cash, Restricted Cash and Equivalents

Cash, restricted cash and equivalents include cash on hand, cash in banks and temporary investments purchased with an original maturity of three months or less.

Current banking arrangements generally do not require checks to be funded until they are presented for payment. The following table illustrates the checks outstanding but not yet presented for payment and recorded in accounts payable for the Companies:

At December 31,20192018
(millions)
Dominion Energy$29$35
Virginia Power916
Dominion Energy Gas67

Restricted Cash and Equivalents

The Companies hold restricted cash and equivalent balances that primarily consist of amounts held for litigation settlements, customer deposits and future debt payments on SBL Holdco and Dominion Solar Projects III, Inc.’s term loan agreements and on Eagle Solar’s senior note agreement.

The following table provides a reconciliation of the total cash, restricted cash and equivalents reported within the Companies’ Consolidated Balance Sheets to the corresponding amounts reported within the Companies’ Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017:

Cash, Restricted Cash and Equivalents at End/Beginning of Year
December 31, 2019December 31, 2018December 31, 2017December 31, 2016
(millions)
Dominion Energy
Cash and cash equivalents$166$268$120$261
Restricted cash and equivalents (1)1031236561
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows$269$391$185$322
Virginia Power
Cash and cash equivalents$ 17$ 29$ 14$ 11
Restricted cash and equivalents (1)7910—
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows$ 24$ 38$ 24$ 11
Dominion Energy Gas
Cash and cash equivalents (2)$ 27$108$ 18$ 76
Restricted cash and equivalents (1)12903945
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows$ 39$198$ 57$121
(1)Restricted cash and equivalent balances are presented within other current assets in the Companies’ Consolidated Balance Sheets.
(2)At December 31, 2018, 2017 and 2016, Dominion Energy Gas had $9 million, $3 million and $14 million of cash and cash equivalents included in current assets of discontinued operations, respectively.

Distributions from Equity Method Investees

Dominion Energy and Dominion Energy Gas each hold investments that are accounted for under the equity method of accounting. Dominion Energy and Dominion Energy Gas classify distributions from equity method investees as either cash flows from operating activities or cash flows from investing activities in the Consolidated Statements of Cash Flows according to the nature of the distribution. Distributions received are classified on the basis of the nature of the activity of the investee that generated the distribution

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Combined Notes to Consolidated Financial Statements, Continued

as either a return on investment (classified as cash flows from operating activities) or a return of an investment (classified as cash flows from investing activities) when such information is available to Dominion Energy and Dominion Energy Gas.

Derivative Instruments

The Companies are exposed to the impact of market fluctuations in the price of electricity, natural gas and other energy-related products they market and purchase, as well as interest rate and foreign currency exchange rate risks of their business operations. Dominion Energy uses derivative instruments such as physical and financial forwards, futures, swaps, options and FTRs to manage the commodity, interest rate and foreign currency exchange rate risks of its business operations. Virginia Power uses derivative instruments such as physical and financial forwards, futures, swaps, options and FTRs to manage commodity and interest rate risks. Dominion Energy Gas uses derivative instruments such as physical and financial forwards, futures and swaps to manage commodity, interest rate and foreign currency exchange rate risks.

All derivatives, except those for which an exception applies, are required to be reported in the Consolidated Balance Sheets at fair value. Derivative contracts representing unrealized gain positions and purchased options are reported as derivative assets. Derivative contracts representing unrealized losses and options sold are reported as derivative liabilities. One of the exceptions to fair value accounting, normal purchases and normal sales, may be elected when the contract satisfies certain criteria, including a requirement that physical delivery of the underlying commodity is probable. Expenses and revenues resulting from deliveries under normal purchase contracts and normal sales contracts, respectively, are included in earnings at the time of contract performance.

The Companies do not offset amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. Dominion Energy had margin assets of $42 million and $95 million associated with cash collateral at December 31, 2019 and 2018, respectively. Dominion Energy’s margin liabilities of $2 million and less than $1 million associated with cash collateral at December 31, 2019 and 2018, respectively. Virginia Power had margin assets of less than $1 million associated with cash collateral at December 31, 2019. Virginia Power had no margin assets associated with cash collateral at December 31, 2018 and no margin liabilities associated with cash collateral at December 31, 2019 and 2018. Dominion Energy Gas had no margin assets or liabilities associated with cash collateral at December 31, 2019 and 2018. See Note 7 for further information about derivatives.

To manage price risk, the Companies hold derivative instruments that are not designated as hedges for accounting purposes. However, to the extent the Companies do not hold offsetting positions for such derivatives, they believe these instruments represent economic hedges that mitigate their exposure to fluctuations in commodity prices. All income statement activity, including amounts realized upon settlement, is presented in operating revenue, operating expenses, interest and related charges or other income based on the nature of the underlying risk.

Changes in the fair value of derivative instruments result in the recognition of regulatory assets or regulatory liabilities for jurisdictions subject to cost-based rate regulation. Realized gains or losses on the derivative instruments are generally recognized when the related transactions impact earnings.

Derivative Instruments Designated as Hedging Instruments

In accordance with accounting guidance pertaining to derivatives and hedge accounting, the Companies designate a portion of their derivative instruments as either cash flow or fair value hedges for accounting purposes. For derivative instruments that are accounted for as cash flow hedges or fair value hedges, the cash flows from the derivatives and from the related hedged items are classified in operating cash flows.

Cash Flow Hedges

-A majority of the Companies’ hedge strategies represents cash flow hedges of the variable price risk associated with the purchase and sale of electricity, natural gas and NGLs. The Companies also use interest rate swaps to hedge their exposure to variable interest rates on long-term debt as well as foreign currency swaps to hedge their exposure to interest payments denominated in Euros. For transactions in which the Companies are hedging the variability of cash flows, changes in the fair value of the derivatives are reported in AOCI, to the extent they are effective at offsetting changes in the hedged item. Any derivative gains or losses reported in AOCI are reclassified to earnings when the forecasted item is included in earnings, or earlier, if it becomes probable that the forecasted transaction will not occur. For cash flow hedge transactions, hedge accounting is discontinued if the occurrence of the forecasted transaction is no longer probable.

Dominion Energy entered into interest rate derivative instruments to hedge its forecasted interest payments related to planned debt issuances in 2014. These interest rate derivatives were designated by Dominion Energy as cash flow hedges prior to the formation of Dominion Energy Gas. For the purposes of the Dominion Energy Gas financial statements, the derivative balances, AOCI balance, and any income statement impact related to these interest rate derivative instruments entered into by Dominion Energy have been, and will continue to be, included in the Dominion Energy Gas’ Consolidated Financial Statements as the forecasted interest payments related to the debt issuances now occur at Dominion Energy Gas.

Fair Value Hedges

-Dominion Energy has also designated interest rate swaps as fair value hedges on certain fixed rate long-term debt to manage interest rate exposure. For fair value hedge transactions, changes in the fair value of the derivative are generally offset currently in earnings by the recognition of changes in the hedged item’s fair value. Hedge accounting is discontinued if the hedged item no longer qualifies for hedge accounting. See Note 6 for further information about fair value measurements and associated valuation methods for derivatives. See Note 7 for further information on derivatives.

Property, Plant and Equipment

Property, plant and equipment is recorded at lower of original cost or fair value, if impaired. Capitalized costs include labor, materials and other direct and indirect costs such as asset retirement costs, capitalized interest and, for certain operations subject

102

to

cost-of-service

rate regulation, AFUDC and overhead costs. The cost of repairs and maintenance, including minor additions and replacements, is generally charged to expense as it is incurred.

In 2019, 2018 and 2017, Dominion Energy capitalized interest costs and AFUDC to property, plant and equipment of $89 million, $134 million and $236 million, respectively. In 2019, 2018 and 2017, Virginia Power capitalized AFUDC to property, plant and equipment of $34 million, $56 million and $37 million, respectively. In 2019, 2018 and 2017, Dominion Energy Gas capitalized AFUDC to property, plant and equipment of $31 million, $25 million and $34 million, respectively.

Under Virginia law, certain Virginia jurisdictional projects qualify for current recovery of AFUDC through rate adjustment clauses. AFUDC on these projects is calculated and recorded as a regulatory asset and is not capitalized to property, plant and equipment. In 2019, 2018 and 2017, Virginia Power recorded $11 million, $4 million and $22 million of AFUDC related to these projects, respectively.

For property subject to

cost-of-service

rate regulation, including Dominion Energy and Virginia Power electric distribution, electric transmission and generation property, Dominion Energy natural gas distribution and Dominion Energy Gas natural gas transmission property, the undepreciated cost of such property, less salvage value, is generally charged to accumulated depreciation at retirement. Cost of removal collections from utility customers not representing AROs are recorded as regulatory liabilities. For property subject to

cost-of-service

rate regulation that will be abandoned significantly before the end of its useful life, the net carrying value is reclassified from

plant-in-service

when it becomes probable it will be abandoned and recorded as a regulatory asset for amounts expected to be collected through future rates.

In 2019, Virginia Power had the following charges, primarily recorded in impairment of assets and other charges in the Consolidated Statements of Income

(reflected in the Corporate and Other segment),

related to early retirements:

•In January 2019, Virginia Power committed to a plan to retire certain automated metering reading infrastructure associated with its electric operations before the end of its estimated useful life and replace such equipment with more current AMI technology. As a result, Virginia Power recorded a charge of $160 million ($119 million after-tax). This charge is considered a component of Virginia Power’s base rates deemed recovered under the GTSA, subject to review as discussed in Note 13.
•In March 2019, Virginia Power committed to retire certain electric generating units before the end of their useful lives and completed the retirement of certain units at six facilities representing 1,292 MW of electric generating capacity, which had previously been placed in cold reserve. An additional unit at Possum Point power station will be retired after it meets its capacity obligation to PJM in 2021. As a result, Virginia Power recorded a charge of $346 million ($257 million after-tax ). This charge is considered a component of Virginia Power’s base rates deemed recovered under the GTSA, subject to review as discussed in Note 13.
•In May 2019, Virginia Power abandoned a coal rail project at its Mt. Storm generating facility. As a result, Virginia Power recorded a charge of $62 million ($46 million after-tax).
•In September 2019, Dominion Energy and Virginia Power abandoned certain property, plant and equipment before the end of its useful life. As a result, Dominion Energy recorded a charge of $26 million ($19 million after-tax) and Virginia Power recorded a charge of $17 million ($12 million after-tax).

For property that is not subject to

cost-of-service

rate regulation, including nonutility property, cost of removal not associated with AROs is charged to expense as incurred. The Companies also record gains and losses upon retirement based upon the difference between the proceeds received, if any, and the property’s net book value at the retirement date.

Depreciation of property, plant and equipment is computed on the straight-line method based on projected service lives. The Companies’ average composite depreciation rates on utility property, plant and equipment are as follows:

Year Ended December 31,201920182017
(percent)
Dominion Energy
Generation2.842.712.94
Transmission2.472.542.55
Distribution2.802.973.00
Storage2.402.402.48
General and other4.044.204.38
Virginia Power
Generation2.942.712.94
Transmission2.542.522.54
Distribution3.143.313.32
General and other4.404.524.68
Dominion Energy Gas (1)
Transmission2.432.662.67
Storage2.532.422.51
General and other4.594.185.08
(1)Excludes rates for depreciation reported as discontinued operations.

Virginia Power expects to receive an updated depreciation study for its nuclear plants in the first

quarter

of 2020, which is anticipated to reflect lower depreciation rates as a result of expected approval of license extensions from the NRC.

In 2018, Virginia Power revised depreciation rates for regulated nuclear plants to comply with Virginia Commission requirements. For the year ended December 31, 2018, this adjustment resulted in a decrease of $60 million ($44 million

after-tax)

in depreciation expense in Virginia Power’s Consolidated Statement of Income and an increase to Dominion Energy’s EPS of $0.07 per share. This change resulted in an annual decrease in depreciation expense of $30 million ($23 million

after-tax).

In 2017, Virginia Power revised the depreciation rates for its assets to reflect the results of a new depreciation study. This change resulted in an increase in annual depreciation expense of $40 million ($25 million

after-tax)

for 2017. Additionally, Dominion Energy revised the depreciable lives for its merchant generation assets, excluding Millstone, which resulted in a decrease in annual depreciation expense of $26 million ($16 million

after-tax)

for 2017.

Virginia Power’s non-jurisdictional property, plant and equipment is depreciated using the straight-line method over an estimated useful life of 30 years.

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Combined Notes to Consolidated Financial Statements, Continued

Capitalized costs of development wells and leaseholds are amortized on a

field-by-field

basis using the

unit-of-production

method and the estimated proved developed or total proved gas and oil reserves, at a rate of $1.80 and $1.89 per mcfe in 2019 and 2018, respectively.

Dominion Energy’s nonutility property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives:

AssetEstimated Useful Lives
Merchant generation-nuclear44 years
Merchant generation-other15-30 years
Nonutility gas gathering and processing3-50 years
LNG facility40 years
General and other5-59 years

Depreciation and amortization related to Virginia Power and Dominion Energy Gas’ nonutility property, plant and equipment and exploration and production properties was immaterial for the years ended December 31, 2019, 2018 and 2017, except for Dominion Energy Gas’ nonutility LNG facility which is depreciated using the straight-line method over

an

estimated useful life of 40 years.

Nuclear fuel used in electric generation is amortized over its estimated service life on a

units-of-production

basis. Dominion Energy and Virginia Power report the amortization of nuclear fuel in electric fuel and other energy-related purchases expense in their Consolidated Statements of Income and in depreciation and amortization in their Consolidated Statements of Cash Flows.

Long-Lived and Intangible Assets

The Companies perform an evaluation for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets or intangible assets with finite lives may not be recoverable. A long-lived or intangible asset is written down to fair value if the sum of its expected future undiscounted cash flows is less than its carrying amount. Intangible assets with finite lives are amortized over their estimated useful lives. See Note 6 for further discussion on the impairment of long-lived assets.

Regulatory Assets and Liabilities

The accounting for the Companies’ regulated electric and gas operations differs from the accounting for nonregulated operations in that the Companies are required to reflect the effect of rate regulation in their Consolidated Financial Statements. For regulated businesses subject to federal or state

cost-of-service

rate regulation, regulatory practices that assign costs to accounting periods may differ from accounting methods generally applied by nonregulated companies. When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, these costs that otherwise would be expensed by nonregulated companies are deferred as regulatory assets. Likewise, regulatory liabilities are recognized when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have yet to be incurred.

The Companies evaluate whether or not recovery of its regulatory assets through future rates is probable as well as whether a regulatory liability due to customers is probable and makes various assumptions in its analyses. These analyses are generally based on:

•Orders issued by regulatory commissions, legislation and judicial actions;
•Past experience;
•Discussions with applicable regulatory authorities and legal counsel;
•Forecasted earnings; and
•Considerations around the likelihood of impacts from events such as unusual weather conditions, extreme weather events and other natural disasters and unplanned outages of facilities.

Generally, regulatory assets and liabilities are amortized into income over the period authorized by the regulator. If recovery of a regulatory asset is determined to be less than probable, it will be written off in the period such assessment is made. A regulatory liability, if considered probable, will be recorded in the period such assessment is made or reversed into earnings if no longer probable. See Notes 12 and 13 to the Consolidated Financial Statements for additional information

Leases

The Companies lease certain assets including vehicles, real estate, office equipment and other operational assets under both operating and finance leases. For the Companies’ operating leases, rent expense is recognized on a straight-line basis over the term of the lease agreement, subject to regulatory framework. Rent expense associated with operating leases, short-term leases and variable leases is primarily recorded in other operations and maintenance expense in the Companies’ Consolidated Statements of Income. Rent expense associated with finance leases results in the separate presentation of interest expense on the lease liability and amortization expense of the related

right-of-use

asset in the Companies’ Consolidated Statements of Income.

Certain of the Companies’ leases include one or more options to renew, with renewal terms that can extend the lease from one to 70 years. The exercise of renewal options is solely at the Companies’ discretion and is included in the lease term if the option is reasonably certain to be exercised. A

right-of-use

asset and corresponding lease liability for leases with original lease terms of one year or less are not included in the Consolidated Balance Sheets, unless such leases contain renewal options that the Companies are reasonably certain will be exercised. Additionally, certain of the Companies’ leases contain escalation clauses whereby payments are adjusted for consumer price or other indices or contain fixed dollar or percentage increases. The Companies also have leases with variable payments based upon usage of, or revenues associated with, the leased assets.

The determination of the discount rate utilized has a significant impact on the calculation of the present value of the lease liability included in the Companies’ Consolidated Balance Sheets. For the Companies’ fleet of leased vehicles, the discount rate is equal to the prevailing borrowing rate earned by the lessor. For the Companies’ remaining leased assets, the discount rate implicit in the lease is generally unable to be determined from a lessee perspective. As such, the Companies use internally-developed incremental borrowing rates as a discount rate in the calculation of the present value of the lease liability. The incremental borrowing rates are determined based on an analysis of the Companies’ publicly available unsecured borrowing rates, adjusted for a collateral discount, over various lengths of time that most closely correspond to the Companies’ lease maturities.

104

In addition, Dominion Energy acts as lessor under certain power purchase agreements in which the counterparty or counterparties purchase substantially all of the output of certain solar facilities. These leases are considered operating in nature. For such leasing arrangements, rental revenue and an associated accounts receivable are recorded when the monthly output of the solar facility is determined. Depreciation on these solar facilities is computed on a straight-line basis over an estimated useful life of 30 years.

Asset Retirement Obligations

The Companies recognize AROs at fair value as incurred or when sufficient information becomes available to determine a reasonable estimate of the fair value of future retirement activities to be performed, for which a legal obligation exists. These amounts are generally capitalized as costs of the related tangible long-lived assets. Since relevant market information is not available, fair value is estimated using discounted cash flow analyses. Quarterly, the Companies assess their AROs to determine if circumstances indicate that estimates of the amounts or timing of future cash flows associated with retirement activities have changed. AROs are adjusted when significant changes in the amounts or timing of future cash flows are identified. Dominion Energy and Dominion Energy Gas report accretion of AROs and depreciation on asset retirement costs associated with their natural gas pipeline and storage well assets as an adjustment to the related regulatory liabilities when revenue is recoverable from customers for AROs. Dominion Energy and Virginia Power report accretion of AROs and depreciation on asset retirement costs associated with decommissioning its nuclear power stations as an adjustment to the regulatory liability for certain jurisdictions. Additionally, Dominion Energy and Virginia Power report accretion of AROs and depreciation on asset retirement costs associated with certain rider and prospective rider projects as an adjustment to the regulatory asset for certain jurisdictions. Accretion of all other AROs and depreciation of all other asset retirement costs are reported in other operations and maintenance expense and depreciation expense, respectively, in the Consolidated Statements of Income.

Debt Issuance Costs

The Companies defer and amortize debt issuance costs and debt premiums or discounts over the expected lives of the respective debt issues, considering maturity dates and, if applicable, redemption rights held by others. Deferred debt issuance costs are recorded as a reduction in long-term debt in the Consolidated Balance Sheets. Amortization of the issuance costs is reported as interest expense. Unamortized costs associated with redemptions of debt securities prior to stated maturity dates are generally recognized and recorded in interest expense immediately. As permitted by regulatory authorities, gains or losses resulting from the refinancing or redemption of debt allocable to utility operations subject to cost-based rate regulation are deferred and amortized.

Investments

Debt and Equity Securities with Readily Determinable Fair Values

Dominion Energy accounts for and classifies investments in debt securities as trading or

available-for-sale

securities. Virginia Power classifies investments in debt securities as

available-for-sale

securities.

•Debt securities classified as trading securities include securities held by Dominion Energy in rabbi trusts associated with cer

tain deferred compensation plans. These securities are reported in other investments in the Consolidated Balance Sheets at fair value with net realized and unrealized gains and losses included in other income in the Consolidated Statements of Income.

•Debt securities classified as available-for-sale securities include all other debt securities, primarily comprised of securities held in the nuclear decommissioning trusts. These investments are reported at fair value in nuclear decommissioning trust funds in the Consolidated Balance Sheets. Net realized and unrealized gains and losses (including any other-than-temporary impairments) on investments held in Virginia Power’s nuclear decommissioning trusts are recorded to a regulatory liability for certain jurisdictions subject to cost-based regulation. For all other available-for-sale debt securities, including those held in Dominion Energy’s merchant generation nuclear decommissioning trusts, net realized gains and losses (including any other-than-temporary impairments) are included in other income and unrealized gains and losses are reported as a component of AOCI, after-tax.

In determining realized gains and losses for debt securities, the cost basis of the security is based on the specific identification method.

Equity securities with readily determinable fair values include securities held by Dominion Energy in rabbi trusts associated with certain deferred compensation plans and securities held by Dominion Energy and Virginia Power in the nuclear decommissioning trusts. Dominion Energy and Virginia Power record all equity securities with a readily determinable fair value, or for which they are permitted to estimate fair value using NAV (or its equivalent), at fair value in nuclear decommissioning trust funds and other investments in the Consolidated Balance Sheets. However, Dominion Energy and Virginia Power may elect a measurement alternative for equity securities without a readily determinable fair value. Under the measurement alternative, equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Dominion Energy and Virginia Power qualitatively assess equity securities reported using the measurement alternative to determine whether an investment is impaired on an ongoing basis. Net realized and unrealized gains and losses on equity securities held in Virginia Power’s nuclear decommissioning trusts are recorded to a regulatory liability for certain jurisdictions subject to cost-based regulation. For all other equity securities, including those held in Dominion Energy’s merchant generation nuclear decommissioning trusts and rabbi trusts, net realized and unrealized gains and losses are included in other income in the Consolidated Statements of Income.

Equity Securities without Readily Determinable Fair Values

The Companies account for illiquid and privately held securities without readily determinable fair values under either the equity method or cost method. Equity securities without readily determinable fair values include:

•Equity method investments when the Companies have the ability to exercise significant influence, but not control, over the
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Combined Notes to Consolidated Financial Statements, Continued

investee. Dominion Energy and Dominion Energy Gas’ investments are included in investments in equity method affiliates in their Consolidated Balance Sheets. Dominion Energy and Dominion Energy Gas record equity method adjustments in other income and earnings from equity method investees, respectively, in their Consolidated Statements of Income, including their proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, amortization of certain differences between the carrying value and the equity in the net assets of the investee at the date of investment and other adjustments required by the equity method.
•Cost method investments when Dominion Energy and Virginia Power do not have the ability to exercise significant influence over the investee. Dominion Energy and Virginia Power’s investments are included in other investments and nuclear decommissioning trust funds. Cost method investments are reported at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

Other-Than-Temporary Impairment

The Companies periodically review their investments in debt securities and equity method investments to determine whether a decline in fair value should be considered other-than-temporary. If a decline in the fair value of any security is determined to be other-than-temporary, the security is written down to its fair value at the end of the reporting period.

Decommissioning Trust Investments —Special Considerations for Debt Securities

•The recognition provisions of other-than-temporary impairment guidance apply only to debt securities classified as available-for-sale or held-to-maturity.
•Using information obtained from their nuclear decommissioning trust fixed-income investment managers, Dominion Energy and Virginia Power record in earnings any unrealized loss for a debt security when the manager intends to sell the debt security or it is more-likely-than-not that the manager will have to sell the debt security before recovery of its fair value up to its cost basis. If that is not the case, but the debt security is deemed to have experienced a credit loss, Dominion Energy and Virginia Power record the credit loss in earnings and any remaining portion of the unrealized loss in AOCI. Credit losses are evaluated primarily by considering the credit ratings of the issuer, prior instances of non-performance by the issuer and other factors.

Inventories

Materials and supplies and fossil fuel inventories are valued primarily using the weighted-average cost method. Stored gas inventory is valued using the weighted-average cost method, except for East Ohio gas distribution operations, which are valued using the LIFO method. Under the LIFO method, current stored gas inventory was valued at $19 million and $12 million at December 31, 2019 and December 31, 2018, respectively. Based on the average price of gas purchased during 2019 and 2018, the cost of replacing the current portion of stored gas inventory exceeded the amount stated on a LIFO basis by $60 million and $87 million, respectively. As a result of the Dominion Energy Gas

Restructuring, at December 31, 2018, East Ohio’s stored gas inventory is reported in current assets of discontinued operations in the Consolidated Balance Sheets of Dominion Energy Gas.

Gas Imbalances

Natural gas imbalances occur when the physical amount of natural gas delivered from, or received by, a pipeline system or storage facility differs from the contractual amount of natural gas delivered or received. Dominion Energy and Dominion Energy Gas value these imbalances due to, or from, shippers and operators at an appropriate index price at period end, subject to the terms of its tariff for regulated entities. Imbalances are primarily settled

in-kind.

Imbalances due to Dominion Energy and Dominion Energy Gas from other parties are reported in other current assets and gas imbalances, respectively, and imbalances that Dominion Energy and Dominion Energy Gas owe to other parties are reported in other current liabilities in the Consolidated Balance Sheets.

Goodwill

Dominion Energy and Dominion Energy Gas evaluate goodwill for impairment annually as of April 1 and whenever an event occurs or circumstances change in the interim that would more-

likely-than-not

reduce the fair value of a reporting unit below its carrying amount.

New Accounting Standards

Revenue Recognition

In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The Companies adopted this revised accounting guidance for interim and annual reporting periods beginning January 1, 2018 using the modified retrospective method. Upon the adoption of the standard, Dominion Energy and Dominion Energy Gas recorded the cumulative-effect of a change in accounting principle of $3 million to retained earnings and membership interests, respectively, and to establish a contract asset related to changes in the timing of revenue recognition for three existing contracts with customers at DETI.

As a result of adopting this revised accounting guidance, Dominion Energy records offsetting operating revenue and other energy-related purchases for

non-cash

consideration of performing processing and fractionation services related to NGLs. Such amounts at Dominion Energy were $107 million, recorded in the Consolidated Statements of Income for the year ended December 31, 2018. No such amounts were recorded during the year ended December 31, 2017. Dominion Energy and Dominion Energy Gas no longer record offsetting operating revenue and purchased gas for fuel retained to offset costs on certain transportation and storage arrangements. Such amounts at Dominion Energy were $111 million and at Dominion Energy Gas were $71 million, recorded in the Consolidated Statements of Income for the year ended December 31, 2017.

Financial Instruments

In January 2016, the FASB issued revised accounting guidance for the recognition, measurement, presentation and disclosure of financial instruments. The guidance became effective for the Companies’ interim and annual reporting periods beginning

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January 1, 2018 and the Companies adopted the standard using the modified retrospective method. Upon adoption of this guidance for equity securities held at January 1, 2018, Dominion Energy and Virginia Power recorded the cumulative-effect of a change in accounting principle to reclassify net unrealized gains from AOCI to retained earnings and to recognize equity securities previously categorized as cost method investments at fair value (using NAV) in nuclear decommissioning trust funds in the Consolidated Balance Sheets and a cumulative-effect adjustment to retained earnings. Dominion Energy and Virginia Power reclassified approximately $1.1 billion ($734 million

after-tax)

and $119 million ($73 million

after-tax),

respectively, of net unrealized gains from AOCI to retained earnings. Dominion Energy and Virginia Power also recorded approximately $36 million ($22 million

after-tax)

in net unrealized gains on equity securities previously classified as cost method investments, of which $3 million was recorded to retained earnings and $33 million was recorded to regulatory liabilities for net unrealized gains subject to cost-based regulation. As a result of adopting this revised accounting guidance, Dominion Energy recorded unrealized losses on equity securities, net of regulatory deferrals, of $190 million ($142 million

after-tax)

in other income in the Consolidated Statements of Income for the year ended December 31, 2018, resulting in an $0.22 loss per share for the year ended December 31, 2018. Virginia Power recorded unrealized losses on equity securities, net of regulatory deferrals, of $24 million ($18 million

after-tax)

in other income in the Consolidated Statements of Income for the year ended December 31, 2018.

Leases

In February 2016, the FASB issued revised accounting guidance for the recognition, measurement, presentation and disclosure of leasing arrangements. The update requires that a liability and corresponding

right-of-use

asset are recorded on the balance sheet for all leases, including those leases classified as operating leases, while also refining the definition of a lease. In addition, lessees are required to disclose key information about the amount, timing and uncertainty of cash flows arising from leasing arrangements. Lessor accounting remains largely unchanged.

The guidance became effective for the Companies’ interim and annual reporting periods beginning January 1, 2019. The Companies adopted this revised accounting guidance using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the date of adoption. Under this approach, the Companies utilized the transition practical expedient to maintain historical presentation for periods before January 1, 2019. The Companies also applied the other practical expedients, which required no reassessment of whether existing contracts are or contain leases, no reassessment of lease classification for existing leases and no reassessment of existing or expired land easements that were not previously accounted for as leases. In connection with the adoption of this revised accounting guidance, Dominion Energy, Virginia Power and Dominion Energy Gas recorded $504 million, $209 million and $64 million, respectively, of offsetting

right-of-use

assets and liabilities for operating leases in effect at the adoption date. As a result of the Dominion Energy Gas Restructuring, $25 million of such

right-of-use

assets and liabilities for operating leases recorded

at Dominion Energy Gas were associated with discontinued operations. See Note 15 for additional information.

Derecognition And Partial Sales Of Nonfinancial Assets

In February 2017, the FASB issued revised accounting guidance clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The guidance became effective for the Companies’ interim and annual reporting periods beginning January 1, 2018, and the Companies adopted the standard using the modified retrospective method. Upon adoption of the standard, Dominion Energy recorded the cumulative-effect of a change in accounting principle to reclassify $127 million from noncontrolling interests to common stock related to the sale of a noncontrolling interest in certain merchant solar projects completed in December 2015 and January 2016.

Net Periodic Pension And Other Postretirement Benefit Costs

In March 2017, the FASB issued revised accounting guidance for the presentation of net periodic pension and other postretirement benefit costs. This guidance became effective for the Companies beginning January 1, 2018 and requires that the service cost component of net periodic pension and other postretirement benefit costs be classified in the same line item as other compensation costs arising from services rendered by employees, while all other components of net periodic pension and other postretirement costs are classified outside of income from operations. In addition, only the service cost component remains eligible for capitalization during construction. These changes do not impact the accounting by participants in a multi-employer plan. The standard also recognizes that in the event that a regulator continues to require capitalization of all net periodic benefit costs prospectively, the difference would result in recognition of a regulatory asset or liability. For costs not capitalized for which regulators are expected to provide recovery, a regulatory asset will be established. As such, the amounts eligible for capitalization in the Consolidated Financial Statements of Virginia Power and Dominion Energy Gas, as subsidiary participants in Dominion Energy’s multi-employer plans, will differ from the amounts eligible for capitalization in the Consolidated Financial Statements of Dominion Energy, the plan administrator. These differences will result in a regulatory asset or liability recorded in the Consolidated Financial Statements of Dominion Energy.

Tax Reform

In December 2017, the staff of the SEC issued guidance which clarifies accounting for income taxes if information is not yet available or complete and provided for up to a

one-year

measurement period in which to complete the required analyses and accounting. The guidance described three scenarios associated with a company’s status of accounting for income tax reform: (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply accounting for income taxes based on the provisions of the tax laws that were in effect immediately prior to the 2017 Tax

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Combined Notes to Consolidated Financial Statements, Continued

Reform Act being enacted. The Companies have accounted for the effects of the 2017 Tax Reform Act, although additional changes could occur as guidance is issued and finalized as described below. In addition, the major states in which the Companies operate have addressed conformity with some or all of the provisions of the 2017 Tax Reform Act, although some states have modified certain of these provisions.

In August 2018, the U.S. Department of Treasury issued proposed regulations addressing the availability of federal bonus depreciation for the period beginning after September 27, 2017 through December 31, 2017. The application of these changes decreased Dominion Energy’s net operating loss carryforward utilization on its 2017 tax return. The impacts of proposed and final regulations issued in 2019 on the applicability of accelerated depreciation were immaterial at the Companies, as discussed in Note 5.

In November 2018, the U.S. Department of Treasury issued proposed regulations defining interest as any amounts associated with the time value of money or use of funds. These proposed regulations provide guidance for purposes of the exception to the interest limitation for regulated public utilities, the application of the interest limitation to consolidated groups, such as Dominion Energy, and the interest limitation with respect to partnerships and partners in those partnerships. It is unclear when the guidance may be finalized, or whether that guidance could result in a disallowance of a portion of the Companies’ interest deductions in the future.

In February 2018, the FASB issued revised accounting guidance to provide clarification on the application of the 2017 Tax Reform Act for balances recorded within AOCI. The revised guidance provides for stranded amounts within AOCI from the impacts of the 2017 Tax Reform Act to be reclassified to retained earnings. The Companies adopted this guidance for interim and annual reporting periods beginning January 1, 2018 on a prospective basis. In connection with the adoption of this guidance, Dominion Energy reclassified a benefit of $289 million from AOCI to retained earnings, Virginia Power reclassified a benefit of $3 million from AOCI to retained earnings and Dominion Energy Gas reclassified a benefit of $26 million from AOCI to membership interests. The amounts reclassified reflect the reduction in the federal income tax rate, and the federal benefit of state income taxes, on the components of the Companies’ AOCI.

Note 3. Acquisitions And Dispositions

Dominion Energy

Acquisition of SCANA

In January 2019, Dominion Energy issued 95.6 million shares of Dominion Energy common stock, valued at $6.8 billion, representing 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock, in connection with the completion of the SCANA Combination. SCANA, through its regulated subsidiaries, is primarily engaged in the generation, transmission and distribution of electricity in the central, southern and southwestern portions of South Carolina and in the distribution of natural gas in North Carolina and South Carolina. In addition, at the closing of the SCANA Combination, SCANA

marketed natural gas to retail customers in the southeast U.S. Following completion of the SCANA Combination, SCANA operates as a wholly-owned subsidiary of Dominion Energy. In addition, SCANA’s debt totaled $6.9 billion at closing. The SCANA Combination expanded Dominion Energy’s portfolio of regulated electric generation, transmission and distribution and regulated natural gas distribution infrastructure operations.

Merger Approval and Conditions

Merger Approval

The SCANA Combination required approval of SCANA’s shareholders, FERC, the North Carolina Commission, the South Carolina Commission, the Georgia Public Service Commission and the NRC and clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. All such approvals were received prior to closing of the SCANA Combination.

Various parties filed petitions for rehearing or reconsideration of the SCANA Merger Approval Order. In January 2019, the South Carolina Commission issued an order (1) granting the request of various parties and finding that DESC was imprudent in its actions by not disclosing material information to the South Carolina Office of Regulatory Staff and the South Carolina Commission with regard to costs incurred subsequent to March 2015 and (2) denying the petitions for rehearing or consideration as to other issues raised in the various petitions. The deadline to appeal the SCANA Merger Approval Order and the order on rehearing expired in April 2019, and no party has sought appeal.

Refunds to Customers

As a condition to the SCANA Merger Approval Order, DESC will provide refunds and restitution of $2.0 billion over 20 years with capital support from Dominion Energy.

In September and October 2017, DESC received proceeds totaling $1.1 billion in full satisfaction of its share of a settlement agreement among DESC, Santee Cooper and Toshiba Corporation in connection with Westinghouse and WECTEC, both wholly-owned subsidiaries of Toshiba Corporation and responsible for the engineering and construction of the NND Project, filing for bankruptcy. The purchase price allocation below includes a previously established regulatory liability at DESC totaling $1.1 billion, of which $67 million was considered current, associated with the monetization of the bankruptcy settlement with Toshiba Corporation. In accordance with the terms of the SCANA Merger Approval Order, this regulatory liability, net of amounts that may be required to satisfy any liens against NND Project property, totaling $1.0 billion will be refunded to DESC electric service customers over a

20-year

period ending in 2039.

Additionally, in the first quarter of 2019, DESC recorded a reduction in operating revenue and a corresponding regulatory liability of $1.0 billion, of which $137 million was considered current, representing a refund of amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated

11-year

period. As a result, Dominion Energy’s Consolidated Statement of Income for the year ended December 31, 2019 includes a $756 million

after-tax

charge.

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NND Project

As a condition to the SCANA Merger Approval Order, DESC committed to excluding from rate recovery $2.4 billion of costs related to the NND Project and $180 million of costs associated with the purchase of the Columbia Energy Center power station. Regulatory assets included in SCANA’s historical balance sheet at December 31, 2018 reflected these disallowances.

The remaining regulatory asset associated with the NND Project of $2.8 billion, of which $138 million was considered current, will be collected over a

20-year

period, including a return on investment. In January 2019, DESC filed the NND Project rider in accordance with the terms of the SCANA Merger Approval Order for rates effective in February 2019 for DESC’s retail electric customers. The South Carolina Commission approved this filing in January 2019.

Other Terms and Conditions

•DESC will not file an application for a general rate case with the South Carolina Commission with a requested effective date earlier than January 2021;
•PSNC will not file an application for a general rate case with the North Carolina Commission with a requested effective date earlier than April 2021;
•Dominion Energy has committed to increasing SCANA’s historical level of corporate contributions to charities by $1 million per year over five years;
•Dominion Energy will maintain DESC and PSNC’s headquarters in Cayce, South Carolina and Gastonia, North Carolina, respectively; and
•Dominion Energy will seek to minimize reductions in local employment by allowing some DES employees supporting shared and common services functions and activities to be located in Cayce, South Carolina where it makes economic and practical sense to do so.

Purchase Price Allocation

SCANA’s assets acquired and liabilities assumed have been measured at estimated fair value at closing and are included in the Dominion Energy South Carolina, Gas Transmission & Storage and Gas Distribution operating segments. The majority of the operations acquired are subject to the rate setting authority of FERC and the North and South Carolina Commissions and are therefore accounted for pursuant to ASC 980,

Regulated Operations

. The fair values of SCANA’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 unaudited pro forma financial information, reflect any adjustments related to these amounts.

The fair value of SCANA’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions discussed above and the fair values of SCANA’s investments accounted for under the equity method have been determined using the income approach and the market approach. The valuation of SCANA’s long-term debt is considered a Level 2 fair value measurement. All other 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 market prices.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is reflected as goodwill. The goodwill reflects the value associated with enhancing Dominion Energy’s portfolio of regulated operations in the growing southeast region of the U.S. 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 allocation of the purchase price to the assets acquired and liabilities assumed at closing, which reflects certain adjustments related to income taxes, as discussed in Note 5, from the preliminary valuation recognized during the measurement period.

Amount
(millions)
Total current assets (1)$1,782
Investments (2)224
Property, plant and equipment (3)(4)11,006
Goodwill2,609
Regulatory assets (5)3,940
Other deferred charges and other assets, including intangible assets (6)430
Total Assets19,991
Total current liabilities (7)1,556
Long-term debt6,707
Deferred income taxes1,068
Regulatory liabilities2,706
Other deferred credits and other liabilities (8)1,115
Total Liabilities13,152
Total purchase price (9)$6,839
(1)Includes $389 million of cash, restricted cash and equivalents, of which $115 million is considered restricted.
(2)Includes $31 million for equity method investments. The fair value adjustment on the equity method investments is considered to be equity method goodwill and is not amortized.
( 3 )Includes $105 million of certain property, plant and equipment associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. As a result, Dominion Energy’s Consolidated Statements of Income for the year ended December 31, 2019 include a charge of $105 million ($79 million after-tax), included in impairment of assets and other charges (reflected in the Corporate and Other segment).
( 4 )Nonregulated property, plant and equipment, excluding land, will be depreciated on a straight-line basis over the remaining useful lives of such property, primarily ranging from 5 to 78 years.
( 5 )Includes $258 million of certain income tax-related regulatory assets associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. See Note 5 for additional information.
( 6 )Intangible assets have an estimated weighted-average amortization period of approximately five years.
( 7 )Includes $40 million outstanding under letters of credit advances, which were repaid in January 2019, as well as $173 million outstanding commercial paper under various credit facilities. As discussed in Note 17, all credit facilities were terminated in 2019.
( 8 )Includes a $379 million pension and other postretirement benefit liability.
( 9 )Includes stock-based compensation awards with a fair value of $21 million.

Results of Operations and Unaudited Pro Forma Information

The impact of the SCANA Combination on Dominion Energy’s operating revenue and net income attributable to Dominion Energy in the Consolidated Statements of Income was an increase of $3.1 billion and a decrease of $1.1 billion for the year ended December 31, 2019, respectively.

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Combined Notes to Consolidated Financial Statements, Continued

Dominion Energy incurred merger and integration-related costs of $646 million in the Consolidated Statements of Income for the year ended December 31, 2019. The amount for the year ended December 31, 2019 includes $427 million for a charge related to a voluntary retirement program. See Note 22 for additional information. Of the remaining merger and integration-related costs, $210 million was recorded in other operations and maintenance expense and $9 million was recorded in interest and related charges in the Consolidated Statements of Income for the year ended December 31, 2019. During the year ended December 31, 2018, Dominion Energy incurred merger and integration-related costs of $27 million, recorded primarily in other operations and maintenance expense in the Consolidated Statements of Income. These costs consist of professional fees, the charitable contribution commitment described above, employee-related expenses, certain financing costs and other miscellaneous costs.

The following unaudited pro forma financial information reflects the consolidated results of operations of Dominion Energy assuming the SCANA Combination had taken place on January 1, 2018. 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,
2019 (1)2018 (1)
(millions, except EPS)
Operating Revenue$17,579$17,505
Net income attributable to Dominion Energy3,2662,081
Earnings Per Common Share – Basic$4.04$2.78
Earnings Per Common Share – Diluted$4.00$2.77
(1)Amounts include adjustments for non-recurring costs directly related to the SCANA Combination.

Sale of Interest In Cove Point

In October 2019, Dominion Energy signed an agreement to sell the 25% noncontrolling limited partnership interests in Cove Point not contributed to Dominion Energy Gas in the Dominion Energy Gas Restructuring to Brookfield. In December 2019, the sale was completed and Dominion Energy received cash consideration of $2.1 billion, subject to working capital adjustments. The sale was accounted for by Dominion Energy following the guidance for a change in a parent company’s ownership interest in a consolidated subsidiary. Because Dominion Energy controls Cove Point both before and after the sale of the noncontrolling interest, the changes in Dominion Energy’s ownership interest in Cove Point was accounted for as an equity transaction and no gain or loss was recognized.

Acquisitions of Wholly-Owned Merchant Solar Projects

The following table presents significant completed acquisitions of wholly-owned merchant solar projects by Dominion Energy.

Completed Acquisition DateSellerNumber of ProjectsProject LocationProject Name(s)Initial Acquisition (millions) (1)Project Cost (millions) (2)Date of Commercial OperationsMW Capacity
February 2017Community Energy Solar, LLC1VirginiaAmazon Solar Farm Virginia—Southhampton$29$205December 2017100
March 2017Solar Frontier Americas Holding LLC1(3)CaliforniaMidway II7778June 201730
May 2017Cypress Creek Renewables, LLC1North CarolinaIS37154160June 201779
June 2017Hecate Energy Virginia C&C LLC1VirginiaClarke County1616August 201710
June 2017Strata Solar Development, LLC/Moorings Farm 2 Holdco, LLC2North CarolinaFremont, Moorings 22020November 201710
September 2017Hecate Energy Virginia C&C LLC1VirginiaCherrydale4041November 201720
October 2017Strata Solar Development, LLC2North CarolinaClipperton, Pikeville2021November 201710
(1)The purchase price was primarily allocated to property, plant and equipment.
(2)Includes acquisition cost.
(3)In April 2017, Dominion Energy discontinued efforts on the acquisition of the additional 20 MW solar project from Solar Frontier Americas Holding LLC.

In addition during 2016, Dominion Energy 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 cost $421 million in total, including initial acquisition costs, and generate 221 MW combined. One of the projects commenced commercial operations in 2016 and the remaining projects commenced commercial operations in 2017.

Long-term power purchase, interconnection and operation and maintenance agreements have been executed for all of the projects described above. These projects are included in Contracted Generation. Dominion Energy has claimed federal investment tax credits on these solar projects.

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Dominion Energy Gas

Dominion Energy Gas Restructuring

The Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control. As a result, Dominion Energy Gas’ basis in DCP and DMLPHCII, which includes the general partner of Dominion Energy Midstream, a controlling 75% interest in Cove Point, DECG, Dominion Energy Questar Pipeline, a 50% noncontrolling interest in White River Hub and a 25.93% noncontrolling interest in Iroquois, is equal to Dominion Energy’s cost basis in the assets and liabilities of such entities since the applicable inception dates of common control. In November 2019, following completion of the Dominion Energy Gas Restructuring, DCP and DMLPHCII are wholly-owned subsidiaries of Dominion Energy Gas and therefore are consolidated by Dominion Energy Gas. The accompanying Consolidated Financial Statements and Notes of Dominion Energy Gas have been retrospectively adjusted to include the historical results and financial position of DCP and DMLPHCII. The 25% interest in Cove Point retained by Dominion Energy, and subsequently sold to Brookfield in December 2019, and the

non-Dominion

Energy held interest in Dominion Energy Midstream are reflected as noncontrolling interest.

The Dominion Energy Gas Restructuring includes the disposition of East Ohio and DGP by Dominion Energy Gas in November 2019. This restructuring represents a strategic shift in the operations of Dominion Energy Gas as Dominion Energy Gas’ operations consist

s

of LNG import/export and storage and regulated gas transmission and storage operations. As a result, the accompanying Consolidated Financial Statements and Notes of Dominion Energy Gas have been retrospectively adjusted to include the historical results and financial position of East Ohio and DGP as discontinued operations until November 2019, presented within the Corporate and Other segment. As the Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control, Dominion Energy Gas has reflected the disposition as an equity transaction.

The following table represents selected information regarding the results of operations of East Ohio, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:

Period Ended November 6, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Operating revenue$594$729$728
Depreciation and amortization737671
Other operating expenses399444428
Other income617250
Interest and related charges333733
Income tax expense265386
Net income from discontinued operations124191160

The carrying amounts of major classes of assets and liabilities relating to East Ohio, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets were as follows:

At December 31, 2018
(millions)
Current assets of discontinued operations (1)$423
Investments2
Property, plant and equipment, net3,669
Regulatory assets711
Other deferred charges and other assets, including goodwill and intangible assets1,275
Noncurrent assets of discontinued operations5,657
Current liabilities of discontinued operations1,262
Long-term debt1,300
Deferred income taxes and investment tax credits716
Regulatory liabilities747
Other deferred credits and liabilities108
Noncurrent liabilities of discontinued operations2,871
(1)Includes cash and cash equivalents of $9 million as of December 31, 2018.

Capital expenditures and significant noncash items relating to East Ohio included the following:

Period Ended November 6, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Capital expenditures$299$352$348
Significant noncash items :
Charge related to a voluntary retirement program20——
Accrued capital expenditures258

The following table represents selected information regarding the results of operations of DGP, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:

Period Ended November 6, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Operating revenue$125$220$114
Depreciation and amortization41515
Impairment of assets and related charges—219—
Other operating expenses9720691
Income tax expense (benefit)7(53)5
Net income (loss) from discontinued operations$17$(167)$3
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Combined Notes to Consolidated Financial Statements, Continued

The carrying amounts of major classes of assets and liabilities relating to DGP, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets were as follows:

At December 31, 2018
(millions)
Current assets of discontinued operations (1)$21
Noncurrent assets of discontinued operations (2)192
Current liabilities of discontinued operations11
Noncurrent liabilities of discontinued operations25
(1)Includes cash and cash equivalents of less than $1 million.
(2)Primarily property, plant and equipment, net.

Capital expenditures and significant noncash items of DGP included the following:

Period Ended November 6, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Capital expenditures$11$6$8
Significant noncash items :
Impairment of assets and related charges—(219)—

Note 4. Operating Revenue

The Companies’ operating revenue, subsequent to the adoption of revised guidance for revenue recognition from contracts with customers, consists of the following:

Year Ended December 31,20192018
(millions)
Dominion Energy
Regulated electric sales:
Residential$4,325$3,413
Commercial3,2192,503
Industrial683490
Government and other retail873854
Wholesale176137
Nonregulated electric sales9261,294
Regulated gas sales:
Residential1,343818
Commercial457221
Other11736
Nonregulated gas sales496214
Regulated gas transportation and storage:
FERC-regulated1,0571,091
State-regulated742640
Nonregulated gas transportation and storage676442
Other regulated revenues259179
Other nonregulated revenues (1)(2)415563
Total operating revenue from contracts with customers15,76412,895
Other revenues (2)(3)808471
Total operating revenue$16,572$13,366
Virginia Power
Regulated electric sales:
Residential$3,657$3,413
Commercial2,7122,503
Industrial455490
Government and other retail823854
Wholesale128137
Other regulated revenues190132
Other nonregulated revenues (1)(2)7155
Total operating revenue from contracts with customers8,0367,584
Other revenues (1)(3)7235
Total operating revenue$8,108$7,619
Dominion Energy Gas
Regulated gas sales—wholesale$9$25
Nonregulated gas sales (1)67
Regulated gas transportation and storage1,3001,249
Nonregulated gas transportation and storage676442
Management service revenue (1)162257
Other regulated revenues (1 )(2 )719
Other nonregulated revenues (1 )(2 )53
Total operating revenue from contracts with customers2,1652,002
Other revenues4(6)
Total operating revenue$2,169$1,996
112
(1)See Notes 9 and 25 for amounts attributable to related parties and affiliates.
(2)Amounts above include sales which are considered to be goods transferred at a point in time. For the years ended December 31, 2019 and 2018, such amounts included $171 million and $241 million, respectively, at Dominion Energy and $5 million and $10 million, respectively, at Dominion Energy Gas, primarily consisting of NGL sales. Additionally, amounts above include sales of renewable energy credits. For the years ended December 31, 2019 and 2018, such sales were $24 million and $ 17 million, respectively, at Dominion Energy and $17 million and $11 million, respectively, at Virginia Power.
(3)Includes alternative revenue of $66 million and $52 million for the year ended December 31, 2019 at Dominion Energy and Virginia Power, respectively, and $15 million for year ended December 31, 2018 at both Dominion Energy and Virginia Power.

The table below discloses the aggregate amount of the transaction price allocated to fixed-price performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period and when the Companies expect to recognize this revenue. These revenues relate to contracts containing fixed prices where the Companies will earn the associated revenue over time as they stand ready to perform services provided. This disclosure does not include revenue related to performance obligations that are part of a contract with original durations of one year or less. In addition, this disclosure does not include expected consideration related to performance obligations for which the Companies elect to recognize revenue in the amount they have a right to invoice.

Revenue expected to be recognized on multi-year contracts in place at December 31, 201920202021202220232024ThereafterTotal
(millions)
Dominion Energy$1,569$1,470$1,363$1,216$1,104$12,519$19,241
Virginia Power31————4
Dominion Energy Gas1,7231,6241,4951,3251,18512,78320,135

Contract assets represent an entity’s right to consideration in exchange for goods and services that the entity has transferred to a customer. At December 31, 2019 and 2018, Dominion Energy’s contract asset balances were $28 million and $42 million, respectively. Dominion Energy Gas’ contract asset balances were $40 million and $58 million at December 31, 2019 and 2018 respectively. Dominion Energy and Dominion Energy Gas’ contract assets are recorded in other deferred charges and other assets in the Consolidated Balance Sheets. Contract liabilities represent an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration, or the amount that is due, from the customer. At December 31, 2019 and 2018, Dominion Energy’s contract liability balances were $123 million and $106 million, respectively. At December 31, 2019 and 2018, Virginia Power’s contract liability balances were $24 million and $22 million, respectively. At December 31, 2019 and 2018, Dominion Energy Gas’ contract liability balances were $20 million and $28 million, respectively. The Companies’ contract liabilities are recorded in other current liabilities and other deferred credits and other liabilities in the Consolidated Balance Sheets. The Companies’ recognize revenue as they fulfill their obligations to provide service to their customers. During both the years ended December 31, 2019 and 2018, Dominion Energy recognized revenue of $94 million from the beginning contract liability balance. During years ended December 31, 2019 and 2018

,

Virginia Power recognized revenue of $22 million and $25 million, respectively, from the beginning contract liability balance. For years ended December 31, 2019 and 2018, Dominion Energy Gas recognized revenue of $8 million and $3 million, respectively, from the beginning contract liability balance.

The Companies’ operating revenue, prior to the adoption of revised guidance for revenue recognition from contracts with customers, consisted of the following:

Year Ended December 312017
(millions)
Dominion Energy
Electric sales:
Regulated$7,383
Nonregulated1,429
Gas sales:
Regulated1,067
Nonregulated457
Gas transportation and storage1,786
Other464
Total operating revenue$12,586
Virginia Power
Regulated electric sales$7,383
Other173
Total operating revenue$7,556
Dominion Energy Gas
Gas sales:
Regulated$6
Nonregulated6
Gas transportation and storage1,291
Other220
Total operating revenue$1,523

Note 5. Income Taxes

Judgment and the use of estimates are required in developing the provision for income taxes and reporting of

tax-related

assets and liabilities. The interpretation of tax laws involves uncertainty, since tax authorities may interpret the laws differently. The Companies are routinely audited by federal and state tax authorities. Ultimate resolution of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to

tax-related

assets and liabilities could be material.

113

Combined Notes to Consolidated Financial Statements, Continued

The 2017 Tax Reform Act included a broad range of tax reform provisions affecting the Companies as discussed in Note 2. The 2017 Tax Reform Act reduced the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. At the date of enactment, deferred tax assets and liabilities were remeasured based upon the new 21% enacted tax rate expected to apply when temporary differences are realized or settled. The specific provisions related to regulated public utilities in the 2017 Tax Reform Act generally allow for the continued deductibility of interest expense, changed the tax depreciation of certain property acquired after September 27, 2017, and continued certain rate normalization requirements for accelerated depreciation benefits.

As indicated in Note 2, certain of the Companies’ operations, including accounting for income taxes, are subject to regulatory accounting treatment. For regulated operations, many of the changes in deferred taxes represent amounts probable of collection from or refund to customers, and were recorded as either an increase to a regulatory asset or liability. The 2017 Tax Reform Act included provisions that stipulate how these excess deferred

taxes may be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred taxes may be determined by the Companies’ regulators. See Note 13 for more information.

The Companies have accounted for the effects of the 2017 Tax Reform Act, although changes could occur as additional guidance is issued and finalized, particularly as it relates to the deductibility of interest expense in consolidated groups such as Dominion Energy. In addition, the major states in which the Companies operate have addressed conformity with some or all of the provisions of the 2017 Tax Reform Act, although some states have modified certain of these provisions. The changes in deferred taxes resulting from the 2017 Tax Reform Act, and the Companies’ interpretations of proposed regulations issued in 2018 on the applicability of accelerated depreciation, were recorded as either an increase to a regulatory liability or as an adjustment to the deferred tax provision. The impacts of proposed and final regulations issued in 2019 on the applicability of accelerated depreciation were immaterial at the Companies.

Continuing Operations

Details of income tax expense for continuing operations including noncontrolling interests were as follows:

Dominion EnergyVirginia PowerDominion Energy Gas
Year Ended December 31,201920182017201920182017201920182017
(millions)
Current:
Federal$32$(45)$(1)$286$36$432$130$(227)$75
State103108(26)584073173113
Total current expense (benefit)13563(27)34476505147(196)88
Deferred:
Federal
2017 Tax Reform Act impact (1)—46(851)—21(93)—(6)(246)
Taxes before operating loss carryforwards, investment tax credits and tax reform182436739(128)199319(36)34388
Tax utilization expense (benefit) of operating loss carryforwards11992174——4———
Investment tax credits(51)(56)(200)(34)(51)(23)———
State(93)(1)132225559(10)(17)5
Total deferred expense (benefit)157517(6)(140)224266(46)320(153)
Investment tax credit-gross deferral62256225———
Investment tax credit-amortization(3)(2)(2)(2)(2)(2)———
Total income tax expense (benefit)$351$580$(30)$264$300$774$101$124$(65)
(1)The 2017 Tax Reform Act impact for Dominion Energy Gas includes an expense of $8 million for the year ended December 31, 2018 and a benefit of $93 million for the year ended December 31, 2017 arising from discontinued operations.

The 2017 Tax Reform Act reduced the statutory federal income tax rate to 21% beginning in January 2018. Accordingly, current and deferred income taxes are recorded at the new 21% rate.

In 2019, the Dominion Energy Gas Restructuring caused changes in tax status at certain of its subsidiaries. The impacts of the changes in tax status decreased deferred income tax expense by $48 million at Dominion Energy and Dominion Energy Gas. In addition, Dominion Energy recognized a taxable gain resulting from the sale of a 25% noncontrolling interest in Cove Point. The direct tax effects of the transactions included a provision for current income taxes ($362 million) and an offsetting benefit for deferred income taxes ($147 million) and were charged to common shareholders’ equity. The utilization of $208 million federal tax credit carryforwards offsetting a portion of the federal tax liability from the transaction were also charged to common shareholders’ equity. In total, the taxes recorded in common shareholders’ equity resulting from this transaction were $215 million.

In 2018, Dominion Energy had less than $1 million of state deferred income tax expense as a result of the reversal of deferred taxes upon the sale of its interest in Blue Racer and Fairless and Manchester. Dominion Energy’s current federal income taxes primarily include the recognition of a $47 million benefit related to a carryback claim for specified liability losses involving prior tax years.

In 2017, the accounting for the reduction in the corporate income tax rate decreased deferred income tax expense by $851 million at Dominion Energy, $93 million at Virginia Power and $246 million for Dominion Energy Gas for the year ending December 31, 2017. The decrease in deferred income taxes at Dominion Energy primarily relates to the remeasurement of deferred taxes on nonregulated operations and includes the effects at Virginia Power and Dominion Energy Gas. Virginia Power and Dominion Energy Gas have certain regulatory assets and liabilities that have not yet been charged or returned to customers through rates, or on which they do not earn a return, including unrecognized pension and other postretirement benefits. The remeasurement of the deferred taxes on these regulatory balances was charged

114

to continuing operations in 2017. For ratemaking purposes, Dominion Energy Gas’ subsidiary DETI follows the cash method on pension contributions. Deferred taxes recorded on pension balances as required by GAAP are not included as a component of rates and therefore the remeasurement of these deferred taxes were charged to continuing operations in 2017.

Discontinued Operations—Dominion Energy Gas

Tax expense reported in discontinued operations for the period ended November 6, 2019 was $33 million. Tax expense reported in discontinued operations for years ended December 31, 2018 and 2017 at Dominion Energy Gas was less than $1 million and $91 million, respectively. Tax expense for discontinued operations included benefits of utilizing an immaterial amount of operating loss carryforwards in 2018 and $5 million in 2017.

Continuing Operations

For continuing operations including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to the Companies’ effective income tax rate as follows:

Dominion EnergyVirginia PowerDominion Energy Gas
Year Ended December 31,201920182017201920182017201920182017
U.S. statutory rate21.0%21.0%35.0%21.0%21.0%35.0%21.0%21.0%35.0%
Increases (reductions) resulting from:
State taxes, net of federal benefit1.33.02.04.54.73.72.53.22.6
Investment tax credits(5.7)(1.9)(6.3)(2.9)(3.5)(0.8)———
Production tax credits(1.1)(0.7)(0.7)(0.7)(0.7)(0.4)———
Valuation allowances0.10.30.2———(0.2)—0.3
Reversal of excess deferred income taxes(2.0)(2.0)—(3.1)(3.2)—(0.8)(0.6)—
Federal legislative change—1.5(27.5)—1.3(4.0)—(0.5)(41.0)
State legislative change—(0.6)—————(2.0)(0.7)
Write-off of regulatory assets10.9————————
Change in tax status(2.8)—————(6.0)——
AFUDC—equity(1.8)(0.8)(1.4)—(0.5)(0.6)(0.5)(0.3)(0.9)
Employee stock ownership plan deduction(0.7)(0.4)(0.6)——————
Other, net1.1(0.9)(1.7)(0.2)(0.1)0.6(3.4) (1)(4.4) (1)(6.0) (1)
Effective tax rate20.3%18.5%(1.0)%18.6%19.0%33.5%12.6%16.4%(10.7)%
(1)Includes (3.2)%, (4.6)% and (6.7)% relating to the absence of tax on noncontrolling interest in 2019, 2018 and 2017, respectively.

For the Companies’ rate-regulated entities, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. The Companies have recorded an estimate of excess deferred income tax amortization in 2019, and changes in estimates of amounts probable of collection from or return to customers. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. See Note 13 for current year developments.

In connection with the SCANA Combination, Dominion Energy committed to forgo, or limit, the recovery of certain income

tax-related

regulatory assets associated with the NND Project. Dominion Energy’s effective tax rate reflects deferred income tax expense of $194 million in satisfaction of this commitment. Dominion Energy’s effective tax rate also reflects the changes in consolidated state income taxes resulting from the SCANA Combination.

In 2018, the Companies applied the provisions of proposed regulations addressing the availability of federal bonus depreciation for the period beginning after September 27, 2017 through December 31, 2017. The application of these changes increased Dominion Energy’s 2017 net operating loss carryforward, the benefit of which will be recognized at the 21% rate. As a result, Dominion Energy’s effective tax rate reflects a $23 million increase to deferred income tax expense associated with the remeasurement of this deferred tax asset. The application of these proposed regulations at Dominion Energy Gas had no impact on income tax expense as the changes in, and remeasurement of, deferred tax liabilities increased regulatory liabilities by $35 million, of which $23 million is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. The effects of these changes at Virginia Power were immaterial. These amounts and adjustments represent the Companies’ best estimate based on available information, and could be subject to change based on additional guidance in yet to be finalized regulations. In addition, changes in estimates of amounts probable of return to or collection from customers increased deferred income tax expense at Virginia Power by $23 million and increased regulatory liabilities by $31 million. At Dominion Energy Gas similar changes in estimates decreased income tax expense by $5 million and regulatory liabilities by $8 million. In Dominion Energy Gas’ discontinued operations, similar changes in estimates increased income tax expense by $8 million, which is reflected in income tax expense from continuing operations in the Consolidated Statements of Income, and regulatory liabilities $10 million, which are reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. These changes also impacted Dominion Energy. In addition, Dominion Energy and Dominion Energy Gas’ effective tax rates reflect the impacts of a state legislative change enacted in the second quarter of 2018 that was retroactive to January 1, 2018.

In 2017, the Companies’ effective tax rates reflect the net benefit of remeasurement of deferred taxes resulting from the lower corporate income tax rate promulgated by the 2017 Tax Reform Act, and the completion of audits by state tax authorities that resulted in the recognition of previously unrecognized tax benefits. At December 31, 2016, Virginia Power’s unrecognized tax benefits included state refund claims for open tax years through 2011. Management believed settlement of the claims, including interest thereon, within the next twelve months was remote. In June 2017, Virginia Power received and accepted a cash offer to settle the refund claims. As a result of the settlement, Virginia Power decreased its unrecognized tax benefits by $8 million, and recognized a $2 million tax benefit, which impacted its effective tax rate. Also in connection with this settlement, Virginia Power realized interest income of $11 million, which is reflected in other income in the Consolidated Statements of Income.

115

Combined Notes to Consolidated Financial Statements, Continued

The Companies’ deferred income taxes consist of the following:

Dominion EnergyVirginia PowerDominion Energy Gas
At December 31,201920182019201820192018
(millions)
Deferred income taxes:
Total deferred income tax assets$3,736$2,748$1,207$ 1,054$ 206$296
Total deferred income tax liabilities9,8837,8134,0584,0201,4941,626
Total net deferred income tax liabilities$6,147$5,065$2,851$2,966$1,288$1,330
Total deferred income taxes:
Plant and equipment, primarily depreciation method and basis differences$6,616$4,933$3,359$3,367$742$671
Excess deferred income taxes(1,306)(993)(672)(678)(149)(156)
Unrecovered NND Project costs553—————
DESC rate refund(169)—————
Toshiba Settlement(219)—————
Nuclear decommissioning909815290273——
Deferred state income taxes863626302284199203
Federal benefit of deferred state income taxes(184)(132)(63)(60)(42)(43)
Deferred fuel, purchased energy and gas costs3060159—(1)
Pension benefits17481(153)(132)154134
Other postretirement benefits(37)(5)6255(6)(3)
Loss and credit carryforwards(1,832)(1,546)(280)(183)(1)(5)
Valuation allowances1611585516
Partnership basis differences8231,135——423570
Other(235)(67)—(24)(33)(46)
Total net deferred income tax liabilities$6,147$5,065$2,851$2,966$1,288$1,330
Deferred Investment Tax Credits – Regulated Operations1305111151——
Total Deferred Taxes and Deferred Investment Tax Credits$6,277$5,116$2,962$3,017$1,288$1,330

The most significant impact reflected for the 2017 Tax Reform Act is the adjustment of the net accumulated deferred income tax

liability for the reduction in the corporate income tax rate to 21%. In addition to amounts recognized in deferred income tax expense, the impacts of the 2017 Tax Reform Act decreased the accumulated deferred income tax liability by $3.1 billion at Dominion Energy, $1.9 billion at Virginia Power and $0.8 billion at Dominion Energy Gas at December 31, 2017, of which $0.4 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. At Dominion Energy, the December 31, 2017 balance sheet reflected the impact of the 2017 Tax Reform Act on our regulatory liabilities which increased our regulatory liabilities by $4.2 billion, and created a corresponding deferred tax asset of $1.1 billion. At Virginia Power, our regulatory liabilities increased $2.6 billion, and created a deferred tax asset of $0.7 billion. At Dominion Energy Gas, regulatory liabilities increased $1.1 billion, of which $0.5 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets and created a deferred tax asset of $0.3 billion, of which $0.1 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. These adjustments had no impact on 2017 cash flows.

At December 31, 2019, Dominion Energy had the following deductible loss and credit carryforwards:

Deductible AmountDeferred Tax AssetValuation AllowanceExpiration Period
(millions)
Federal losses$ 1,361$286$ —2037
Federal investment credits—922—2035-2039
Federal production credits—126—2035-2039
Other federal credits—40—2035-2038
State losses3,074173(57)2020-2038
State minimum tax credits—165—No expiration
State investment and other credits—144(98)2020-2031
Total$4,435$1,856$(155)

At December 31, 2019, Virginia Power had the following deductible loss and credit carryforwards:

Deductible AmountDeferred Tax AssetValuation AllowanceExpiration Period
(millions)
Federal investment credits$ —$ 213$ —2035-2039
Federal production and other credits—58—2035-2039
State investment credits—9(5)2024
Total$ —$ 280$ (5)

At December 31, 2019, Dominion Energy Gas had immaterial deductible loss carryforwards and less than $1 million of credit carryforwards that expire between 2032 and 2037.

116

A reconciliation of changes in the Companies’ unrecognized tax benefits follows:

Dominion EnergyVirginia PowerDominion Energy Gas
201920182017201920182017201920182017
(millions)
Balance at January 1$44$38$64$2$4$13$2$2$9
Acquired unrecognized tax benefits129(1)————————
Increases-prior period positions—101——————
Decreases-prior period positions——(9)——(1)———
Increases-current period positions9105——————
Settlements with tax authorities(7)(6)(23)(2)(1)(8)——(7)
Expiration of statutes of limitations—(8)——(1)————
Balance at December 31$175$44$38$—$2$4$2$2$2
(1)Acquired unrecognized tax benefits reflect $106 million plus increases in prior period positions of $76 million and decreases in prior period positions of $53 million that were recorded through purchase accounting.

Certain unrecognized tax benefits, or portions thereof, if recognized, would affect the effective tax rate. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations. For Dominion Energy and its subsidiaries, these unrecognized tax benefits were $141 million, $37 million and $31 million at December 31, 2019, 2018 and 2017, respectively. For Dominion Energy, the change in these unrecognized tax benefits increased income tax expense by $3 million and $5 million in 2019 and 2018, respectively, and decreased income tax expense by $9 million in 2017. For Virginia Power, these unrecognized tax benefits were less than $1 million, $2 million, and $3 million at December 31, 2019, 2018 and 2017, respectively. For Virginia Power, the change in these unrecognized tax benefits decreased income tax expense by $2 million in 2019 and 2018, respectively, and $6 million in 2017. For Dominion Energy Gas, these unrecognized tax benefits were $2 million, at December 31, 2019, 2018 and 2017, respectively. For Dominion Energy Gas, the change in these unrecognized tax benefits decreased income tax expense by less than $1 million in 2019 and 2018, respectively, and $5 million in 2017.

Dominion Energy participates in the IRS Compliance Assurance Process which provides the opportunity to resolve complex tax matters with the IRS before filing its federal income tax returns, thus achieving certainty for such tax return filing positions agreed to by the IRS. In 2018, Dominion Energy submitted carryback claims for specified liability losses involving prior tax years. These claims are currently subject to IRS examination. With the exception of these claims, the IRS has completed its audit of tax years through 2018. The statute of limitations has not yet expired for tax year 2014 and years after 2015. Although Dominion Energy has not received a final letter indicating no changes to its taxable income for tax year 2018, no material adjustments are expected. The IRS examination of tax year 2019 is ongoing.

It is reasonably possible that settlement negotiations and expiration of statutes of limitations could result in a decrease in unrecognized tax benefits in 2020 by up to $86 million for Dominion Energy and less than $1 million for Dominion Energy Gas. If such changes were to occur, other than revisions of the accrual for interest on tax underpayments and overpayments, earnings could increase by up to $23 million for Dominion Energy and less than $1 million for Dominion Energy Gas.

Otherwise, with regard to 2019 and prior years, Dominion Energy, Virginia Power and Dominion Energy Gas cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur in 2020.

For each of the major states in which Dominion Energy operates, the earliest tax year remaining open for examination is as follows:

StateEarliest Open Tax Year
Pennsylvania (1)2012
Connecticut2016
Virginia (2)2016
West Virginia (1)2016
New York (1)2015
Utah2016
South Carolina2012
(1)Considered a major state for Dominion Energy Gas’ operations.
(2)Considered a major state for Virginia Power’s operations.

The Companies are also obligated to report adjustments resulting from IRS settlements to state tax authorities. In addition, if Dominion Energy utilizes operating losses or tax credits generated in years for which the statute of limitations has expired, such amounts are generally subject to examination.

Note 6. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. However, the use of a

mid-market

pricing convention (the

mid-point

between bid and ask prices) is permitted. Fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. This includes not only the credit standing of counterparties involved and the impact of credit enhancements but also the impact of the Companies’ own nonperformance risk on their liabilities. Fair value measurements assume that the transaction occurs in the principal market for the asset or liability (the market with the most volume and activity for the asset or liability from the perspective of the reporting entity), or in the absence of a principal market, the most advantageous market for the asset or liability (the market in which the reporting entity would be able to maximize the amount received or minimize the amount paid). Dominion Energy applies fair value measurements to certain assets and liabilities including commodity, interest rate, and foreign currency derivative instruments, and other investments including those held in nuclear decommissioning, Dominion Energy’s rabbi, and pension and other postretirement benefit plan trusts, in accordance with the requirements discussed above. Virginia Power applies fair

117

Combined Notes to Consolidated Financial Statements, Continued

value measurements to certain assets and liabilities including commodity and interest rate derivative instruments and other investments including those held in the nuclear decommissioning trust, in accordance with the requirements discussed above. Dominion Energy Gas applies fair value measurements to certain assets and liabilities including commodity, interest rate, and foreign currency derivative instruments and other investments including those held in pension and other postretirement benefit plan trusts, in accordance with the requirements described above. The Companies apply credit adjustments to their derivative fair values in accordance with the requirements described above.

Inputs and Assumptions

Fair value is based on actively-quoted market prices, if available. In the absence of actively-quoted market prices, price information is sought from external sources, including industry publications, and to a lesser extent, broker quotes. When evaluating pricing information provided by Designated Contract Market settlement pricing, other pricing services, or brokers, the Companies consider the ability to transact at the quoted price, i.e. if the quotes are based on an active market or an inactive market and to the extent which pricing models are used, if pricing is not readily available. If pricing information from external sources is not available, or if the Companies believe that observable pricing is not indicative of fair value, judgment is required to develop the estimates of fair value. In those cases the unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party sources.

For options and contracts with option-like characteristics where observable pricing information is not available from external sources, Dominion Energy and Virginia Power generally use a modified Black-Scholes Model that considers time value, the volatility of the underlying commodities and other relevant assumptions when estimating fair value. Dominion Energy and Virginia Power use other option models under special circumstances, including but not limited to Spread Approximation Model and a Swing Option Model. For contracts with unique characteristics, the Companies may estimate fair value using a discounted cash flow approach deemed appropriate in the circumstances and applied consistently from period to period. For individual contracts, the use of different valuation models or assumptions could have a significant effect on the contract’s estimated fair value.

The inputs and assumptions used in measuring fair value include the following:

For commodity derivative contracts:

•Forward commodity prices
•Transaction prices
•Price volatility
•Price correlation
•Volumes
•Commodity location
•Interest rates
•Credit quality of counterparties and the Companies
•Credit enhancements
•Time value

For interest rate derivative contracts:

•Interest rate curves
•Credit quality of counterparties and the Companies
•Notional value
•Credit enhancements
•Time value

For foreign currency derivative contracts:

•Foreign currency forward exchange rates
•Interest rates
•Credit quality of counterparties and the Companies
•Notional value
•Credit enhancements
•Time value

For investments:

•Quoted securities prices and indices
•Securities trading information including volume and restrictions
•Maturity
•Interest rates
•Credit quality

Levels

The Companies also utilize the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

•Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities that they have the ability to access at the measurement date. Instruments categorized in Level 1 primarily consist of financial instruments such as certain exchange-traded derivatives, and exchange-listed equities, U.S. and international equity securities, mutual funds and certain Treasury securities held in nuclear decommissioning trust funds for Dominion Energy and Virginia Power, benefit plan trust funds for Dominion Energy and Dominion Energy Gas, and rabbi trust funds for Dominion Energy.
•Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 primarily include commodity forwards and swaps, interest rate swaps, foreign currency swaps and cash and cash equivalents, corporate debt instruments, government securities and other fixed income investments held in nuclear decommissioning trust funds for Dominion Energy and Virginia Power, benefit plan trust funds for Dominion Energy and Dominion Energy Gas and rabbi trust funds for Dominion Energy.
•Level 3—Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability. Instruments categorized in Level 3 for the Companies consist of long-dated commodity derivatives, FTRs, certain natural gas and power options and other modeled commodity derivatives.
118

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases, the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. Alternative investments, consisting of investments in partnerships, joint ventures and other alternative investments held in nuclear decommissioning and benefit plan trust funds, are generally valued using NAV based on the proportionate share of the fair value as determined by reference to the most recent audited fair value financial statements or fair value statements provided by the investment manager adjusted for any significant events occurring between the investment manager’s and the Companies’ measurement date. Alternative investments recorded at NAV are not classified in the fair value hierarchy.

Transfers out of Level 3 represent assets and liabilities that were previously classified as Level 3 for which the inputs became observable for classification in either Level 1 or Level 2. Because the activity and liquidity of commodity markets vary substantially

between regions and time periods, the availability of observable inputs for substantially the full term and value of the Companies’

over-the-counter

derivative contracts is subject to change.

Level 3 Valuations

The Companies enter into certain physical and financial forwards, futures, options and swaps, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical and financial forwards and futures contracts. An option model is used to value Level 3 physical and financial options. The discounted cash flow model for forwards and futures calculates

mark-to-market

valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. The option model calculates

mark-to-market

valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, certain forward market prices and implied price volatilities are considered unobservable.

The following table presents Dominion Energy’s quantitative information about Level 3 fair value measurements at December 31, 2019. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.

Fair Value (millions)Valuation TechniquesUnobservable InputRangeWeighted Average (1)
Assets
Physical and financial forwards:
Natural gas (2)$ 13Discounted cash flowMarket price (per Dth) (3)(1) - 4—
FTRs6Discounted cash flowMarket price (per MWh) (3)(1) - 51
Total assets$ 19
Liabilities
Physical and financial forwards:
Natural gas (2)$ 43Discounted cash flowMarket price (per Dth) (3)(2) - 4(1)
FTRs5Discounted cash flowMarket price (per MWh) (3)(4) - 4—
Physical options:
Natural gas8Option modelMarket price (per Dth) (3)1 - 43
Price volatility (4)24% - 66%37%
Total liabilities$ 56
(1)Averages weighted by volume.
(2)Includes basis.
(3)Represents market prices beyond defined terms for Levels 1 and 2.
(4)Represents volatilities unrepresented in published markets.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

Significant Unobservable InputsPositionChange to InputImpact on Fair Value Measurement
Market priceBuyIncrease (decrease)Gain (loss)
Market priceSellIncrease (decrease)Loss (gain)
Price volatilityBuyIncrease (decrease)Gain (loss)
Price volatilitySellIncrease (decrease)Loss (gain)

Nonrecurring Fair Value Measurements

Dominion Energy

See Note 9 for information regarding an impairment charge recognized associated with Dominion Energy’s equity method investment in Fowler Ridge. Also, see Note 9 for information regarding fair value measurements associated with Dominion Energy’s sale of its interest in Blue Racer and acquisition of its interest in Wrangler.

119

Combined Notes to Consolidated Financial Statements, Continued

Atlantic Coast Pipeline Guarantee Agreement

In October 2017, Dominion Energy entered into a guarantee agreement in connection with Atlantic Coast Pipeline’s obligation under a $3.4 billion revolving credit facility. See Note 23 for more information about the guarantee agreement associated with Atlantic Coast Pipeline’s revolving credit facility. Dominion Energy recorded a liability of $30 million, the fair value of the guarantee at inception, associated with the guarantee agreement. The fair value was estimated using a discounted cash flow method and is considered a Level 3 fair value measurement due to the use of a significant unobservable input related to the interest rate differential between the interest rate charged on the guaranteed revolving credit facility and the estimated interest rate that would have been charged had the loan not been guaranteed.

Dominion Energy Gas

In the fourth quarter of 2018, subsequent to the announcement of the sale of Dominion Energy’s interest in Blue Racer, Dominion Energy Gas conducted a review of strategic alternatives of its remaining gathering and processing assets at DGP. Based on an evaluation of DGP’s long-lived assets for recoverability under a probability weighted approach, Dominion Energy Gas determined the assets were impaired. As a result of this evaluation, Dominion Energy Gas recorded a charge of $219 million ($165 million

after-tax)

in discontinued operations in its Consolidated Statements of Income (reflected in

the

Corporate and Other segment) to write down DGP’s property, plant and equipment to its estimated fair value of $190 million. This charge was recorded in impairment of assets and related charges in Dominion Energy’s Consolidated

Statements of Income

(reflected in

the

Corporate and Other segment). The fair value of the property, plant and equipment was estimated using an income approach and market approach. The valuation is considered a Level 3 fair value measurement due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risks inherent in the future cash flows and market prices.

Recurring Fair Value Measurements

Fair value measurements are separately disclosed by level within the fair value hierarchy with a separate reconciliation of fair value measurements categorized as Level 3. Fair value disclosures for assets held in Dominion Energy and Dominion Energy Gas’ pension and other postretirement benefit plans are presented in Note 22.

Dominion Energy

The following table presents Dominion Energy’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

Level 1Level 2Level 3Total
(millions)
December 31, 2019
Assets
Derivatives:
Commodity$—$55$ 19$74
Interest rate—11—11
Foreign currency—8—8
Investments (1) :
Equity securities:
U.S.4,195——4,195
Fixed income:
Corporate debt instruments—463—463
Government securities473719—1,192
Cash equivalents and other191—20
Total assets$4,687$1,257$ 19$5,963
Liabilities
Derivatives:
Commodity$—$75$ 56$131
Interest rate—606—606
Foreign currency—3—3
Total liabilities$—$684$56$740
December 31, 2018
Assets
Derivatives:
Commodity$—$180$ 70$250
Interest rate—18—18
Foreign currency—26—26
Investments (1) :
Equity securities:
U.S.3,277——3,277
Fixed income:
Corporate debt instruments—431—431
Government securities455688—1,143
Cash equivalents and other11——11
Total assets$3,743$1,343$ 70$5,156
Liabilities
Derivatives:
Commodity$—$129$ 6$135
Interest rate—142—142
Foreign currency—2—2
Total liabilities$—$273$ 6$279
(1)Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $274 million and $220 million of assets at December 31, 2019 and 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.
120

The following table presents the net change in Dominion Energy’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:

201920182017
(millions)
Balance at January 1,$64$150$139
Total realized and unrealized gains (losses):
Included in earnings:
Operating Revenue(1)(2)3
Electric fuel and other energy-related purchases(22)(15)(42)
Purchased gas2—1
Included in other comprehensive income (loss)—1(2)
Included in regulatory assets/liabilities(90)(44)42
Settlements17(27)6
Purchases(10)——
Sales6——
Transfers out of Level 3(3)13
Balance at December 31,$(37)$64$150
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date:
Operating Revenue$—$—$2
121

Combined Notes to Consolidated Financial Statements, Continued

VIRGINIA POWER

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at December 31, 2019. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.

Fair Value (millions)Valuation TechniquesUnobservable InputRangeWeighted Average (1)
Assets
Physical and financial forwards:
Natural gas (2)$ 13Discounted cash flowMarket price (per Dth) (3)(1) - 4—
FTRs6Discounted cash flowMarket price (per MWh) (3)(1) - 51
Total assets$ 19
Liabilities
Physical and financial forwards:
Natural gas (2)$ 43Discounted cash flowMarket price (per Dth) (3)(2) - 4(1)
FTRs5Discounted cash flowMarket price (per MWh) (3)(4) - 4—
Physical options:
Natural gas8Option modelMarket price (per Dth) (3)1 - 43
Price volatility (4)24%—66%37%
Total liabilities$ 56
(1)Averages weighted by volume.
(2)Includes basis.
(3)Represents market prices beyond defined terms for Levels 1 and 2.
(4)Represents volatilities unrepresented in published markets.
122

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

Significant Unobservable InputsPositionChange to InputImpact on Fair Value Measurement
Market priceBuyIncrease (decrease)Gain (loss)
Market priceSellIncrease (decrease)Loss (gain)
Price volatilityBuyIncrease (decrease)Gain (loss)
Price volatilitySellIncrease (decrease)Loss (gain)

The following table presents Virginia Power’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

Level 1Level 2Level 3Total
(millions)
December 31, 2019
Assets
Derivatives:
Commodity$—$ 3$19$22
Interest rate—2—2
Investments (1) :
Equity securities:
U.S.1,920——1,920
Fixed income:
Corporate debt instruments—256—256
Government securities186361—547
Cash equivalents and other—1—1
Total assets$2,106$623$19$2,748
Liabilities
Derivatives:
Commodity$—$ 47$56$103
Interest rate—363—363
Total liabilities$—$410$56$466
December 31, 2018
Assets
Derivatives:
Commodity$—$ 24$66$90
Interest rate—3—3
Investments (1) :
Equity securities:
U.S.1,476——1,476
Fixed income:
Corporate debt instruments—221—221
Government securities164343—507
Total assets$1,640$591$66$2,297
Liabilities
Derivatives:
Commodity$—$ 9$ 6$15
Interest rate—88—88
Total liabilities$—$ 97$ 6$103
(1)Includes investments held in the nuclear decommissioning trusts. Excludes $159 million and $160 million of assets at December 31, 2019 and 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.

The following table presents the net change in Virginia Power’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:

201920182017
(millions)
Balance at January 1,$60$147$143
Total realized and unrealized gains (losses):
Included in earnings:
Electric fuel and other energy-related purchases(22)(17)(43)
Included in regulatory assets/liabilities(88)(45)40
Settlements13(25)7
Balance at December 31,$(37)$60$147

There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the years ended December 31, 2019, 2018 and 2017.

Dominion Energy Gas

The following table presents Dominion Energy Gas’ assets and liabilities for derivatives that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

Level 1Level 2Level 3Total
(millions)
December 31, 2019
Assets
Foreign currency$ —$8$ —$8
Total assets$ —$8$ —$8
Liabilities
Interest rate$ —$83$ —$83
Foreign currency—3—3
Total liabilities$ —$86$ —$86
December 31, 2018
Assets
Commodity$ —$3$ —$3
Interest rate—2—2
Foreign currency—26—26
Total assets$ —$31$ —$31
Liabilities
Interest rate$ —$17$ —$17
Foreign currency—2—2
Total liabilities$ —$ 19$ —$ 19

The following table presents the net change in Dominion Energy Gas’ derivative assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category. There were no changes in assets and liabilities measure at fair value on a recurring basis and included in the Level 3 fair value category during the year ended December 31, 2019.

20182017
(millions)
Balance at January 1,$(2)$(2)
Total realized and unrealized gains (losses):
Included in other comprehensive income (loss)1(3)
Transfers out of Level 313
Balance at December 31,$—$(2)
123

Combined Notes to Consolidated Financial Statements, Continued

There were no gains and losses included in earnings in the Level 3 fair value category for the years ended December 31, 2019, 2018 and 2017. There were no unrealized gains and losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the years ended December 31, 2019, 2018 and 2017.

Fair Value of Financial Instruments

Substantially all of the Companies’ financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash, restricted cash and equivalents, customer and other receivables, affiliated receivables, short-term debt, affiliated current borrowings, payables to affiliates and accounts payable are representative of fair value because of the short-term nature of these instruments. For the Companies’ financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:

December 31,20192018
Carrying AmountEstimated Fair Value (1)Carrying AmountEstimated Fair Value (1)
(millions)
Dominion Energy
Long-term debt (2)$32,055$36,155$29,952$31,045
Credit facility borrowings——7373
Junior subordinated notes (3)4,7974,9533,4303,358
Remarketable subordinated notes (3)——1,3861,340
Virginia Power
Long-term debt (3)$12,326$14,281$11,671$12,400
Dominion Energy Gas
Long-term debt (4)$5,520$5,738$7,770$7,803
Credit facility borrowings——7373
(1)Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issuances with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(2)Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments. At December 31, 2019 and 2018, includes the valuation of certain fair value hedges associated with Dominion Energy’s fixed rate debt of $4 million and $(20) million, respectively.
(3)Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium.
(4)Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments.

Note 7. Derivatives And Hedge Accounting Activities

See Note 2 for the Companies’ accounting policies, objectives, and strategies for using derivative instruments. See Note 6 for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Companies’ Consolidated Balance Sheets. Dominion Energy’s derivative contracts include both

over-the-counter

transactions and those that are executed on an exchange or other trading platform (exchange contracts) and centrally cleared. Virginia Power and Dominion Energy Gas’ derivative contracts include

over-the-counter

transactions.

Over-the-counter

contracts are bilateral contracts that are transacted directly with a third party. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain

over-the-counter

and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most

over-the-counter

transactions and all exchange contracts are subject to collateral requirements. Types of collateral for

over-the-counter

and exchange contracts include cash, letters of credit, and, in some cases, other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on the Companies’ Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting or similar arrangements and would reduce the net exposure. See Note 24 for further information regarding credit-related contingent features for the Companies derivative instruments.

124

Dominion Energy

Balance Sheet Presentation

The tables below present Dominion Energy’s derivative asset and liability balances by type of financial instrument, if the gross amounts recognized in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:

December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Assets Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral ReceivedNet AmountsGross Assets Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral ReceivedNet Amounts
(millions)
Commodity contracts:
Over-the-counter$35$21$—$14$175$12$—$163
Exchange3721—166868——
Interest rate contracts:
Over-the-counter113—8181—17
Foreign currency contracts:
Over-the-counter88——262—24
Total derivatives, subject to a master netting or similar arrangement$91$53$—$38$287$83$—$204
(1)Excludes $2 million and $7 million of derivative assets at December 31, 2019 and 2018, respectively, which are not subject to master netting or similar arrangements.
December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Liabilities Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral PaidNet AmountsGross Liabilities Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral PaidNet Amounts
(millions)
Commodity contracts:
Over-the-counter$105$21$—$ 84$ 19$12$—$ 7
Exchange2121——1156847—
Interest rate contracts:
Over-the-counter6068355631421—141
Foreign currency contracts:
Over-the-counter33——22——
Total derivatives, subject to a master netting or similar arrangement$735$53$35$647$278$83$47$148
(1)Excludes $5 million and $1 million of derivative liabilities at December 31, 2019 and 2018, respectively, which are not subject to master netting or similar arrangements.
125

Combined Notes to Consolidated Financial Statements, Continued

Volumes

The following table presents the volume of Dominion Energy’s derivative activity as of December 31, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

CurrentNoncurrent
Natural Gas (bcf):
Fixed price (1)7934
Basis227495
Electricity (MWh):
Fixed price (1)3,810,015—
FTRs46,585,304—
Liquids (Gal) (2)52,374,000—
Interest rate (3)$2,450,000,000$3,976,014,497
Foreign currency (3)—€250,000,000€
(1)Includes options.
(2)Includes NGLs.
(3)Maturity is determined based on final settlement period.

AOCI

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion Energy’s Consolidated Balance Sheet at December 31, 2019:

AOCI After-TaxAmounts Expected to be Reclassified to Earnings During the Next 12 Months After-TaxMaximum Term
(millions)
Commodities:
Gas$(4)$(4)24 months
Electricity191912 months
Other1112 months
Interest rate(426)(64)384 months
Foreign currency3(2)78 months
Total$(407)$(50)

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign currency exchange rates.

126

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings and presented in the same line item. Gains and losses on derivatives in fair value hedge relationships were immaterial for the years ended December 31, 2019, 2018 and 2017.

The following table presents the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:

Carrying Amount of the Hedged Asset (Liability) (1)Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets (Liabilities) (2)
December 31, 2019December 31, 2018December 31, 2019December 31, 2018
(millions)
Long-term debt$(1,154)$(1,631)$(4)$20
(1)Includes $(397) million and $(892) million related to discontinued hedging relationships at December 31, 2019 and December 31, 2018, respectively.
(2)Includes $3 million and $8 million of hedging adjustments on discontinued hedging relationships at December 31, 2019 and December 31, 2018, respectively.

Fair Value and Gains and Losses on Derivative Instruments

The following tables present the fair values of Dominion Energy’s derivatives and where they are presented in its Consolidated Balance Sheets:

Fair Value – Derivatives under Hedge AccountingFair Value – Derivatives not under Hedge AccountingTotal Fair Value
(millions)
At December 31, 2019
ASSETS
Current Assets
Commodity$ 30$37$67
Interest rate1—1
Total current derivative assets (1)313768
Noncurrent Assets
Commodity167
Interest rate10—10
Foreign currency8—8
Total noncurrent derivative assets (2)19625
Total derivative assets$ 50$43$93
LIABILITIES
Current Liabilities
Commodity$ 6$77$83
Interest rate3211322
Foreign currency3—3
Total current derivative liabilities (3)33078408
Noncurrent Liabilities
Commodity14748
Interest rate26717284
Total noncurrent derivative liabilities (4)26864332
Total derivative liabilities$598$142$740
At December 31, 2018
ASSETS
Current Assets
Commodity$ 55$154$209
Interest rate14—14
Total current derivative assets (1)69154223
Noncurrent Assets
Commodity63541
Interest rate4—4
Foreign currency26—26
Total noncurrent derivative assets (2)363571
Total derivative assets$105$189$294
LIABILITIES
Current Liabilities
Commodity$ 17$112$129
Interest rate26—26
Foreign currency2—2
Total current derivative liabilities (3)45112157
Noncurrent Liabilities
Commodity516
Interest rate116—116
Total noncurrent derivative liabilities (4)1211122
Total derivative liabilities$166$113$279
127

Combined Notes to Consolidated Financial Statements, Continued

(1)Current derivative assets are presented in other current assets in Dominion Energy’s Consolidated Balance Sheets.
(2)Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion Energy’s Consolidated Balance Sheets.
(3)Current derivative liabilities are presented in other current liabilities in Dominion Energy’s Consolidated Balance Sheets.
(4)Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy’s Consolidated Balance Sheets.

The following tables present the gains and losses on Dominion Energy’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:

Derivatives in cash flow hedging relationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) (1)Amount of Gain (Loss) Reclassified From AOCI to IncomeIncrease (Decrease) in Derivatives Subject to Regulatory Treatment (2)
(millions)
Year Ended December 31, 2019
Derivative type and location of gains (losses):
Commodity:
Operating revenue$146
Purchased gas(3)
Total commodity$125$143$ —
Interest rate (3)(252)(54)(255)
Foreign currency (4)(18)(6)—
Total$(145)$ 83$(255)
Year Ended December 31, 2018
Derivative type and location of gains (losses):
Commodity:
Operating revenue$(90)
Electric fuel and other energy-related purchases14
Total commodity$ 64$(76)$ —
Interest rate (3)(18)(48)39
Foreign currency (4)(6)(13)—
Total$ 40$(137)$ 39
Year Ended December 31, 2017
Derivative type and location of gains (losses):
Commodity:
Operating revenue$ 81
Purchased gas(2)
Total commodity$ 1$ 79$ —
Interest rate (3)(8)(52)(58)
Foreign currency (4)1820—
Total$ 11$ 47$ (58)
(1)Amounts deferred into AOCI have no associated effect in Dominion Energy’s Consolidated Statements of Income.
(2)Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income.
(3)Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in interest and related charges.
(4)Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in other income.
128
Derivatives not designated as hedging instrumentsAmount of Gain (Loss) Recognized in Income on Derivatives (1)
Year Ended December 31,201920182017
(millions)
Derivative type and location of gains (losses):
Commodity:
Operating revenue$45$(28)$18
Purchased gas(28)11(3)
Electric fuel and other energy-related purchases(46)(9)(59)
Other operations & maintenance——(1)
Interest rate3——
Total$(26)$(26)$(45)
(1)Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income.

Virginia Power

Balance Sheet Presentation

The tables below present Virginia Power’s derivative asset and liability balances by type of financial instrument, if the gross amounts recognized in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:

December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Assets Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral ReceivedNet AmountsGross Assets Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral ReceivedNet Amounts
(millions)
Commodity contracts:
Over-the-counter$19$18$—$1$64$6$—$58
Interest rate contracts:
Over-the-counter2——23——3
Total derivatives, subject to a master netting or similar arrangement$21$18$—$3$67$6$—$61
(1)Excludes $3 million and $26 million of derivative assets at December 31, 2019 and 2018, respectively, which are not subject to master netting or similar arrangements.
December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Liabilities Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral PaidNet AmountsGross Liabilities Presented in the Consolidated Balance Sheet (1)Financial InstrumentsCash Collateral PaidNet Amounts
(millions)
Commodity contracts:
Over-the-counter$ 59$18$—$ 41$ 6$6$—$—
Interest rate contracts:
Over-the-counter363——36388——88
Total derivatives, subject to a master netting or similar arrangement$422$18$—$404$94$6$—$88
(1)Excludes $44 million and $9 million of derivative liabilities at December 31, 2019 and 2018, respectively, which are not subject to master netting or similar arrangements.
129

Combined Notes to Consolidated Financial Statements, Continued

Volumes

The following table presents the volume of Virginia Power’s derivative activity at December 31, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

CurrentNoncurrent
Natural Gas (bcf):
Fixed price (1)419
Basis132448
Electricity (MWh):
FTRs46,585,304—
Interest rate (2)$900,000,000$950,000,000
(1)Includes options.
(2)Maturity is determined based on final settlement period.

AOCI

The following table presents selected information related to losses on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at December 31, 2019:

AOCI After-TaxAmounts Expected to be Reclassified to Earnings During the Next 12 Months After-TaxMaximum Term
(millions)
Interest rate$(34)$(1)384 months
Total$(34)$(1)

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., interest payments) in earnings, thereby achieving the realization of interest rates contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in interest rates.

130

Fair Value and Gains and Losses on Derivative Instruments

The following tables present the fair values of Virginia Power’s derivatives and where they are presented in its Consolidated Balance Sheets:

Fair Value – Derivatives under Hedge AccountingFair Value – Derivatives not under Hedge AccountingTotal Fair Value
(millions)
At December 31, 2019
ASSETS
Current Assets
Commodity$ —$ 20$20
Total current derivative assets (1)—2020
Noncurrent Assets
Commodity—22
Interest rate2—2
Total noncurrent derivative assets (2)224
Total derivative assets$ 2$ 22$24
LIABILITIES
Current Liabilities
Commodity$ —$ 58$58
Interest rate185—185
Total current derivative liabilities18558243
Noncurrent Liabilities
Commodity—4545
Interest rate178—178
Total noncurrent derivatives liabilities (3)17845223
Total derivative liabilities$363$103$466
At December 31, 2018
ASSETS
Current Assets
Commodity$ —$ 60$60
Interest rate3—3
Total current derivative assets (1)36063
Noncurrent Assets
Commodity—3030
Total noncurrent derivative assets (2)—3030
Total derivative assets$ 3$ 90$93
LIABILITIES
Current Liabilities
Commodity$ —$ 15$15
Interest rate10—10
Total current derivative liabilities101525
Noncurrent Liabilities
Interest rate78—78
Total noncurrent derivative liabilities (3)78—78
Total derivative liabilities$ 88$ 15$103
(1)Current derivative assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.
(2)Noncurrent derivative assets are presented in other deferred charges and other assets in Virginia Power’s Consolidated Balance Sheets.
(3)Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets.

The following tables present the gains and losses on Virginia Power’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:

Derivatives in cash flow hedging relationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) (1)Amount of Gain (Loss) Reclassified From AOCI to IncomeIncrease (Decrease) in Derivatives Subject to Regulatory Treatment (2)
(millions)
Year Ended December 31, 2019
Derivative type and location of gains (losses):
Interest rate (3)$(30)$(1)$(259)
Total$(30)$(1)$(259)
Year Ended December 31, 2018
Derivative type and location of gains (losses):
Interest rate (3)$ 2$(1)$ 39
Total$ 2$(1)$ 39
Year Ended December 31, 2017
Derivative type and location of gains (losses):
Interest rate (3)$ (8)$(1)$(58)
Total$ (8)$(1)$(58)
(1)Amounts deferred into AOCI have no associated effect in Virginia Power’s Consolidated Statements of Income.
(2)Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
(3)Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in interest and related charges.
Derivatives not designated as hedging instrumentsAmount of Gain (Loss) Recognized in Income on Derivatives (1)
Year Ended December 31,201920182017
(millions)
Derivative type and location of gains (losses):
Commodity (2)$(45)$2$(57)
Total$(45)$2$(57)
(1)Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
(2)Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.
131

Combined Notes to Consolidated Financial Statements, Continued

Dominion Energy Gas

Balance Sheet Presentation

The tables below present Dominion Energy Gas’ derivative asset and liability balances by type of financial instrument, if the gross amounts recognized in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:

December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Assets Presented in the Consolidated Balance SheetFinancial InstrumentsCash Collateral ReceivedNet AmountsGross Assets Presented in the Consolidated Balance SheetFinancial InstrumentsCash Collateral ReceivedNet Amounts
(millions)
Commodity contracts:
Over-the-counter$ —$ —$ —$ —$ 3$ —$ —$ 3
Interest rate contracts:
Over-the-counter————2——2
Foreign currency contracts:
Over-the-counter88——262—24
Total derivatives, subject to a master netting or similar arrangement$ 8$ 8$ —$ —$ 31$ 2$ —$ 29
December 31, 2019December 31, 2018
Gross Amounts Not Offset in the Consolidated Balance SheetGross Amounts Not Offset in the Consolidated Balance Sheet
Gross Liabilities Presented in the Consolidated Balance SheetFinancial InstrumentsCash Collateral PaidNet AmountsGross Liabilities Presented in the Consolidated Balance SheetFinancial InstrumentsCash Collateral PaidNet Amounts
(millions)
Interest rate contracts:
Over-the-counter$ 83$ 5$ —$ 78$ 17$ —$ —$ 17
Foreign currency contracts:
Over-the-counter33——22——
Total derivatives, subject to a master netting or similar arrangement$ 86$ 8$ —$ 78$ 19$ 2$ —$ 17
132

Volumes

The following table presents the volume of Dominion Energy Gas’ derivative activity at December 31, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

CurrentNoncurrent
Interest rate (1)$250,000,000$1,050,000,000
Foreign currency (1)€—€250,000,000
(1)Maturity is determined based on final settlement period.

A

OCI

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2019:

AOCI After-TaxAmounts Expected to be Reclassified to Earnings During the Next 12 Months After-TaxMaximum Term
(millions)
Interest rate$(84)$ 15300 months
Foreign currency3(2)78 months
Total$(81)$ 13

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates, and foreign currency exchange rates.

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Dominion Energy Gas’ derivatives and where they are presented in its Consolidated Balance Sheets:

Fair Value – Derivatives under Hedge AccountingFair Value – Derivatives not under Hedge AccountingTotal Fair Value
(millions)
At December 31, 2019
ASSETS
Noncurrent Assets
Foreign currency$ 8$ —$8
Total noncurrent derivative assets (1)8—8
Total derivative assets$ 8$ —$8
LIABILITIES
Current Liabilities
Interest rate$30$ —$30
Foreign currency3—3
Total current derivative liabilities (2)33—33
Noncurrent Liabilities
Interest rate53—53
Total noncurrent derivative liabilities (3)53—53
Total derivative liabilities$86$ —$86
At December 31, 2018
ASSETS
Current Assets
Commodity$ 3$ —$3
Interest rate2—2
Total current derivative assets (4)5—5
Noncurrent Assets
Foreign currency26—26
Total noncurrent derivative assets (1)26—26
Total derivative assets$31$ —$31
LIABILITIES
Current Liabilities
Interest rate$ 9$ —$9
Foreign currency2—2
Total current derivative liabilities (2)11—11
Noncurrent Liabilities
Interest rate8—8
Total noncurrent derivative liabilities (3)8—8
Total derivative liabilities$19$ —$19
(1)Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets.
(2)Current derivative liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets .
(3)Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
(4)Current derivative assets include $2 million in other current assets, with the remainder recorded in current assets of discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets.
133

Combined Notes to Consolidated Financial Statements, Continued

The following tables present the gains and losses on Dominion Energy Gas’ derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:

Derivatives in cash flow hedging relationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) (1)Amount of Gain (Loss) Reclassified From AOCI to Income
(millions)
Year Ended December 31, 2019
Derivative type and location of gains (losses):
Commodity:
Net income from discontinued operations$ 4
Total commodity$ 1$ 4
Interest rate (2)(68)(5)
Foreign currency (3)(18)(6)
Total$ (85)$ (7)
Year Ended December 31, 2018
Derivative type and location of gains (losses):
Commodity:
Net income from discontinued operations$ (8)
Total commodity$ 1$ (8)
Interest rate (2)(16)(5)
Foreign currency (3)(6)(13)
Total$ (21)$ (26)
Year Ended December 31, 2017
Derivative type and location of gains (losses):
Commodity:
Net income from discontinued operations$ (8)
Total commodity$ (10)$ (8)
Interest rate (2)1(6)
Foreign currency (3)1820
Total$ 9$ 6
(1)Amounts deferred into AOCI have no associated effect in Dominion Energy Gas’ Consolidated Statements of Income.
(2)Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in interest and related charges.
(3)Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in other income.
Derivatives not designated as hedging instrumentsAmount of Gain (Loss) Recognized in Income on Derivatives
Year Ended December 31,201920182017
(millions)
Derivative type and location of gains (losses):
Commodity
Operating revenue$—$(11)$—
Total$—$(11)$—

Note 8. Earnings Per Share

The following table presents the calculation of Dominion Energy’s basic and diluted EPS:

201920182017
(millions, except EPS)
Net income attributable to Dominion Energy$1,358$2,447$2,999
Preferred stock dividends (see Note 19)(17)——
Net income attributable to Dominion Energy – Basic1,3412,4472,999
Dilutive effect of Series A Preferred Stock(28)——
Net income attributable to Dominion Energy – Diluted1,3132,4472,999
Average shares of common stock outstanding – Basic808.8654.2636.0
Net effect of dilutive securities (1)0.10.7—
Average shares of common stock outstanding – Diluted808.9654.9636.0
Earnings Per Common Share – Basic$1.66$3.74$4.72
Earnings Per Common Share – Diluted$1.62$3.74$4.72
(1)Dilutive securities for 2018 consist primarily of forward sale agreements, effective April 2018 to December 2018. See Notes 17 and 19 for more information.

The 2019 Equity Units are potentially dilutive securities. The forward stock purchase contracts included within the 2019 Equity Units were excluded from the calculation of diluted EPS for the year ended December 31, 2019, as the dilutive stock price threshold was not met. The Series A Preferred Stock included within the 2019 Equity Units is excluded from the effect of dilutive securities within diluted EPS, but a fair value adjustment is reflected within net income attributable to Dominion Energy for the calculation of diluted EPS for the year ended December 31, 2019 based upon the expectation that the conversion will be settled in cash rather than through the issuance of Dominion Energy common stock. The 2016 Equity Units were potentially dilutive securities, but were excluded from the calculation of diluted EPS for the years ended December 31, 2019, 2018 and 2017 as the dilutive stock price threshold was not met. The Dominion Energy Midstream convertible preferred units were potentially dilutive securities but had no effect on the calculation of diluted EPS for the years ended December 31, 2018 and 2017. In calculating diluted EPS in connection with the Dominion Energy Midstream convertible preferred units, Dominion Energy applied the

if-converted

method.

134

Note 9. Investments

Dominion Energy

Equity and Debt Securities

Rabbi Trust Securities

Equity and fixed income securities and cash equivalents in Dominion Energy’s rabbi trusts and classified as trading totaled $120 million and $111 million at December 31, 2019 and 2018, respectively.

Decommissioning Trust Securities

Dominion Energy holds equity and fixed income securities, insurance contracts and cash equivalents in nuclear decommissioning trust funds to fund future decommissioning costs for its nuclear plants. Dominion Energy’s decommissioning trust funds are summarized below:

Amortized CostTotal Unrealized GainsTotal Unrealized LossesFair Value
(millions)
December 31, 2019
Equity securities: (1)
U.S.$1,807$2,451$(20)$4,238
Fixed income securities: (2)
Corporate debt instruments43429—463
Government securities1,10839(2)1,145
Common/collective trust funds1154—119
Insurance contracts214——214
Cash equivalents and other (3)13——13
Total$3,691$2,523$(22) (4)$6,192
December 31, 2018
Equity securities: (1)
U.S.$1,741$1,640$(51)$3,330
Fixed income securities: (2)
Corporate debt instruments4355(9)431
Government securities1,09217(12)1,097
Common/collective trust funds76——76
Cash equivalents and other4——4
Total$3,348$1,662$(72) (4)$4,938
(1)Unrealized gains and losses on equity securities are included in other income and the nuclear decommissioning trust regulatory liability as discussed in Note 2.
(2)Unrealized gains and losses on fixed income securities are included in AOCI and the nuclear decommissioning trust regulatory liability as discussed in Note 2.
(3)Includes pending purchases of securities of $1 million at December 31, 2019.
(4)The fair value of securities in an unrealized loss position was $298 million and $833 million at December 31, 2019 and 2018, respectively.

The portion of unrealized gains and losses that relates to equity securities held within Dominion Energy’s nuclear decommissioning trusts is summarized below:

Year Ended December 31,20192018
(millions)
Net gains (losses) recognized during the period$919$(245)
Less: Net gains recognized during the period on securities sold during the period(80)(58)
Unrealized gains (losses) recognized during the period on securities still held at December 31, 2019 and 2018 (1)$839$(303)
(1)Included in other income and the nuclear decommissioning trust regulatory liability as discussed in Note 2.

The fair value of Dominion Energy’s fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds at December 31, 2019 by contractual maturity is as follows:

Amount
(millions)
Due in one year or less$198
Due after one year through five years412
Due after five years through ten years390
Due after ten years727
Total$1,727
135

Combined Notes to Consolidated Financial Statements, Continued

Presented below is selected information regarding Dominion Energy’s equity and fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds.

Year Ended December 31,201920182017
(millions)
Proceeds from sales$1,712$1,804$1,831
Realized gains (1)195140166
Realized losses (1)969171
(1)Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability as discussed in Note 2.

Dominion Energy recorded other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds as follows:

Year Ended December 31,201920182017
(millions)
Total other-than-temporary impairment losses (1)$3$30$44
Losses recorded to the nuclear decommissioning trust regulatory liability——(16)
Losses recognized in other comprehensive income (before taxes)(3)(30)(5)
Net impairment losses recognized in earnings$—$—$23
(1)Amounts include other-than-temporary impairment losses for fixed income securities of $5 million at December 31, 2017.

Virginia Power

Virginia Power holds equity and fixed income securities and cash equivalents in nuclear decommissioning trust funds to fund future decommissioning costs for its nuclear plants. Virginia Power’s decommissioning trust funds are summarized below:

Amortized CostTotal Unrealized GainsTotal Unrealized LossesFair Value
(millions)
December 31, 2019
Equity securities: (1)
U.S.$894$1,144$(11)$2,027
Fixed income securities: (2)
Corporate debt instruments24115—256
Government securities53414(2)546
Common/collective trust funds51——51
Cash equivalents and other1——1
Total$1,721$1,173$(13) (4)$2,881
December 31, 2018
Equity securities: (1)
U.S.$ 858$751$(24)$1,585
Fixed income securities: (2)
Corporate debt instruments2242(5)221
Government securities5047(5)506
Common/collective trust funds51——51
Cash equivalents and other (3)6——6
Total$1,643$760$(34) (4)$2,369
(1)Unrealized gains and losses on equity securities, are included in other income and the nuclear decommissioning trust regulatory liability as discussed in Note 2.
(2)Unrealized gains and losses on fixed income securities are included in AOCI and the nuclear decommissioning trust regulatory liability as discussed in Note 2.
(3)Includes pending sales of securities of $6 million at December 31, 2018.
(4)The fair value of securities in an unrealized loss position was $185 million and $404 million at December 31, 2019 and 2018, respectively.

The portion of unrealized gains and losses that relates to equity securities held within Virginia Power’s nuclear decommissioning trusts is summarized below:

Year Ended December 31,20192018
(millions)
Net gains (losses) recognized during the period$423$(105)
Less: Net gains recognized during the period on securities sold during the period(20)(32)
Unrealized gains (losses) recognized during the period on securities still held at December 31, 2019 and 2018 (1)$403$(137)
(1)Included in other income and the nuclear decommissioning trust regulatory liability as discussed in Note 2.

The fair value of Virginia Power’s fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds at December 31, 2019, by contractual maturity is as follows:

Amount
(millions)
Due in one year or less$ 91
Due after one year through five years175
Due after five years through ten years206
Due after ten years381
Total$853

Presented below is selected information regarding Virginia Power’s equity and fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds.

Year Ended December 31,201920182017
(millions)
Proceeds from sales$858$887$849
Realized gains (1)586075
Realized losses (1)222730
(1)Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability as discussed in Note 2.
136

Virginia Power recorded other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds as follows:

Year Ended December 31,201920182017
(millions)
Total other-than-temporary impairment losses (1)$2$15$20
Losses recorded to the nuclear decommissioning trust regulatory liability——(16)
Losses recognized in other comprehensive income (before taxes)(2)(15)(2)
Net impairment losses recognized in earnings$—$—$2
(1)Amounts include other-than-temporary impairment losses for fixed income securities of $2 million at December 31, 2017.

Equity Method Investments

Dominion Energy

Investments that Dominion Energy account for under the equity method of accounting are as follows:

CompanyOwnership%Investment BalanceDescription
As of December 31,20192018
(millions)
Atlantic Coast Pipeline48%$1,123$820Gas transmission system
Iroquois50%276302Gas transmission system
Fowler Ridge50%7482Wind-powered merchant generation facility
Wrangler20%77—Nonregulated retail energy marketing
Other (1)(2)various9674
Total$1,646$1,278
(1)Liability of less than $1 million associated with NedPower recorded to other deferred credits and other liabilities, on the Consolidated Balance Sheets as of December 31, 2018. See additional discussion of NedPower below.
(2)Dominion Energy has an $ 80 million unfunded commitment to be made to Align RNG by the end of 202 2 .

Dominion Energy’s equity earnings on its investments totaled $168 million, $197 million and $14 million in 2019, 2018 and 2017, respectively, included in other income in Dominion Energy’s Consolidated Statements of Income. Dominion Energy received distributions from these investments of $112 million, $209 million and $419 million in 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018

,

the net difference between the carrying amount of Dominion Energy’s investments and its share of underlying equity in net assets was $110 million and $161 million, respectively. At December 31, 2019, these differences are comprised of $159 million of equity method goodwill that is not being amortized and a net $49 million basis difference from Dominion Energy’s investments in Fowler, which is being amortized over the useful lives of the underlying assets, in Atlantic Coast Pipeline, which is being amortized over the term of its credit facility

,

and an unfunded commitment to be made to Align RNG. At December 31, 2018

,

these differences are comprised of $146 million of equity method goodwill that is not being amortized and $15 million related to basis differences from Dominion Energy’s investments in wind projects, which are being amortized over the useful lives of the underlying assets, and in Atlantic Coast Pipeline, which is being amortized over the term of its credit facility.

Atlantic Coast Pipeline

In September 2014, Dominion Energy, along with Duke and Southern, announced the formation of Atlantic Coast Pipeline. The Atlantic Coast Pipeline partnership agreement includes provisions to allow Dominion Energy an option to purchase additional ownership interest in Atlantic Coast Pipeline to maintain a leading ownership percentage. As of December 31, 2019, the members hold the following membership interests: Dominion Energy, 48%; Duke, 47%; and Southern, 5%.

Atlantic Coast Pipeline is focused on constructing an approximately

600-mile

natural gas pipeline running from West Virginia through Virginia to North Carolina. Subsidiaries and affiliates of all three members plan to be customers of the pipeline under

20-year

contracts. Atlantic Coast Pipeline is considered an equity method investment as Dominion Energy has the ability to exercise significant influence, but not control, over the investee. See Note 16 for more information.

Dominion Energy recorded contributions of $186 million, $414 million and $310 million during 2019, 2018 and 2017, respectively, to Atlantic Coast Pipeline. At December 31, 2019, Dominion Energy had $7 million of contributions payable to Atlantic Coast Pipeline included within other current liabilities in the Consolidated Balance Sheets.

Dominion Energy did not receive distributions from Atlantic Coast Pipeline during 2019 and received distributions of $36 million and $270 million during 2018 and 2017, respectively.

In October 2017, Dominion Energy entered into a guarantee agreement to support a portion of Atlantic Coast Pipeline’s obligation under its credit facility. See Note 23 for more information.

The Atlantic Coast Pipeline Project is the subject of challenges in federal courts including, among others, challenges of the Atlantic Coast Pipeline Project’s biological opinion and incidental take statement, permits providing right of way crossings of certain federal lands, the U.S. Army Corps of Engineers 404 permit, the air permit for a compressor station at Buckingham, Virginia, and the FERC order approving the CPCN. Each of these challenges alleges

non-compliance

on the part of federal and state permitting authorities and adverse ecological consequences if the Atlantic Coast Pipeline Project is permitted to proceed. Since December 2018, notable developments in these challenges include a stay in December 2018 issued by the U.S. Court of Appeals for the Fourth Circuit and the same court’s July 2019 vacatur of the biological opinion and incidental take statement (which stay and subsequent vacatur halted most project construction activity), U.S. Court of Appeals for the Fourth Circuit decisions vacating the permits to cross certain federal forests and the air permit for a compressor station at Buckingham, Virginia, the U.S. Court of Appeals for the Fourth Circuit’s remand to U.S. Army Corps of Engineers of Atlantic Coast Pipeline’s Huntington District 404 verification and the U.S. Court of Appeals for the Fourth Circuit’s remand to the National Park Service of Atlantic Coast Pipeline’s Blue Ridge Parkway

right-of-way.

Atlantic Coast Pipeline continues to vigorously defend these challenges and is coordinating with the federal and state authorities to obtain new authorizations. Atlantic Coast Pipeline continues coordinating and working with U.S. Fish and Wildlife Service and other parties in

137

Combined Notes to Consolidated Financial Statements, Continued

preparation for a reissuance of the biological opinion and incidental take statement. In June 2019, the Solicitor General of the U.S. and Atlantic Coast Pipeline filed petitions requesting that the Supreme Court of the U.S. hear the case regarding the Appalachian Trail crossing. In February 2020, the Supreme Court of the U.S. heard oral arguments in the case and is expected to issue a ruling no later than June 2020. If a favorable ruling is not received, Atlantic Coast Pipeline is also evaluating possible legislative and administrative remedies to this issue.

Given the legal challenges described above and ongoing discussions with customers, project construction is expected to be completed by the end of 2021, with full

in-service

in early 2022, with project costs estimated to be approximately $8 billion, excluding financing costs. Atlantic Coast Pipeline has reached agreements in principle with

major

customers to amend the contracted rate to share in certain delay cost increases, pending certain regulatory approvals. Project construction activities, schedules and costs are also subject to uncertainty due to permitting and/or work delays (including due to judicial or regulatory action), abnormal weather and other conditions that could result in further cost or schedule modifications, a suspension of AFUDC for Atlantic Coast Pipeline and/or impairment charges potentially material to Dominion Energy’s cash flows, financial position and/or results of operations.

In February 2020, Dominion Energy entered into agreements with Southern to acquire its 5% membership interest in Atlantic Coast Pipeline and its 100% ownership interest in Pivotal LNG, Inc., for approximately $175 million in aggregate, plus certain purchase price adjustments. Pivotal LNG, Inc. includes a 50% noncontrolling interest in JAX LNG, LLC, an LNG supplier in Florida serving the growing marine and truck LNG markets. The acquisitions are expected to close by the second quarter of 2020. Following completion of the acquisition, Dominion Energy will own a 53% noncontrolling membership interest in Atlantic Coast Pipeline which will continue to be reflected as an equity method investment as the power to direct the activities most significant to Atlantic Coast Pipeline is shared with Duke.

Blue Racer

In December 2018, Dominion Energy sold its 50% limited partnership interest in Blue Racer for

up-front

cash consideration of $1.05 billion and additional consideration of $150 million, subject to increase for interest costs effective March 2019, payable upon the purchaser’s availability of cash. The additional consideration was recorded at a fair value of $150 million on the date of sale following a discounted cash flow model and is included within other receivables in the Consolidated Balance Sheets at December 31, 2018. The valuation is considered a Level 3 fair value measurement due to the use of judgment and unobservable inputs, including projected timing and amount of future cash flows and a discount rate reflecting risks inherent in the future cash flows. As a result of the sale, Dominion Energy recognized a gain of $546 million ($390 million

after-tax),

included in other income in its Consolidated Statements of Income for the year ended December 31, 2018. In addition, the purchaser agreed to pay additional consideration contingent upon the achievement of certain financial performance milestones of Blue Racer from 2019 through 2021. Pursuant to the purchase agreement, the aggregate will not exceed $300 million, which represents a gain contingency,

and, as a result, Dominion Energy will not recognize any additional gain unless such consideration is realizable. In the first quarter of 2019, Dominion Energy received $151 million of additional consideration, including applicable interest, in connection with this sale. Blue Racer did not achieve the 2019 financial performance milestones set forth in the sale agreement.

Fowler Ridge & NedPower

In the fourth quarter of 2017, Dominion Energy recorded a charge of $126 million ($76 million

after-tax)

in other income in its Consolidated Statements of Income reflecting its share of a long-lived asset impairment of property, plant and equipment recorded by NedPower, which resulted in losses in excess of Dominion Energy’s investment balance. Dominion Energy recorded the excess losses due to its commitment to provide further financial support for NedPower, resulting in a liability of $17 million at December 31, 2017, recorded to other deferred credits and other liabilities, on the Consolidated Balance Sheets.

As a result of the impairment recorded by NedPower, Dominion Energy evaluated its equity method investment in Fowler Ridge, a similar wind-powered merchant generation facility, determined its fair value was other than-temporarily impaired and recorded an impairment charge of $32 million ($20 million

after-tax)

in other income in its Consolidated Statements of Income. The fair value of $81 million was estimated using a discounted cash flow method and is considered a Level 3 fair value measurement due to the use of significant unobservable inputs related to the timing and amount of future equity distributions based on the investee’s future wind generation and operating costs.

Wrangler

In September 2019, Dominion Energy entered into an agreement to form Wrangler, a partnership with Interstate Gas Supply, Inc. Wrangler will operate a nonregulated natural gas retail energy marketing business with Dominion Energy contributing its nonregulated retail energy marketing operations and Interstate Gas Supply, Inc. contributing cash. Dominion Energy has a 20% noncontrolling ownership interest in Wrangler which is accounted for as an equity method investment as Dominion Energy has the ability to exercise significant influence, but not control, over the investee.

The initial contribution, consisting of SEMI, closed in December 2019 for which Dominion Energy received $301 million in cash proceeds and a 20% noncontrolling ownership interest in Wrangler with

an

initial fair value of $75 million estimated using the market approach. This valuation is considered a Level 2 fair value measurement given that it is based on the agreed-upon sales price. In connection with the transaction, Dominion Energy recorded a gain of $147 million, net of a $73 million

write-off

of goodwill, presented in gains on sales of assets, and an associated tax expense of $82 million, in the Consolidated Statement of Income. Over the next two years, under the terms of the agreement, Dominion Energy expects to contribute its remaining nonregulated retail energy marketing operations to Wrangler. As a result of these contributions, Dominion Energy will receive additional cash consideration which will be based upon future financial performance. When these future contributions occur, Dominion Energy expects to retain a 20% noncontrolling ownership interest in Wrangler.

138

As of December 31, 2019, $41 million of assets associated with Dominion Energy’s residential contracts to be contributed to Wrangler in December 2020 were classified as held for sale and were included in other current assets on the Consolidated Balance Sheet. The related disposal group is primarily comprised of customer receivables and inventories.

All activity relating to Wrangler is recorded within Gas Transmission & Storage.

Other – Catalyst Old River Hydroelectric Limited Partnership

In September 2018, Dominion Energy completed the sale of its 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership and received proceeds of $91 million. The sale resulted in a gain of $87 million ($63 million

after-tax),

which is included in other income in Dominion Energy’s Consolidated Statement of Income.

Dominion Energy Gas

Investments that Dominion Energy Gas account for under the equity method of accounting are as follows:

CompanyOwnership%Investment BalanceDescription
As of December 31,20192018
(millions)
Iroquois50%$276$302Gas transmission system
White River Hub50%3637Gas transmission system
Total$312$339

Dominion Energy Gas’ equity earnings on its investment totaled $43 million, $54 million and $47 million in 2019, 2018 and 2017, respectively. Dominion Energy Gas received distributions from its investment of $74 million, $64 million and $55 million in 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, the carrying amount of Dominion Energy Gas’ investment exceeded its share of underlying equity in net assets by $146 million. The difference reflects equity method goodwill and is not being amortized.

Summarized financial information provided to Dominion Energy Gas by Iroquois for 100% of Iroquois at December 31, 2019 and 2018

,

and for the years ended December 31, 2019, 2018 and 2017

,

is presented below.

At December 31, 2019At December 31, 2018
(millions)
Current assets$ 79$112
Noncurrent assets586588
Current liabilities37165
Noncurrent liabilities334193
Year Ended December 31, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Revenues$180$194$194
Operating income93108110
Net income829493

Summarized financial information provided to Dominion Energy Gas by White River Hub for 100% of White River Hub at December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 is presented below.

At December 31, 2019At December 31, 2018
(millions)
Current assets$ 3$ 3
Noncurrent assets3941
Current liabilities22
Year Ended December 31, 2019Year Ended December 31, 2018Year Ended December 31, 2017
(millions)
Revenues$10$12$10
Operating income687
Net income687

Atlantic Coast Pipeline

DETI provides services to Atlantic Coast Pipeline which totaled $103 million, $203 million and $129 million in 2019, 2018 and 2017, respectively, included in operating revenue in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income. Amounts receivable related to these services were $7 million and $13 million at December 31, 2019 and 2018, respectively, composed entirely of accrued unbilled revenue, included in other receivables in Dominion Energy Gas’ Consolidated Balance Sheets.

139

Combined Notes to Consolidated Financial Statements, Continued

Note 10. Property, Plant

and

Equipment

Major classes of property, plant and equipment and their respective balances for the Companies are as follows:

At December 31,20192018
(millions)
Dominion Energy
Utility:
Generation$25,317$18,896
Transmission20,48616,666
Distribution25,74818,535
Storage3,2272,906
Nuclear fuel2,2961,626
Oil and gas1,7921,763
General and other2,4131,783
Plant under construction2,9562,348
Total utility84,23564,523
Non-jurisdictional—including plant under construction854407
Nonutility:
Merchant generation-nuclear1,6521,550
Merchant generation-other3,9853,802
Nuclear fuel9301,025
Gas gathering and processing190185
LNG facility4,4253,977
Other—including plant under construction1,1951,109
Total nonutility12,37711,648
Total property, plant and equipment$97,466$76,578
Virginia Power
Utility:
Generation$19,552$18,896
Transmission10,2299,391
Distribution12,09511,771
Nuclear fuel1,6881,626
General and other825820
Plant under construction1,7841,602
Total utility46,17344,106
Non-jurisdictional—including plant under construction854407
Other1111
Total property, plant and equipment$47,038$44,524
Dominion Energy Gas
Utility:
Transmission$7,014$6,790
Storage2,7992,615
General and other219210
Plant under construction574732
Total utility10,60610,347
Nonutility:
LNG facility4,4253,977
Other—including plant under construction135376
Total nonutility4,5604,353
Total property, plant and equipment$15,166$14,700

Jointly-Owned Power Stations

Dominion Energy and Virginia Power’s proportionate share of jointly-owned power stations at December 31, 2019 is as follows

Bath County Pumped Storage Station (1)North Anna Units 1 and 2 (1)Clover Power Station (1)Millstone Unit 3 (2)Summer Unit 1 (2)
(millions, except percentages)
Ownership interest60%88.4%50%93.5%66.7%
Plant in service1,0582,5646101,2671,394
Accumulated depreciation(661)(1,321)(247)(449)(659)
Nuclear fuel—793—483608
Accumulated amortization of nuclear fuel—(634)—(390)(389)
Plant under construction714358777
(1)Units jointly owned by Virginia Power.
(2)Unit jointly owned by Dominion Energy.

The

co-owners

are obligated to pay their share of all future construction expenditures and operating costs of the jointly-owned facilities in the same proportion as their respective ownership interest. Dominion Energy and Virginia Power report their share of operating costs in the appropriate operating expense (electric fuel and other energy-related purchases, other operations and maintenance, depreciation, depletion and amortization and other taxes, etc.) in the Consolidated Statements of Income.

Sale of Certain Retail Energy Marketing Assets

In October 2017, Dominion Energy entered into an agreement to sell certain assets associated with its nonregulated retail energy marketing operations for total consideration of $143 million, subject to customary approvals and certain adjustments. In December 2017, the first phase of the agreement closed for $79 million, which resulted in the recognition of a $78 million ($48 million

after-tax)

benefit, included in gains on sales of assets in Dominion Energy’s Consolidated Statements of Income. In October 2018, the second phase of the agreement closed for $63 million, which resulted in the recognition of a $65 million ($49 million

after-tax)

benefit included in gains on sales of assets in Dominion Energy’s Consolidated Statements of Income. Pursuant to the agreement, Dominion Energy entered into a commission agreement with the buyer upon the first closing in December 2017 under which the buyer will pay a commission in connection with the right to use Dominion Energy’s brand in marketing materials and other services over a

ten-year

term.

Sale of Certain Merchant Generation Facilities

In December 2018, Dominion Energy completed the sale of Fairless and Manchester for total consideration of $1.2 billion, subject to customary closing adjustments. Dominion Energy recognized a gain of $210 million ($198 million

after-tax)

included in gains on sales of assets in Dominion Energy’s Consolidated Statements of Income. The

after-tax

gain reflects Dominion Energy’s assessment and

more-likely-than-not

conclusion that the utilization of state tax incentives will reduce the income tax expense associated with the sale of these facilities.

140

Acquisition of Solar Projects

The following table presents acquisitions by Virginia Power of solar projects. Virginia Power has claimed or expects to claim federal investment tax credits on the projects.

Date Agreement EnteredDate Agreement ClosedProject LocationProject NameProject Cost (millions) (1)Date of Commercial OperationsMW Capacity
September 2017October 2018North CarolinaPecan$140December 201875
September 2017June 2019North CarolinaGutenberg142September 201980
June 2018February 2019VirginiaGloucester37April 201920
August 2018May 2019VirginiaGrasshopper130Expected 202080
August 2018May 2019North CarolinaChestnut130Expected 202075
June 2019June 2019VirginiaFt. Powhatan270Expected 2021150
June 2019August 2019VirginiaBelcher160Expected 202088
August 2019November 2019VirginiaBedford110Expected 202170
October 2019October 2019VirginiaMaplewood190Expected 2022120
December 2019January 2020VirginiaRochambeau35Expected 202120
(1)Includes acquisition costs.

The following table presents acquisitions by Dominion Energy

of solar projects. Dominion Energy

has claimed or

expects to claim federal investment tax credits on the projects.

Date Agreement EnteredDate Agreement ClosedProject LocationProject NameProject Cost (millions) (1)Date of Commercial OperationsMW Capacity
August 2019August 2019VirginiaGreensville$130Expected 202080
August 2019August 2019VirginiaMyrtle35Expected 202015
September 2019September 2019South CarolinaSeabrook103December 201972
November 2019November 2019North CarolinaWilkinson153December 201974
(1)Includes acquisition costs.

Assignment of Tower Rental Portfolio

Virginia Power rents space on certain of its electric transmission towers to various wireless carriers for communications antennas and other equipment. In March 2017, Virginia Power sold its rental portfolio to Vertical Bridge Towers II, LLC for $91 million in cash. The proceeds are subject to Virginia Power’s FERC-regulated tariff, under which it is required to return half of the proceeds to customers. Virginia Power recorded $7 million and $6 million in operating revenue

in 2019 and 2018, respectively,

and $11 million in other income

in

2017, with $22 million remaining to be recognized ratably through 2023.

Assignments of Shale Development Rights

In December 2013, Dominion Energy Gas closed on agreements with two natural gas producers to convey over time approximately 100,000 acres of Marcellus Shale development rights underneath several of its natural gas storage fields. The agreements provided for payments to Dominion Energy Gas, subject to customary adjustments, of approximately $200 million over a period of nine years, and an overriding royalty interest in gas produced from the acreage. In 2013 through 2016, Dominion Energy Gas received approximately $116 million of cash proceeds and through amendments closed on the immediate conveyance of approximately 9,000 acres and a 32% partial interest in the 70,000 acres of Marcellus Shale development rights, which resulted in the recognition of $78 million of gains. In August 2017, Dominion

Energy Gas and the natural gas producer signed an amendment to the agreement, which included the finalization of contractual matters on previous conveyances, the conveyance of Dominion Energy Gas’ remaining 68% interest in approximately 70,000 acres and the elimination of Dominion Energy Gas’ overriding

royalty interest in gas produced from all acreage. Dominion Energy Gas received total consideration of $130 million, with $65 million received in 2017 and $65 million received in September 2018 in connection with the final conveyance. As a result of this amendment, in 2017, Dominion Energy Gas recognized a $56 million ($33 million

after-tax)

gain included in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income associated with the finalization of the contractual matters on previous conveyances, a $9 million ($5 million

after-tax)

gain included in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income associated with the elimination of its overriding royalty interest and in 2018, a $65 million ($47 million

after-tax)

gain included in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income associated with the final conveyance of acreage.

In November 2014, Dominion Energy Gas closed an agreement with a natural gas producer to convey over time approximately 24,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. The agreement provided for payments to Dominion Energy Gas, subject to customary adjustments, of approximately $120 million over a period of four years, and an overriding royalty interest in gas produced from the acreage. In 2014 through 2016, Dominion Energy Gas received

approximately $70 million in proceeds on the conveyance of approximately 12,000 acres and as well as a 50% interest in approximately 4,000 acres along with an overriding royalty interest, which resulted in the recognition of $70 million of gains. In July 2017, in connection with the existing agreement, Dominion Energy Gas conveyed an additional 50% interest in approximately 2,000 acres of Marcellus Shale development rights and received proceeds of $5 million and an overriding royalty interest

141

Combined Notes to Consolidated Financial Statements, Continued

in gas produced from the acreage. This transaction resulted in a $5 million ($3 million

after-tax)

gain. The gains are included in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income. In January 2018, Dominion Energy Gas and the natural gas producer closed on an amendment to the agreement, which included the conveyance of Dominion Energy Gas’ remaining 50% interest in approximately 18,000 acres and the elimination of Dominion Energy Gas’ overriding royalty interest in gas produced from all acreage. Dominion Energy Gas received proceeds of $28 million, resulting in an approximately $28 million ($20 million

after-tax)

gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.

In March 2018, Dominion Energy Gas closed an agreement with a natural gas producer to convey approximately 11,000 acres of Utica and Point Pleasant Shale development rights underneath one of its natural gas storage fields. The agreement provided for a payment to Dominion Energy Gas, subject to customary adjustments, of

$16 million. In March 2018, Dominion Energy Gas received cash proceeds of $16 million associated with the conveyance of the acreage, resulting in a $16 million ($12 million

after-tax)

gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.

In June 2018, Dominion Energy Gas closed an amendment to an agreement with a natural gas producer for the elimination of Dominion Energy Gas’ overriding royalty interest in gas produced from approximately 9,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields previously conveyed in December 2013. In June 2018, Dominion Energy Gas received proceeds of $6 million associated with the transaction, resulting in a $6 million ($4 million

after-tax)

gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.

All activity related to shale development rights is recorded within Gas Transmission & Storage.

Note 11. Goodwill and Intangible Assets

Goodwill

During the fourth quarter of 2019, Dominion Energy realigned its segments which resulted in the formation of five primary operating segments and Dominion Energy Gas finalized a restructuring that was accounted for as a reorganization of entities under common control. The historical information presented herein has been recast to the current segment presentation and the current structure of Dominion Energy Gas. With respect to the segment realignment, goodwill has been reassigned to the affected reporting units and operating segments using a relative fair value allocation approach. The changes in Dominion Energy’s and Dominion Energy Gas’ carrying amount and segment allocation of goodwill are presented below:

Dominion Energy VirginiaGas Transmission & StorageGas DistributionDominion Energy South CarolinaContracted GenerationCorporate and OtherTotal
(millions)
Dominion Energy
Balance at December 31, 2017 (1)$2,106$1,561$2,496$—$242$—$6,405
Purchase Accounting Adjustment—41———5
Balance at December 31, 2018 (1)$2,106$1,565$2,497$—$242$—$6,410
SCANA Combination (2)—731,0151,521——2,609
Contribution of SEMI to Wrangler (3)—(73)————(73)
Balance at December 31, 2019 (1)$2,106$1,565$3,512$1,521$242$—$8,946
Dominion Energy Gas
Balance at December 31, 2017 (1)$—$1,466$—$—$—$—$1,466
Purchase Accounting Adjustment—5————5
Balance at December 31, 2018 (1)$—$1,471$—$—$—$—$1,471
No events affecting goodwill———————
Balance at December 31, 2019 (1)$—$1,471$—$—$—$—$1,471
(1)Goodwill amounts do not contain any accumulated impairment losses.
(2)See Note 3 for discussion of Dominion Energy’s acquisitions.
(3)See Note 9 for additional information.
142

Other Intangible Assets

The Companies’ other intangible assets are subject to amortization over their estimated useful lives. Dominion Energy’s amortization expense for intangible assets was $106 million, $82 million and $80 million for 2019, 2018 and 2017, respectively. In 2019

, in addition to intangible assets acquired in the SCANA Combination

,

Dominion Energy acquired $120 million of intangible assets, primarily representing software and

right-of-use

assets, with an estimated weighted-average amortization period of approximately 10 years. Amortization expense for Virginia Power’s intangible assets was $30 million for 2019 and $31 million for both 2018 and 2017. In 2019, Virginia Power acquired $52 million of intangible assets, primarily representing software, with an estimated weighted-average amortization period of 8 years. Dominion Energy Gas’ amortization expense for intangible assets was $11 million for both 2019 and 2018 and $9 million for 2017. In 2019, Dominion Energy Gas acquired $7 million of intangible assets, primarily representing software and

right-of-use

assets, with an estimated weighted-average amortization period of approximately 29 years.

The components of intangible assets are as follows:

20192018
At December 31,Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
(millions)
Dominion Energy
Software, licenses and other$1,340$549$1,033$363
Virginia Power
Software, licenses and other$406$135$384$134
Dominion Energy Gas
Software, licenses and other$178$ 72$179$ 64

Annual amortization expense for these intangible assets is estimated to be as follows:

20202021202220232024
(millions)
Dominion Energy$88$78$70$56$49
Virginia Power$25$19$15$8$6
Dominion Energy Gas$9$8$8$5$4

Note 12. Regulatory Assets And Liabilities

Regulatory assets and liabilities include the following:

At December 31,20192018
(millions)
Dominion Energy
Regulatory assets:
Deferred cost of fuel used in electric generation (1)$48$174
Deferred project costs and DSM programs for gas utilities (2)2117
Unrecovered gas costs (3)10214
Deferred rate adjustment clause costs for Virginia electric utility (4)(5)10978
Deferred nuclear refueling outage costs (6)6869
NND Project costs (7)138—
PJM transmission rates (8)12145
Other27299
Regulatory assets-current879496
Deferred cost of fuel used in electric generation (1)—83
P ension and other postretirement benefit costs (9)1,4311,497
Deferred rate adjustment clause costs for Virginia electric utility (4)(5)(10)235230
PJM transmission rates (8)85192
Deferred project costs for gas utilities (2)521335
Interest rate hedges (11)741184
AROs and related funding (12)311—
Cost of reacquired debt (13)(14)2623
NND Project costs (7)2,503—
Ash pond and landfill closure costs (15)1,01627
Other582125
Regulatory assets-noncurrent7,6872,676
Total regulatory assets$8,566$3,172
Regulatory liabilities:
Provision for future cost of removal and AROs (16)$142$117
Reserve for refunds and rate credits to electric utility customers (17)14371
Cost-of-service impact of 2017 Tax Reform Act (18)4104
Income taxes refundable through future rates (19)77—
Monetization of guarantee settlement (20)67—
Other6464
Regulatory liabilities-current497356
Income taxes refundable through future rates (19)5,0884,071
Provision for future cost of removal and AROs (16)2,3021,409
Nuclear decommissioning trust (21)1,4711,070
Monetization of guarantee settlement (20)970—
Reserve for refunds and rate credits to electric utility customers (17)656—
Overrecovered other postretirement benefit costs (22)189120
Other325170
Regulatory liabilities-noncurrent11,0016,840
Total regulatory liabilities$11,498$7,196
(1)Reflects deferred fuel expenses for the Virginia, North Carolina and South Carolina jurisdictions of Dominion Energy’s electric generation operations.
(2)Primarily reflects amounts expected to be collected from or owed to gas customers in Dominion Energy’s service territories associated with current and prospective rider projects, including CEP, PIR and pipeline integrity management. See Note 13 for more information.
(3)Reflects unrecovered or overrecovered gas costs at regulated gas operations, which are recovered or refunded through filings with the applicable regulatory authority.
143

Combined Notes to Consolidated Financial Statements, Continued

(4)Reflects deferrals under Virginia Power’s electric transmission FERC formula rate and the deferral of costs associated with certain current and prospective rider projects, net of income taxes refundable from the 2017 Tax Reform Act for Virginia Power. See Note 13 for more information.
(5)As a result of actions from the Virginia Commission in the first quarter of 2019 regarding the ratemaking treatment of excess deferred taxes from the adoption of the 2017 Tax Reform Act for all existing rate adjustment clauses, Virginia Power recorded a $29 million ($22 million after-tax) charge in operating revenue in the Consolidated Statements of Income for amounts which are probable of being returned to customers.
(6)Legislation enacted in Virginia in April 2014 requires Virginia Power to defer operation and maintenance costs incurred in connection with the refueling of any nuclear-powered generating plant. These deferred costs will be amortized over the refueling cycle, not to exceed 18 months.
(7)Reflects expenditures by DESC associated with the NND Project, which pursuant to the SCANA Merger Approval Order, will be recovered from DESC electric service customers over a 20-year period ending in 2039. See Note 3 for more information.
(8)Reflects amounts to be recovered through retail rates in Virginia for payments Virginia Power will make to PJM over a ten-year period ending 2028 under the terms of a FERC settlement agreement in May 2018 resolving a PJM cost allocation matter.
(9)Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy’s rate-regulated subsidiaries.
(10)During 2019, Virginia Power recorded a charge of $17 million ($13 million after-tax) in impairment of assets and other charges (reflected in the Corporate and Other segment) to write-off the balance of a regulatory asset for which it is no longer seeking recovery.
(11)Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 27 years as of December 31, 2019.
(12)Represents deferred depreciation and accretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties. The AROs primarily relate to DESC’s electric generating facilities, including Summer, and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 105 years.
(13)Costs of the reacquisition of debt are deferred and amortized as interest expense over the would-be remaining life of the reacquired debt. The reacquired debt costs had a weighted-average life of approximately 26 years as of December 31, 2019.
(14)During 2019, DESC purchased certain of its first mortgage bonds as discussed in Note 18. As a result of these transactions, DESC incurred net costs, including write-offs of unamortized discount, premium and debt issuance costs, of $270 million.
(15)Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCRs to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. Virginia Power is entitled to collect carrying costs once expenditures have been made. See Note 23 for additional information.
(16)Rates charged to customers by Dominion Energy’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(17)Reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated 11-year period in connection with the SCANA Merger Approval Order and Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers in Virginia. See Notes 3 and 13 for additional information.
(18)Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at the Companies’ regulated electric generation and electric and natural gas distribution operations. See Notes 3 and 13 for additional information.
(19)Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(20)Reflects amounts to be refunded to DESC electric service customers over a 20-year period ending in 2039 associated with the monetization of a bankruptcy settlement agreement. See Note 3 for additional information.
(21)Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon, as applicable) for the future decommissioning of Dominion Energy’s utility nuclear generation stations, in excess of the related AROs.
(22)Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred.
At December 31,20192018
(millions)
Virginia Power
Regulatory assets:
Deferred cost of fuel used in electric generation (1)$48$174
Deferred rate adjustment clause costs (2)(3)10978
Deferred nuclear refueling outage costs (4)6869
PJM transmission rates (5)12145
Other8758
Regulatory assets-current433424
Deferred rate adjustment clause costs (2)(3)(6)235230
PJM transmission rates (5)85192
Interest rate hedges (7)404151
Deferred cost of fuel used in electric generation (1)—83
Ash pond and landfill closure costs (8)1,01627
Other12354
Regulatory assets-noncurrent1,863737
Total regulatory assets$2,296$1,161
Regulatory liabilities:
Provision for future cost of removal (9)$103$92
Cost-of-service impact of 2017 Tax Reform Act (10)—95
Reserve for rate credits to electric utility customers (11`)—71
Income taxes refundable through future rates (12)54—
Other1041
Regulatory liabilities-current167299
Income taxes refundable through future rates (12)2,4382,579
Nuclear decommissioning trust (13)1,4711,070
Provision for future cost of removal (9)1,054940
Other11158
Regulatory liabilities-noncurrent5,0744,647
Total regulatory liabilities$5,241$4,946
(1)Reflects deferred fuel expenses for the Virginia and North Carolina jurisdictions of Virginia Power’s generation operations.
(2)Reflects deferrals under Virginia Power’s electric transmission FERC formula rate and the deferral of costs associated with certain current and prospective rider projects, net of income taxes refundable from the 2017 Tax Reform Act for Virginia Power. See Note 13 for more information.
(3)As a result of actions from the Virginia Commission in the first quarter of 2019 regarding the ratemaking treatment of excess deferred taxes from the adoption of the 2017 Tax Reform Act for all existing rate adjustment clauses, Virginia Power recorded a $29 million ($22 million after-tax) charge in operating revenue in the Consolidated Statements of Income for amounts which are probable of being returned to customers.
(4)Legislation enacted in Virginia in April 2014 requires Virginia Power to defer operation and maintenance costs incurred in connection with the refueling of any nuclear-powered generating plant. These deferred costs will be amortized over the refueling cycle, not to exceed 18 months.
(5)Reflects amounts to be recovered through retail rates in Virginia for payments Virginia Power will make to PJM over a ten-year period ending 2028 under the terms of a FERC settlement agreement in May 2018 resolving a PJM cost allocation matter.
144
(6)During 2019, Virginia Power recorded a charge of $17 million ($13 million after-tax) in impairment of assets and other charges (reflected in the Corporate and Other segment) to write-off the balance of a regulatory asset for which it is no longer seeking recovery.
(7)Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 24 years as of December 31, 2019.
(8)Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCR to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. Virginia Power is entitled to collect carrying costs once expenditures have been made. See Note 23 for additional information.
(9)Rates charged to customers by Virginia Power’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(10)Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at regulated electric generation and distribution operations. See Note 13 for additional information.
(11)Charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers. See Note 13 for additional information.
(12)Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(13)Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon) for the future decommissioning of Virginia Power’s utility nuclear generation stations, in excess of the related AROs.
At December 31,20192018
(millions)
Dominion Energy Gas
Regulatory assets:
Unrecovered gas costs (1)$2$1
Other67
Regulatory assets-current (2)88
Unrecognized pension and other postretirement benefit costs (3)—15
Interest rate hedges (4)3233
Other84
Regulatory assets-noncurrent4052
Total regulatory assets$48$60
Regulatory liabilities:
Provision for future cost of removal and AROs (5)$18$9
Overrecovered gas costs (1)87
Other158
Regulatory liabilities-current (6)4124
Income taxes refundable through future rates (7)560530
Provision for future cost of removal and AROs (6)95113
Overrecovered other postretirement benefit costs (8)133106
Other1216
Regulatory liabilities-noncurrent800765
Total regulatory liabilities$841$789
(1)Reflects unrecovered or overrecovered gas costs at regulated gas operations, which are recovered or refunded through filings with the applicable regulatory authority.
(2)Current regulatory assets are presented in other current assets in Dominion Energy Gas’ Consolidated Balance Sheets.
(3)Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy Gas’ rate-regulated subsidiaries.
(4)Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted average useful life of approximately 30 years.
(5)Rates charged to customers by Dominion Energy Gas’ regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(6)Current regulatory liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
(7)Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(8)Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred.

At December 31, 2019, Dominion Energy, Virginia Power and Dominion Energy Gas’ regulatory assets include $3.3 billion, $1.8 billion and $46 million, respectively, on which they do not expect to earn a return during the applicable recovery period. With the exception of certain items discussed above, the majority of these expenditures are expected to be recovered within the next two years.

N

ote

  1. Regulatory Matters

Regulatory Matters Involving Potential Loss Contingencies

As a result of issues generated in the ordinary course of business, the Companies are involved in various regulatory matters. Certain regulatory matters may ultimately result in a loss; however, as such matters are in an initial procedural phase, involve uncertainty as to the outcome of pending reviews or orders, and/or involve significant factual issues that need to be resolved, it is not possible for the Companies to estimate a range of possible loss. For regulatory matters that the Companies cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the regulatory process such that the Companies are able to estimate a range of possible loss. For regulatory matters that the Companies are 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. Any estimated range is based on currently available information, involves elements of judgment and significant uncertainties and may not represent the Companies’ maximum possible loss exposure. The circumstances of such regulatory matters will change from time to time and actual results may vary significantly from the current estimate. For current matters not specifically reported below, management does not anticipate that the outcome from such matters would have a material effect on the Companies’ financial position, liquidity or results of operations.

FERC

—

Electric

Under the Federal Power Act, FERC regulates wholesale sales and transmission of electricity in interstate commerce by public utilities. Virginia Power purchases and, under its market based rate authority, sells electricity in the PJM wholesale market and to

145

Combined Notes to Consolidated Financial Statements, Continued

wholesale purchasers in Virginia and North Carolina. DESC sells electricity to wholesale purchasers in its balancing authority area under its electric cost based tariff and to wholesale purchasers outside of its balancing authority area under its market based rate authority. Dominion Energy’s merchant generators sell electricity in the PJM, CAISO and

ISO-NE

wholesale markets, and to wholesale purchasers in the states of Virginia, North Carolina, Indiana, Connecticut, Tennessee, Georgia, California, South Carolina and Utah, under Dominion Energy’s market-based sales tariffs authorized by FERC or pursuant to FERC authority to sell as a qualified facility. In addition, Virginia Power has FERC approval of a tariff to sell wholesale power at capped rates based on its embedded cost of generation. This cost-based sales tariff could be used to sell to loads within or outside Virginia Power’s service territory. Any such sales would be voluntary.

Rates

In April 2008, FERC granted an application for Virginia Power’s electric transmission operations to establish a forward-looking formula rate mechanism that updates transmission rates on an annual basis and approved an ROE effective as of January 1, 2008. The formula rate is designed to recover the expected revenue requirement for each calendar year and is updated based on actual costs. The FERC-approved formula method, which is based on projected costs, allows Virginia Power to earn a current return on its investment in electric transmission infrastructure.

In March 2010, ODEC and North Carolina Electric Membership Corporation filed a complaint with FERC against Virginia Power claiming, among other issues, that the incremental costs of undergrounding certain transmission line projects were unjust, unreasonable and unduly discriminatory or preferential and should be excluded from Virginia Power’s transmission formula rate. A settlement of the other issues raised in the complaint was approved by FERC in May 2012.

In March 2014, FERC issued an order excluding from Virginia Power’s transmission rates for wholesale transmission customers located outside Virginia the incremental costs of undergrounding certain transmission line projects. FERC found it is not just and reasonable for

non-Virginia

wholesale transmission customers to be allocated the incremental costs of undergrounding the facilities because the projects are a direct result of Virginia legislation and Virginia Commission pilot programs intended to benefit the citizens of Virginia. The order is retroactively effective as of March 2010 and will cause the reallocation of the costs charged to wholesale transmission customers with loads outside Virginia to wholesale transmission customers with loads in Virginia. FERC determined that there was not sufficient evidence on the record to determine the magnitude of the underground increment and held a hearing to determine the appropriate amount of undergrounding cost to be allocated to each wholesale transmission customer in Virginia.

In October 2017, FERC issued an order determining the calculation of the incremental costs of undergrounding the transmission projects and affirming that the costs are to be recovered from the wholesale transmission customers with loads located in Virginia. FERC directed Virginia Power to rebill all wholesale transmission customers retroactively to March 2010 within 30 days of when the proceeding becomes final and no longer subject to rehearing. In November 2017, Virginia Power,

North Carolina Electric Membership Corporation and the wholesale transmission customers filed petitions for rehearing. In July 2018, FERC denied the rehearing requests related to the October 2017 order determining the calculation of the undergrounding costs. Several parties have appealed FERC’s decision to the U.S. Court of Appeals for the D.C. Circuit. In December 2019, the U.S. Court of Appeals for the D.C. Circuit denied the appeal.

In January 2019, FERC issued an order denying PJM’s request to waive certain provisions of the PJM Tariff regarding the liquidation of a portfolio of FTRs owned by GreenHat who had defaulted on its financial obligations. As a result of FERC’s order, PJM is required to use the existing tariff provisions to liquidate GreenHat’s FTR portfolio and allocate the resulting costs to PJM members. In February 2019, PJM filed a request for clarification and rehearing with FERC. Also in February 2019, Virginia Power and certain other PJM members filed a request for rehearing with FERC. In June 2019, FERC established a hearing and settlement proceedings to address the issues raised in PJM’s request for clarification and rehearing. In October 2019, PJM submitted a settlement offer to FERC which was approved by FERC in December 2019. Based on the terms of the settlement, the impact to Virginia Power is expected to be immaterial.

FERC—G

as

In July 2017, FERC audit staff communicated to DETI that it had substantially completed an audit of DETI’s compliance with the accounting and reporting requirements of FERC’s Uniform System of Accounts and provided a description of matters and preliminary recommendations. In November 2017, the FERC audit staff issued its audit report which could have the potential to result in adjustments which could be material to Dominion Energy and Dominion Energy Gas’ results of operations. In December 2017, DETI provided its response to the audit report. DETI requested FERC review of contested findings and submitted its plan for compliance with the uncontested portions of the report. In connection with one uncontested issue, DETI recognized a charge of $15 million ($9 million

after-tax)

recorded within impairment of assets and related charges in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income

(reflected in the Corporate and Other segment)

during 2017 to

write-off

the balance of a regulatory asset, originally established in 2008, that is no longer considered probable of recovery. DETI recognized a charge of $129 million ($94 million

after-tax)

recorded primarily within impairment of assets and related charges in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income

(reflected in the Corporate and Other segment)

during 2018 for a disallowance of plant, originally established beginning in 2012, for the resolution of one matter with FERC. Pending final resolution of the audit process and a determination by FERC, management is unable to estimate the potential impact of the remaining finding and no amounts have been recognized.

2017 Tax Reform Act

Subsequent to the enactment of the 2017 Tax Reform Act, the Companies’ state regulators issued orders requesting that public utilities evaluate the total tax impact on the entity’s cost of service and accrue a regulatory liability attributable to the benefits of the reduction in the corporate income tax rate. Certain of the orders requested that the public utilities submit a

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response to the state regulatory commissions detailing the total tax impact on the utility’s cost of service.

The Companies began to reserve the impacts of the

cost-of-service

reduction as regulatory liabilities in January 2018 and will continue until rates are reset pursuant to state regulators’ approvals. The Companies have recorded a reasonable estimate of net income taxes refundable through future rates in the jurisdictions in which they operate and are currently assessing these actions and decisions, which could have a material impact on the Companies’ results of operations, financial condition and/or cash flows.

In September 2018, the Virginia Commission issued an order directing Virginia Power to submit a filing quantifying the impacts of the 2017 Tax Reform Act in advance of the April 1, 2019 implementation as required by legislation, which filing was submitted in October 2018. In January 2019, Virginia Power filed updated testimony with a proposed annual revenue reduction of approximately $171 million. Additionally, Virginia Power proposed to issue a

one-time

bill credit to customers within 90 days of this effective date, to

true-up

the difference between the final revenue reduction for the period January 1, 2018 through March 31, 2019 and the $125 million interim rate reduction implemented on July 1, 2018. In March 2019, the Virginia Commission issued an order approving an annual revenue reduction of approximately $183 million effective April 2019 and ordered Virginia Power to implement the

one-time

customer credit on or before July 1, 2019. In the second quarter of 2019, Virginia Power refunded to customers $132 million.

In August 2018, Virginia Power filed with FERC to waive protocols and begin reflecting projected tax reform benefits of approximately $100 million through the transmission formula rate prior to the normal formula rate process. FERC granted the waiver and the amounts began being reflected in customer billings in November 2018 reflecting the adjustment effective January 1, 2018.

In October 2018, the North Carolina Commission issued an order requesting companies file to reduce base rates expeditiously. Virginia Power made its compliance filing in October 2018 and submitted an annual base rate revenue decrease of approximately $14 million effective in early 2019. Virginia Power also proposed to issue a

one-time

bill credit in early 2019 for its 2018 tax savings collected provisionally from customers. In March 2019, the North Carolina Commission issued an order approving Virginia Power’s proposed annual base rate revenue decrease and

one-time

bill credit. In the second quarter of 2019, Virginia Power refunded to customers $13 million.

In March 2019, Questar Gas filed with the Utah and Wyoming Commissions as to the impact of excess deferred income taxes resulting from the 2017 Tax Reform Act. Questar Gas proposed to return the 2018 amortization of excess deferred income taxes to customers and to incorporate the remaining excess deferred income tax impact in its next general rate cases in each jurisdiction. In May 2019, the Utah Commission issued an order approving Questar Gas’ proposal to pass back the 2018 amortization of excess deferred income taxes over twelve months beginning in June 2019. The matter with the Wyoming Commission is pending.

In October 2018, the Ohio Commission issued an order requiring rate-regulated utilities to file an application reflecting the

impact of the 2017 Tax Reform Act on current rates by January 1, 2019. In December 2018, East Ohio filed its application proposing an approach to establishing rates and charges by and through which to return tax reform benefits to its customers. In December 2019, the Ohio Commission issued an order approving customer credits of approximately $600 million that will be shared with customers primarily over the remaining book life of the property to which the excess deferred income taxes relate. In addition, East Ohio will reduce rates approximately $19 million per year to account for the 2017 Tax Reform Act’s impact on its equity return component of rates charged to customers.

In connection with the SCANA Merger Approval Order, the South Carolina Commission approved DESC’s provision of approximately $100 million in bill credits related to the 2017 Tax Reform Act’s impact on retail electric customer rates for the period beginning January 2018 through January 2019. These credits have been included in bills rendered on and after the first billing cycle of February 2019. In addition, the South Carolina Commission approved a tax rider whereby the effects of the reduction in the corporate income tax rate resulting from the 2017 Tax Reform Act will benefit retail electric customers. This tax rider reduced base rates to retail electric customers by approximately $63 million in 2019 and is expected to reduce these rates by $67 million in 2020.

In October 2018, the South Carolina Commission issued an order approving adjustment to DESC’s natural gas rate schedules, under the terms of the Natural Gas Rate Stabilization Act, to reflect the reduction in the federal corporate tax rate arising from the 2017 Tax Reform Act. The approved natural gas rate schedules also included a tax reform rate rider to refund certain income tax amounts previously collected from customers. These lower rates, representing a $20 million decreased revenue requirement, became effective for bills rendered on and after the first billing cycle in November 2018.

In December 2018, the North Carolina Commission issued an order approving PSNC’s proposed adjustments to customer rates, representing a $13 million decreased revenue requirement, to reflect the reduction in the federal corporate tax rate arising from the 2017 Tax Reform Act. These lower rates became effective for service rendered on and after January 1, 2019. Amounts collected in customer rates during 2018 and amounts arising from excess deferred income taxes have been recorded in regulatory liabilities and must be considered in PSNC’s next general rate case proceeding or in three years, whichever is sooner. The reduction in the federal corporate tax rate and its impact on PSNC’s various rate riders will be addressed in future proceedings related to those riders.

During 2018, Dominion Energy’s FERC-regulated pipelines, including those accounted for as equity method investments, filed the Form

501-G

with FERC. Dominion Energy Overthrust Pipeline, LLC, White River Hub, Dominion Energy Questar Pipeline, DETI, DECG, Cove Point and Iroquois have reached resolution through a FERC waiver or FERC terminating the

501-G

proceeding, or through settlement, which did not result in a material impact to results of operations, financial condition and/or cash flows of Dominion Energy or Dominion Energy Gas.

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Combined Notes to Consolidated Financial Statements, Continued

Other Regulatory Matters

V

irginia

R

egulation

The Regulation Act enacted in 2007 instituted a

cost-of-service

rate model, ending Virginia’s planned transition to retail competition for electric supply service to most classes of customers.

The Regulation Act authorizes stand-alone rate adjustment clauses for recovery of costs for new generation projects, FERC-approved transmission costs, underground distribution lines, environmental compliance, conservation and energy efficiency programs, renewable energy programs and nuclear license renewals, and also contains statutory provisions directing Virginia Power to file annual fuel cost recovery cases with the Virginia Commission. As amended, it provides for enhanced returns on capital expenditures on specific newly-proposed generation projects.

If the Virginia Commission’s future rate decisions, including actions relating to Virginia Power’s rate adjustment clause filings, differ materially from Virginia Power’s expectations, it may adversely affect its results of operations, financial condition and cash flows.

Grid Transformation and Security Act of 2018

In March 2018, the GTSA reinstated base rate reviews on a triennial basis, other than the first review which will be a quadrennial review, occurring for Virginia Power in 2021 for the four successive

12-month

test periods beginning January 1, 2017 and ending December 31, 2020. This review for Virginia Power will occur one year earlier than under the Regulation Act legislation enacted in February 2015.

In the triennial review proceedings, earnings that are more than 70 basis points above the utility’s authorized ROE that might have been refunded to customers and served as the basis for a reduction in future rates, may be reduced by Virginia Commission

-

approved investment amounts in qualifying solar or wind generation facilities or electric distribution grid transformation projects that Virginia Power elects to include in a customer credit reinvestment offset. The legislation declares that electric distribution grid transformation projects are in the public interest and provides that the costs of such projects may be recovered through a rate adjustment clause if not the subject of a customer credit reinvestment offset. Any costs that are the subject of a customer credit reinvestment offset may not be recovered in base rates for the service life of the projects and may not be included in base rates in future triennial review proceedings. In any triennial review in which the Virginia Commission determines that the utility’s earnings are more than 70 basis points above its authorized ROE, base rates are subject to reduction prospectively and customer refunds would be due unless the total customer credit reinvestment offset elected by the utility equals or exceeds the amount of earnings in excess of the 70 basis points. In the 2021 review, any such rate reduction is limited to $50 million.

The legislation also includes provisions requiring Virginia Power to provide current customers

one-time

rate credits totaling $200 million and to reduce base rates to reflect reductions in income tax expense resulting from the 2017 Tax Reform Act. As a result, Virginia Power incurred a $215 million ($160 million

after-tax)

charge in connection with this legislation, including the impact on certain

non-jurisdictional

customers which follow Virginia Power’s jurisdictional customer rate methodology. In July

2018 and January 2019, Virginia Power credited $138 million and $77 million, respectively, to current customers’ bills.

In addition, Virginia Power reduced base rates on an annual basis by $125 million effective July 2018, to reflect the estimated effect of the 2017 Tax Reform Act. In March 2019, the Virginia Commission directed an annual revenue reduction of $183 million in rates for generation and distribution services pursuant to the GTSA effective April 2019.

In July 2018, Virginia Power filed a petition with the Virginia Commission for approval of the first three years of its

ten-year

plan for electric distribution grid transformation projects as authorized by the GTSA. During the first three years of the plan, Virginia Power proposed to focus on the following seven foundational components of the overall grid transformation plan: (i) smart meters; (ii) customer information platform; (iii) reliability and resilience; (iv) telecommunications infrastructure; (v) cyber and physical security; (vi) predictive analytics; and (vii) emerging technology. The total estimated capital investment during 2019-2021 was $816 million and the proposed operations and maintenance expenses were $102 million. In January 2019, the Virginia Commission issued its final order approving capital spending for the first three years of the plan totaling $68 million on cyber and physical security and related telecommunications infrastructure (Phase IA). The Virginia Commission declined to approve the remainder of the proposed components for the first three years of the plan, the proposed spending for which was not found reasonable and prudent based on the record in the proceeding.

In September 2019, Virginia Power filed a revised plan which includes six components: (i) smart meters; (ii) customer information platform; (iii) grid improvement projects; (iv) telecommunications infrastructure; (v) cyber security; and (vi) a smart charging electric vehicle infrastructure pilot program (Phase IB). For Phase IB, the total proposed capital investment during 2019 – 2021 is $503 million and the proposed operations and maintenance investment is $78 million. This matter is pending.

Regulation Act

In March 2019, Virginia Power filed an application for the Virginia Commission to determine the general ROE for Virginia Power’s

non-transmission

rate adjustment clauses and for purposes of determining Virginia Power’s base rate earnings in the 2021 quadrennial review for the four successive

12-month

test periods beginning January 1, 2017 and ending December 31, 2020. The application supported a 10.75% ROE for these rate adjustment clauses and quadrennial review period. In November 2019, the Virginia Commission approved a 9.2% general ROE for Virginia Power.

Virginia Fuel Expenses

In May 2019, Virginia Power filed its annual fuel factor with the Virginia Commission to recover an estimated $1.5 billion in Virginia jurisdictional projected fuel expenses for the rate year beginning July 1, 2019 and the projected June 30, 2019 under recovered balance of $124 million. Virginia Power’s proposed fuel rate represented a fuel revenue decrease of $192 million when applied to projected kilowatt-hour sales for the period July 1, 2019 to June 30, 2020. Subsequently in May 2019, Virginia Power revised its fuel factor filing to reduce the projected June 30, 2019

148

underrecovered balance to $107 million and a fuel revenue decrease of $254 million. In August 2019, the Virginia Commission approved Virginia Power’s fuel rate.

In February 2020, Virginia Power filed its annual fuel factor with the Virginia Commission to recover an estimated $1.2 billion in Virginia jurisdictional projected fuel expenses for the rate year beginning July 1, 2020 and a projected over-recovery of approximately $81 million for the prior year balance as of June 30, 2020. Virginia Power requested that the new fuel factor rate be implemented on an interim basis two months early, beginning on May 1, 2020. Virginia Power’s proposed fuel rate represents a fuel revenue decrease of approximately $393 million when applied to projected kilowatt-hour sales for the rate year beginning May 1, 2020. This matter is pending.

Battery Storage Pilot

In August 2019, Virginia Power filed an application with the Virginia Commission to participate in a pilot program for electric power storage batteries, which includes three projects for deployment of battery energy storage systems. Virginia Power also requested an amended CPCN to construct and operate a battery energy storage system at Scott Solar. The projects are estimated to cost approximately $35 million.

In February 2020, the Virginia Commission approved the request.

Solar Facility Projects

•In July 2018, Virginia Power filed an application with the Virginia Commission for CPCNs to construct two solar facilities. Colonial Trail West and Spring Grove 1 are estimated to cost approximately $410 million, excluding financing costs. Colonial Trail West commenced commercial operations in December 2019 and Spring Grove 1 is expected to commence commercial operations in the fourth quarter of 2020. Virginia Power also applied for approval of Rider US-3 associated with these projects with a proposed $10 million total revenue requirement for the rate year beginning June 1, 2019. In January 2019, the Virginia Commission issued a final order granting CPCNs to construct the solar facilities, subject to a 20-year performance guarantee of the facilities at a 25% solar capacity factor when normalized for force majeure events. In April 2019, the Virginia Commission approved Rider US-3.
•In July 2019, Virginia Power filed an application with the Virginia Commission for a CPCN to construct Sadler Solar, which is estimated to cost approximately $146 million, excluding financing costs. Sadler Solar is expected to commence commercial operations, subject to regulatory approvals associated with the project, in the fourth quarter of 2020. Virginia Power also applied for approval of Rider US-4 associated with this project with a proposed $9 million total revenue requirement for the rate year beginning June 1, 2020. In January 2020, the Virginia Commission issued a final order granting the CPCN to construct Sadler Solar, subject to a 20- year performance guarantee of the facility at a 22% solar capacity factor when normalized for force majeure events. This matter regarding Rider US-4 is pending.

Rate Adjustment Clauses

Below is a discussion of significant riders associated with various Virginia Power projects:

•The Virginia Commission previously approved Rider T1 concerning transmission rates. In May 2019, Virginia Power

proposed a $920 million total revenue requirement consisting of $474 million for the transmission component of Virginia Power’s base rates and $446 million for Rider T1 for the rate year beginning September 1, 2019. This total revenue requirement represents a $271 million increase versus the revenues to be produced during the rate year under current rates. In July 2019, the Virginia Commission approved the filing.

•The Virginia Commission previously approved Rider U in conjunction with cost recovery to move certain electric distribution facilities underground as authorized by Virginia legislation. In October 2019, the Virginia Commission approved Virginia Power’s proposed fourth phase of conversions totaling $123 million and a total $52 million revenue requirement for the rate year beginning February 1, 2020 for continuing recovery of the previously approved phase conversions and the proposed fourth phase conversions.
•The Virginia Commission previously approved Riders C1A, C2A and C3A in connection with cost recovery for DSM programs. In December 2019, Virginia Power filed a petition to approve an additional 10 new energy efficiency programs and one new demand response DSM program for five years, subject to future extension, with a $186 million cost cap, and proposed a total $60 million revenue requirement for the rate year beginning September 1, 2020. This total revenue requirement represents an $11 million increase over the previous year.
•In December 2018, Virginia Power filed a petition requesting approval of Rider E and proposed a $114 million total revenue requirement for the rate year beginning November 1, 2019. In August 2019, the Virginia Commission issued an order approving in part and denying in part the petition. As a result, Virginia Power recorded a $21 million ($16 million after-tax) charge in impairment of assets and other charges in the Consolidated Statements of Income for the three and nine months ended September 30, 2019 to write-off certain disallowed environmental property, plant and equipment and regulatory assets. In August 2019, the Virginia Commission granted Virginia Power’s petition for reconsideration of the disallowed amount and stayed the order issued earlier in August 2019. In October 2019, the Virginia Commission approved Virginia Power’s request to implement a total revenue requirement of $104 million on an interim basis, subject to true-up, pending resolution of the petition for reconsideration. In November 2019, the Virginia Commission denied the petition for reconsideration and the $104 million total revenue requirement remains in effect.
•Additional significant riders associated with various Virginia Power projects are as follows:
Rider NameApplication DateApproval DateRate Year BeginningTotal Revenue Requirement (millions)Increase (Decrease) Over Previous Year (millions)
Rider SMay 2019February 2020April 2020$195$(20)
Rider GVMay 2019February 2020April 202013212
Rider WMay 2019February 2020April 20201061
Rider RMay 2019February 2020April 202044(13)
Rider BMay 2019February 2020April 202032(6)
Rider US-3July 2019PendingJune 20203121
Rider BWOctober 2019PendingSeptember 20201201
Rider US-2October 2019PendingSeptember 202010(5)
Rider EJanuary 2020PendingNovember 202088(16)
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Combined Notes to Consolidated Financial Statements, Continued

Coastal Virginia Offshore Wind Project

In November 2018, Virginia Power received approval from the Virginia Commission for its petition seeking a prudency determination as provided in the GTSA with respect to the proposed Coastal Virginia Offshore Wind Pilot project consisting of two 6

MW wind turbine generators located approximately 27 miles off the coast of Virginia Beach, Virginia in federal waters, and for a CPCN, for the generation tie line connecting the generators to shore. This project is expected to cost approximately $300 million and to be placed into service by the end of 2020.

Electric Transmission Projects

In November 2013, the Virginia Commission issued an order granting Virginia Power a CPCN to construct approximately 7 miles of new overhead 500 kV transmission line from the existing Surry switching station in Surry County to a new Skiffes Creek switching station in James City County, and approximately 20 miles of new 230 kV transmission line in James City County, York County, and the City of Newport News from the proposed new Skiffes Creek switching station to Virginia

Power’s existing Whealton substation in the City of Hampton. In February 2019, the transmission line project was placed into service. In March 2019, the U.S. Court of Appeals for the D.C. Circuit issued an order vacating the permit from the U.S. Army Corps of Engineers issued in July 2017 and ordered the U.S. Army Corps of Engineers to do a full environmental impact study of the project. In April 2019, Virginia Power and the U.S. Army Corps of Engineers filed petitions for rehearing with the U.S. Court of Appeals for the D.C. Circuit, asking that the permit from the U.S. Army Corps of Engineers remain in effect while an environmental impact study is performed. In May 2019, the U.S. Court of Appeals for the D.C. Circuit denied the request for rehearing and ordered the U.S. District Court for the D.C. Circuit to consider and issue a ruling on whether the permit should be vacated during the U.S. Army Corps of Engineers’ preparation of an environmental impact statement. In November 2019, the U.S. District Court for the D.C. Circuit issued an order allowing the permit to remain in effect while an environmental impact study is performed. This matter is pending.

Additional significant Virginia Power electric transmission projects approved

or

applied for are as follows:

Description and Location of ProjectApplication DateApproval DateType of LineMiles of LinesCost Estimate (millions)
Rebuild and operate transmission line between Lanexa and the Northern Neck in VirginiaJune 2018February 2019230 kV3$ 30
Build a new substation and connect three existing transmission lines thereto in Fluvanna County, VirginiaOctober 2018June 2019230 kV<130
Rebuild and operate the Glebe substation and relocate and operate in Arlington County, Virginia and the City of Alexandria, Virginia existing overhead line undergroundMarch 2019September 2019230 kV<1125
Rebuild and operate transmission line between Valley, Virginia and Mt. Storm, West VirginiaApril 2019November 2019500 kV65290
Rebuild and operate transmission line between the Suffolk substation and the Virginia/North Carolina state lineMay 2019November 2019230 kV1120
Rebuild and operate five segments between the Loudoun and Ox substationsAugust 2019Pending230 kV1970
Build new Evergreen Mills switching station and line loops in Loudoun County, VirginiaDecember 2019Pending230 kV230
Build new Lockridge substation and line loop in Loudoun County, VirginiaDecember 2019Pending230 kV<135

North Carolina Regulation

North Carolina Base Rate Case

In March 2019, Virginia Power filed its base rate case and schedules with the North Carolina Commission. Virginia Power proposed a

non-fuel,

base rate increase of $27 million effective November 1, 2019 on an interim basis subject to refund, with any permanent rates ordered by the North Carolina Commission effective January 1, 2020. The base rate increase was proposed to recover the significant investments in generation, transmission and distribution infrastructure for the benefit of North Carolina customers. Virginia Power presented an earned return of 7.52% based upon a fully-adjusted test period, compared to its authorized 9.90% return, and proposed a 10.75% ROE. In September 2019, Virginia Power revised its filing to reduce the

non-fuel

base rate increase to $24 million. In January 2020, the North Carolina Commission approved a 9.75% ROE and disallowed certain costs associated with coal ash remediation at Chesterfield power station.

In February 2020, the North Carolina Commission issued its final order relating to base rates. Virginia Power is reviewing the order and assessing its options.

North Carolina Fuel Filing

In August 2019, Virginia Power submitted its annual filing to the North Carolina Commission to adjust the fuel component of its electric rates. Virginia Power proposed a total $18 million decrease to the fuel component of its electric rates for the rate year beginning February 1, 2020. In January 2020, the North Carolina Commission approved Virginia Power’s proposed fuel change adjustment.

South Carolina Regulation

DSM Programs

DESC has approval for a DSM rider through which it recovers expenditures related to its DSM programs. In January 2019, DESC filed an application with the South Carolina Commission seeking approval to recover $30 million of costs and net lost revenues associated with these programs, along with an incentive to invest in such programs. In April 2019, the South Carolina Commission approved the request for the rate year beginning with the first billing cycle of May 2019.

150

In January 2020, DESC filed an application with the South Carolina Commission seeking approval to recover $40 million of costs and net lost revenues associated with these programs, along with an incentive to invest in such programs. This matter is pending.

Natural Gas Rate Stabilization Act

In June 2019, DESC filed with the South Carolina Commission its monitoring report for the

12-month

period ended March 31, 2019 with a total revenue requirement of $437 million. This represents a $7 million overall increase to its natural gas rates under the terms of the Natural Gas Rate Stabilization Act effective for the rate year beginning November 2019. In October 2019, the South Carolina Commission approved a total revenue requirement of $436 million effective with the first billing cycle of November 2019.

Cost of Fuel

DESC’s retail electric rates include a cost of fuel component approved by the South Carolina Commission which may be adjusted periodically to reflect changes in the price of fuel purchased by DESC. In April 2019, the South Carolina Commission approved DESC’s proposal to decrease the total fuel cost component of retail electric rates. DESC’s proposal included maintaining its base fuel component at the current level to produce a projected under-recovered balance of $35 million at the end of the

12-month

period beginning with the first billing cycle of May 2019 and requested carrying costs for any base fuel under-collected balances, should they occur. DESC also proposed reducing its variable environmental component and maintaining or reducing its distributed energy resource components. Changes in rates became effective beginning with the first billing cycle of May 2019.

In February 2020, DESC filed

a proposal

with the South Carolina Commission to decrease the total fuel cost component of retail electric rates. DESC’s proposed decrease would reduce annual base fuel component recoveries by approximately $44 million and is projected to return to customers the existing over-collected balance while recovering DESC’s current base fuel costs over the 12-month period beginning with the first billing cycle of May 2020. In addition, DESC proposed an increase to its variable environmental and distributed energy resource components. This matter is pending.

Electric Transmission Projects

In 2020, DESC expects to begin several electric transmission projects in connection with two new nuclear plants under development by Southern. These transmission projects are required to be in place prior to these plants beginning operations to maintain reliability. DESC anticipates the projects to go into service in phases, costing approximately $75 million in aggregate. In February 2020, DESC filed an application with the South Carolina Commission requesting approval to construct and operate 28 miles of 230 kV transmission lines in Aiken County, South Carolina estimated to cost approximately $30 million. This matter is pending.

Ohio Regulation

PIR Program

In 2008, East Ohio began PIR, aimed at replacing approximately 25% of its pipeline system. In September 2016, the Ohio Commission approved a stipulation filed jointly by East Ohio and the Staff of the Ohio Commission to continue the PIR program and

associated cost recovery for another five-year term, calendar years

2017 through 2021, and to permit East Ohio to increase its annual capital expenditures to $200 million by 2018 and 3% per year thereafter subject to the cost recovery rate increase caps proposed by East Ohio.

In April 2019, the Ohio Commission approved East Ohio’s application to adjust the PIR cost recovery rates for 2018 costs. The filing reflects gross plant investment for 2018 of $202 million, cumulative gross plant investment of $1.6 billion and a revenue requirement of $190 million.

CEP Program

In 2011, East Ohio began CEP which enables East Ohio to defer depreciation expense, property tax expense and carrying costs at the debt rate of 6.5% on capital investments not covered by its PIR program to expand, upgrade or replace its pipeline system and information technology systems as well as investments necessary to comply with the Ohio Commission or other government regulation. In May 2019, East Ohio filed an application for an alternative rate plan to establish a CEP rider to recover existing

CEP-related

deferrals and to establish an ongoing recovery mechanism for future deferrals. The filing reflects cumulative gross plant investment of $723 million through 2018 and a revenue requirement of $83 million. This matter is pending.

West Virginia Regulation

PREP

In May 2019, Hope filed a PREP application with the West Virginia Commission requesting approval to recover PREP costs related to $29 million and $39 million of projected capital investment for 2019 and 2020, respectively. The application also includes a

true-up

of PREP costs related to the 2018 actual capital investment of $30 million and sets forth $10 million of annual PREP costs to be recovered in proposed rates effective November 1, 2019. In October 2019, the West Virginia Commission approved PREP rates effective November 1, 2019.

Utah And Wyoming Regulation

LNG Storage Facility

In April 2019, Questar Gas filed a request with the Utah Commission for

pre-approval

to construct an LNG storage facility with a liquefaction rate of 8.2 million cubic feet per day. In October 2019, the Utah Commission granted

pre-approval

to construct the LNG storage facility.

Utah Base Rate Case

In July 2019, Questar Gas filed its base rate case and schedules with the Utah Commission. Questar Gas proposed a

non-fuel,

base rate increase of $19 million effective March 2020. The base rate increase was proposed to recover the significant investment in distribution infrastructure for the benefit of Utah customers. Questar Gas presented an earned return of 9.05% based upon a fully-adjusted test period, compared to its authorized 9.85% return, and proposed a 10.5% ROE.

In February 2020, the Utah Commission approved a non-fuel, base rate increase of $3 million effective March 2020. This revenue requirement increase is based on an approved ROE of 9.50%.

Wyoming Base Rate Case

In November 2019, Questar Gas filed its base rate case and schedules with the Wyoming Commission. Questar Gas proposed a non-fuel, base rate increase of $4 million effective September 2020. The

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Combined Notes to Consolidated Financial Statements, Continued

base rate increase was proposed to replace aging infrastructure and expand its system. Questar Gas presented an earned return of

7.46%, based upon a fully-adjusted test period, compared to its authorized 9.5% return, and proposed a 10.5% ROE. This matter is pending.

Rural Expansion Program

In December 2019, Questar Gas filed an application with the Utah Commission for a CPCN to construct natural gas infrastructure to extend service to Eureka, Utah. The project is expected to include 11 miles of high-pressure pipeline and up to 360 service lines and to be in service in late 2021. Questar Gas also requested approval of a rural expansion rate adjustment tracker to recover the construction costs of the project. This matter is pending.

FERC—GAS

Cove Point

In February 2019, Cove Point submitted its annual electric power cost adjustment to FERC requesting approval to recover $24 million. FERC approved the adjustment in March 2019.

In June 2015, Cove Point executed two binding precedent agreements for the approximately $150 million Eastern Market Access Project. In January 2018, Cove Point received FERC authorization to construct and operate the project facilities. In October 2018, Cove Point announced it was evaluating alternatives to a proposed Charles County, Maryland compressor station that was initially part of this project and in December 2018, after working with project customers for alternative solutions, decided not to pursue further construction at this location resulting in a revised project estimate of approximately $45 million and a

write-off

of $37 million ($28 million

after-tax).

In May 2019, Cove Point filed an application for an amendment to vacate its FERC authorization for the Charles County, Maryland compressor station and revised its project scope. In August 2019, Cove Point received FERC authorization and the Eastern Market Access Project commenced commercial operations in September 2019.

In connection with the Eastern Market Access Project, in August 2019, Cove Point filed to update its annual electric power cost adjustment requesting FERC approval to recover $25 million, representing an increase of $1 million from the adjustment approved in March 2019. FERC approved the adjustment in August 2019.

In January 2020, pursuant to the terms of a previous settlement, Cove Point filed a general rate case for its FERC-jurisdictional services, with proposed rates to be effective March 1, 2020. Cove Point proposed an annual

cost-of-service

of approximately $182 million. Cove Point anticipates that FERC will suspend the changes in rates for five months following the proposed effective date, until August 1, 2020.

DETI

In

September 2019

, DETI submitted its annual transportation cost rate adjustment to FERC requesting approval to recover $

million. Also in

September 2019

, DETI submitted its annual electric power cost adjustment to FERC requesting approval to recover $

million. In

October 2019

, FERC approved these adjustments.

In December 2019, DETI filed an application to request FERC authorization to construct, operate and maintain the Tri-West project to provide 120,000 Dth per day of firm transportation service in from Pennsylvania to Ohio for delivery to Tennessee Gas Pipeline Company. The project facilities are expected to cost approximately

$25 million and be in service by the end of 2020.

In August 2018, DETI executed a binding precedent agreement with a customer for the West Loop project. The project is expected to cost approximately $95 million and provide 150,000 Dth per day of firm transportation service from Pennsylvania to Ohio for delivery to a proposed combined-cycle, natural

gas-fired

electric power generation facility to be located in Columbiana County, Ohio. In December 2018, DETI filed an application to request FERC authorization to construct, operate and maintain the project facilities, which are expected to be in service by the end of 2021. In December 2019, DETI received FERC authorization.

In January 2018, DETI filed an application to request FERC authorization to construct and operate certain facilities located in Ohio and Pennsylvania for the Sweden Valley project. In June 2019, DETI withdrew its application for the project due to certain regulatory delays. As a result of the project abandonment, during the second quarter of 2019, DETI recorded a charge of $13 million ($10 million

after-tax),

included in impairment of assets and other charges in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income

(reflected in the Corporate and Other segment)

.

Note 14. Asset Retirement Obligations

AROs represent obligations that result from laws, statutes, contracts and regulations related to the eventual retirement of certain of the Companies’ long-lived assets. Dominion Energy and Virginia Power’s AROs are primarily associated with the decommissioning of their nuclear generation facilities and ash pond and landfill closures. Dominion Energy Gas’ AROs primarily include plugging and abandonment of gas and oil wells and the interim retirement of natural gas gathering, transmission, distribution and storage pipeline components.

The Companies have also identified, but not recognized, AROs related to the retirement of the Cove Point LNG Facility, Dominion Energy and Dominion Energy Gas’ storage wells in their underground natural gas storage network, certain Virginia Power electric transmission and distribution assets located on property with easements, rights of way, franchises and lease agreements, Virginia Power’s hydroelectric generation facilities and the abatement of certain asbestos not expected to be disturbed in Dominion Energy and Virginia Power’s generation facilities. The Companies currently do not have sufficient information to estimate a reasonable range of expected retirement dates for any of these assets since the economic lives of these assets can be extended indefinitely through regular repair and maintenance and they currently have no plans to retire or dispose of any of these assets. As a result, a settlement date is not determinable for these assets and AROs for these assets will not be reflected in the Consolidated Financial Statements until sufficient information becomes available to determine a reasonable estimate of the fair value of the activities to be performed. The Companies continue to monitor operational and strategic developments to identify if sufficient information exists to reasonably estimate a retirement date for these assets.

152

The changes to AROs during 2018 and 2019 were as follows:

Amount
(millions)
Dominion Energy
AROs at December 31, 2017$2,432
Obligations incurred during the period20
Obligations settled during the period(159)
Revisions in estimated cash flows (2)120
Accretion119
AROs at December 31, 2018 (1)$2,532
Obligations incurred during the period (2)2,413
Obligations settled during the period(137)
AROs acquired in the SCANA Combination577
Revisions in estimated cash flows (3)(324)
Accretion213
AROs at December 31, 2019 (1)$5,274
Virginia Power
AROs at December 31, 2017$1,365
Obligations incurred during the period14
Obligations settled during the period(119)
Revisions in estimated cash flows (2)120
Accretion65
AROs at December 31, 2018$1,445
Obligations incurred during the period ( 2 )2,408
Obligations settled during the period(81)
Revisions in estimated cash flows (3)(323)
Accretion132
AROs at December 31, 2019$3,581
Dominion Energy Gas
AROs at December 31, 2017$85
Obligations incurred during the period3
Obligations settled during the period(6)
Accretion6
AROs at December 31, 2018 ( 4 )$88
Obligations settled during the period(3)
Accretion4
AROs at December 31, 2019 ( 4 )$89
(1)Includes $282 million and $408 million reported in other current liabilities at December 31, 2018, and 2019, respectively.
(2)Reflects future ash pond and landfill closure costs at certain utility generation facilities. See Note 23 for further information.
(3)Reflects revisions to future ash pond and landfill closure costs at certain utility generation facilities as well as revisions for 20 year license extensions for regulated nuclear power stations in Virginia.
(4)Includes $74 million and $75 million reported in other deferred credits and other liabilities, with the remainder recorded in other current liabilities, at December 31, 2018 and 2019, respectively.

Dominion Energy’s AROs at December 31, 2019 and 2018, include $1.7 billion and $1.6 billion, respectively, with $0.8 billion and $0.9 billion recorded by Virginia Power, related to the future decommissioning of their nuclear facilities. Dominion Energy and Virginia Power have established trusts dedicated to funding the future decommissioning activities.

At December 31, 2019 and 2018, the aggregate fair value of Dominion Energy’s trusts, consisting primarily of equity and debt securities, totaled $6.2 billion and $4.9 billion, respectively. At December 31, 2019 and 2018, the aggregate fair value of Virginia Power’s trusts, consisting primarily of debt and equity securities, totaled $2.9 billion and $2.4 billion, respectively.

In addition, AROs at December 31, 2019 include $2.6 billion related to Virginia Power’s future ash pond and landfill closure costs. Regulatory mechanisms, primar

ily

associated with legislation enacted in Virginia in March 2019, provide for recovery of costs to be incurred. See Notes 12 and 23 for additional information.

Note 15. Leases

At December 31, 2019, the Companies had the following lease assets and liabilities recorded in the Consolidated Balance Sheets:

December 31, 2019
(millions)
Dominion Energy
Lease assets:
Operating lease assets (1)$499
Finance lease assets (2)140
Total lease assets$639
Lease liabilities:
Operating lease liabilities (3)$59
Finance lease liabilities (4)29
Total lease liabilities—current88
Operating lease liabilities (5)442
Finance lease liabilities105
Total lease liabilities—noncurrent547
Total lease liabilities$635
Virginia Power
Operating lease assets (1)$212
Finance lease assets (2)19
Total lease assets$231
Lease liabilities:
Operating lease liabilities (3)$30
Finance lease liabilities (4)3
Total lease liabilities—current33
Operating lease liabilities (5)180
Finance lease liabilities16
Total lease liabilities—noncurrent196
Total lease liabilities$229
Dominion Energy Gas
Operating lease assets (1)$37
Finance lease assets (2)6
Total lease assets$43
Lease liabilities:
Operating lease liabilities (3)$6
Finance lease liabilities (4)1
Total lease liabilities—current7
Operating lease liabilities (5)29
Finance lease liabilities5
Total lease liabilities—noncurrent34
Total lease liabilities$41
(1)Included in other deferred charges and other assets in the Companies’ Consolidated Balance Sheets.
(2)Included in property, plant and equipment in the Companies’ Consolidated Balance Sheets, net of $27 million, $4 million and $1 million of accumulated amortization at Dominion Energy, Virginia Power and Dominion Energy Gas, respectively, at December 31, 2019.
(3)Included in other current liabilities in the Companies’ Consolidated Balance Sheets.
(4)Included in securities due within one year in the Companies’ Consolidated Balance Sheets.
(5)Included in other deferred credits and other liabilities in the Companies’ Consolidated Balance Sheets.

In addition to the amounts disclosed above, Dominion Energy’s Consolidated Balance Sheet at December 31, 2019 includes property plant and equipment and accumulated depreciation of $2.8 billion and $364 million, respectively, related to facilities subject to power purchase agreements under which Dominion Energy is the lessor.

153

Combined Notes to Consolidated Financial Statements, Continued

For the year ended December 31, 2019, total lease cost associated with the Companies’ leasing arrangements consisted of the following:

Year Ended December 31, 2019
(millions)
Dominion Energy
Finance lease cost:
Amortization$20
Interest4
Operating lease cost87
Short-term lease cost30
Variable lease cost6
Total lease cost$147
Virginia Power
Operating lease cost$41
Short-term lease cost13
Variable lease cost2
Total lease cost$56
Dominion Energy Gas
Operating lease cost$7
Short-term lease cost7
Total lease cost$14

For the year ended December 31, 2019, cash paid for amounts included in the measurement of the lease liabilities consisted of the following amounts, included in the Companies’ Consolidated Statements of Cash Flows:

Year Ended December 31, 2019
(millions)
Dominion Energy
Operating cash flows for finance leases$4
Operating cash flows for operating leases121
Financing cash flows for finance leases20
Virginia Power
Operating cash flows for operating leases56
Dominion Energy Gas
Operating cash flows for operating leases14

In addition to the amounts disclosed above, Dominion Energy’s Consolidated Statement of Income for the year ended December 31, 2019 includes $174 million of rental revenue included in operating revenue and $94 million of depreciation expense, included in depreciation, depletion and amortization, related to facilities subject to power purchase agreements under which Dominion Energy is the lessor.

At December 31, 2019, the weighted average remaining lease term and weighted discount rate for the Companies’ finance and operating leases were as follows:

December 31, 2019
Dominion Energy
Weighted average remaining lease term—finance leases5 years
Weighted average remaining lease term—operating leases21 years
Weighted average discount rate—finance leases3.84%
Weighted average discount rate—operating leases4.47%
Virginia Power
Weighted average remaining lease term—finance leases6 years
Weighted average remaining lease term—operating leases20 years
Weighted average discount rate—finance leases4.12%
Weighted average discount rate—operating leases4.29%
Dominion Energy Gas
Weighted average remaining lease term—finance leases6 years
Weighted average remaining lease term—operating leases11 years
Weighted average discount rate—finance leases4.08%
Weighted average discount rate—operating leases4.37%

The Companies’ lease liabilities have the following maturities:

Maturity of Lease LiabilitiesDominion EnergyVirginia PowerDominion Energy Gas
OperatingFinanceOperatingFinanceOperatingFinance
(millions)
2020$72$34$34$4$7$2
2021653130461
2022552924451
2023452619341
2024361914331
After 202458292054201
Total undiscounted lease payments85514832622457
Present value adjustment(377)(14)(139)(3)(10)(1)
Present value of lease liabilities$478$134$187$19$35$6

Corporate Office Leasing Arrangements

In July 2016, Dominion Energy signed an agreement with a lessor to construct and lease a new corporate office property in Richmond, Virginia. The lessor provided equity and obtained financing commitments from debt investors, totaling $365 million, which funded total project costs. The project became substantially complete in August 2019 at which point the facility was available for Dominion Energy’s use and the five-year lease term commenced.

Upon commencement, the lease for the facility was classified as a finance lease. At the end of the initial lease term, Dominion Energy can (i) extend the term of the lease for an additional five years, subject to the approval of the participants, at current market terms, (ii) purchase the property for an amount equal to the project costs or, (iii) subject to certain terms and conditions, sell the property on behalf of the lessor to a third party using commercially reasonable efforts to obtain the highest cash purchase price for the

154

property. If the project is sold and the proceeds from the sale are insufficient to repay the investors for the project costs, Dominion Energy may be required to make a payment to the lessor, up to 87% of project costs, for the difference between the project costs and sale proceeds. No

end-of-term

options were deemed reasonably certain of exercise at commencement date. At commencement, Dominion Energy recorded a

right-of-use

asset and offsetting lease obligation of $67 million, representing the present value of consideration over the five-year term at the rate implicit in the lease. Dominion Energy is considered the owner of the leased property for tax purposes, and as a result, is entitled to tax deductions for depreciation and interest expense.

In December 2019, Dominion Energy signed an agreement with a lessor to construct and lease a new corporate office property in Richmond, Virginia. The lessor is providing equity and has obtained financing commitments from debt investors, totaling $465 million, to fund the estimated project costs.

If Dominion Energy ultimately proceeds with the

project

through completion, it

is

not

expected to be completed

earlier than

mid-2023.

Dominion Energy has been appointed to act as the construction agent for the lessor, during which time Dominion Energy will request cash draws from the lessor and debt investors to fund all project costs. If the project is terminated under certain events of default, Dominion Energy could be required to pay up to 89.9% of the then funded amount. For specific full recourse events, Dominion Energy could be required to pay up to 100% of the then funded amount.

The

51-month

lease term will commence once construction is substantially complete and the facility is able to be occupied. At the end of the initial lease term, Dominion Energy can (i) extend the term of the lease for an additional five years, subject to the approval of the participants, at current market terms, (ii) purchase the property for an amount equal to the project costs or, (iii) subject to certain terms and conditions, sell the property on behalf of the lessor to a third party using commercially reasonable efforts to obtain the highest cash purchase price for the property. If the project is sold and the proceeds from the sale are insufficient to repay the investors for the project costs, Dominion Energy may be required to make a payment to the lessor, up to 83% of project costs, for the difference between the project costs and sale proceeds.

Dominion Energy is not considered the owner during construction for financial accounting purposes and, therefore, will not reflect the construction activity in its consolidated financial statements. Dominion Energy expects to recognize a

right-of-use

asset and a corresponding finance lease liability at the commencement of the lease term. Dominion Energy will be considered the owner of the leased property for tax purposes, and as a result, will be entitled to tax deductions for depreciation and interest expense.

Note 16. 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.

Dominion Energy

At December 31, 2019, Dominion Energy owns the manager and 67% of the membership interest in certain merchant solar facilities, as discussed in Note 2. Dominion Energy has concluded that these entities are VIEs due to the members lacking the characteristics of a controlling financial interest. In addition, in 2016 Dominion Energy created a wholly owned subsidiary, SBL Holdco, as a holding company of its interest in the VIE merchant solar facilities and accordingly SBL Holdco is a VIE. Dominion Energy is the primary beneficiary of SBL Holdco and the merchant solar facilities, as it has 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. Dominion Energy’s securities due within one year and long-term debt include $31 million and $267 million, respectively, of debt issued by SBL Holdco net of issuance costs that is nonrecourse to Dominion Energy and is secured by SBL Holdco’s interest in certain merchant solar facilities.

Dominion Energy owns a 48% membership interest in Atlantic Coast Pipeline. See Note 9 for more details regarding the nature of this entity. Dominion Energy concluded that Atlantic Coast Pipeline is a VIE because it has insufficient equity to finance its activities without additional subordinated financial support. Dominion Energy has concluded that it is not the primary beneficiary of Atlantic Coast Pipeline as it does not have the power to direct the activities of Atlantic Coast Pipeline that most significantly impact its economic performance, as the power to direct is shared among multiple unrelated parties. In February 2020, Dominion Energy entered an agreement to acquire Southern’s 5% membership interest which is expected to close by the second quarter of 2020. Following completion of the acquisition, Dominion Energy will own a 53% noncontrolling membership interest in Atlantic Coast Pipeline which is not expected to change Dominion Energy’s conclusion that it is not the primary beneficiary as the power to direct the activities most significant to Atlantic Coast Pipeline will be shared with Duke. Dominion Energy is obligated to provide capital contributions based on its ownership percentage. Dominion Energy’s maximum exposure to loss is limited to its current and future investment as well as any obligations under a guarantee provided. See Note 23 for more information.

Dominion Energy previously concluded that Dominion Energy Midstream was a VIE due to the limited partners lacking the characteristics of a controlling financial interest and that it was the primary beneficiary as it had the power to direct the activities that most significantly impact the economic performance as well as to absorb losses and benefits which could be significant to Dominion Energy Midstream. In January 2019, Dominion Energy acquired all outstanding partnership interests not owned by Dominion Energy and Dominion Energy Midstream became a wholly-owned subsidiary of Dominion Energy. As a result, Dominion Energy concluded that Dominion Energy Midstream is no longer a VIE.

Dominion Energy and Virginia Power

Dominion Energy and Virginia Power’s nuclear decommissioning trust funds and Dominion Energy’s rabbi trusts hold investments in limited partnerships or similar type entities (see Note 9 for further details). Dominion Energy and Virginia Power concluded that these partnership investments are VIEs due to the limited partners lacking the characteristics of a controlling financial interest. Dominion Energy and Virginia Power have concluded neither is the primary beneficiary as they do not have the power to

155

Combined Notes to Consolidated Financial Statements, Continued

direct the activities that most significantly impact these VIEs’ economic performance. Dominion Energy and Virginia Power are obligated to provide capital contributions to the partnerships

as

required

by each partnership agreement based on their ownership percentages. Dominion Energy and Virginia Power’s maximum exposure to loss is limited to their current and future investments.

Virginia Power

Virginia Power had a long-term power and capacity contract with one

non-utility

generator with an aggregate summer generation capacity of approximately 218 MW. The contract contained certain variable pricing mechanisms in the form of partial fuel reimbursement that Virginia Power considered to be variable interests and for which Virginia Power had previously concluded if the generation facility were to be a VIE that it would not be the primary beneficiary. In May 2019, Virginia Power entered into an agreement and paid $135 million to terminate the remaining contract with the

non-utility

generator. A $135 million ($100 million

after-tax)

charge was recorded in impairment of assets and other charges in Virginia Power’s Consolidated Statements of Income during the second quarter of 2019. Virginia Power paid $13 million, $50 million, and $86 million for electric capacity to

non-utility

generators and $1 million, $18 million and $24 million for electric energy to

non-utility

generators for the years ended December 31, 2019, 2018 and 2017, respectively.

Dominion Energy and Dominion Energy Gas

As part of the Dominion Energy Gas Restructuring, Dominion Energy contributed to Dominion Energy Gas a 75% controlling limited partner interest in Cove Point. In December 2019, Dominion Energy sold its retained 25% noncontrolling limited partner interest in Cove Point. Dominion Energy Gas concluded that Cove Point is a VIE due to the limited partners lacking the characteristics of a controlling financial interest. Dominion Energy Gas 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.

Dominion Energy Gas

DETI has been engaged to oversee the construction of, and to subsequently operate and maintain, the projects undertaken by Atlantic Coast Pipeline based on the overall direction and oversight of Atlantic Coast Pipeline’s members. An affiliate of DETI holds a membership interest in Atlantic Coast Pipeline, therefore DETI is considered to have a variable interest in Atlantic Coast Pipeline. The members of Atlantic Coast Pipeline hold the power to direct the construction, operations and maintenance activities of the entity. DETI has concluded it is not the primary beneficiary of Atlantic Coast Pipeline as it does not have the power to direct the activities of Atlantic Coast Pipeline that most significantly impact its economic performance. DETI has no obligation to absorb any losses of the VIE. See Note 25 for information about associated related party receivable balances.

Dominion Energy Gas purchased shared services from DECGS and DEQPS, affiliated VIEs, of $49 million, $45 million and $45 million for the years ended December 31, 2019, 2018 and 2017, respectively. Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DECGS and DEQPS of $15 million and $6 million at December 31, 2019 and at December 31, 2018, respectively.

Dominion Energy

Gas determined that neither it nor any of its consolidated entities is the primary beneficiary of DECGS or DEQPS, 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. DECGS and DEQPS provide

marketing

and operation

al

services to Dominion Energy and its subsidiaries as subsidiary service companies. Neither Dominion Energy Gas nor any of its consolidated entities has any obligation to absorb more than its allocated share of DECGS or DEQPS costs.

Virginia Power and Dominion Energy Gas

Virginia Power and Dominion Energy Gas purchased shared services from DES, an affiliated VIE, of $387 million and $119 million, $335 million and $106 million, and $340 million and $106 million for the years ended December 31, 2019, 2018 and 2017, respectively. Virginia Power and Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DES of $102 million and $27 million, respectively, at December 31, 2019, and $107 million and $43 million, respectively, at December 31, 2018, recorded in payables to affiliates in the Consolidated Balance Sheets. Virginia Power and Dominion Energy Gas determined that neither is the primary beneficiary of DES as neither has both 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. DES provides accounting, legal, finance and certain administrative and technical services to all Dominion Energy subsidiaries, including Virginia Power and Dominion Energy Gas. Virginia Power and Dominion Energy Gas have no obligation to absorb more than their allocated shares of DES costs.

Note 17. Short-term Debt and Credit Agreements

The Companies use short-term debt to fund working capital requirements and as a bridge to long-term debt financings. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations. In addition, Dominion Energy utilizes cash and letters of credit to fund collateral requirements. Collateral requirements are impacted by commodity prices, hedging levels, Dominion Energy’s credit ratings and the credit quality of its counterparties.

Dominion Energy

Dominion Energy’s short-term financing is supported through its access to the joint revolving credit facility described below. Commercial paper and letters of credit outstanding, as well as capacity available under the credit facility were as follows:

Facility LimitOutstanding Commercial Paper (1)Outstanding Letters of CreditFacility Capacity Available
(millions)
At December 31, 2019
Joint revolving credit facility (2)$6,000$836$89$5,075
At December 31, 2018
Joint revolving credit facility (2)$6,000$324$88$5,588
156
(1)The weighted-average interest rates of the outstanding commercial paper supported by Dominion Energy’s credit facility was 2.10% and 2.93% at December 31, 2019 and 2018, respectively.
(2)This credit facility matures in March 2023 and can be used by the borrowers under the credit facility to support bank borrowings and the issuance of commercial paper, as well as to support up to a combined $2.0 billion of letters of credit.

In March 2019, DESC’s $700 million credit facility was terminated and DESC was added as a borrower to the joint revolving credit facility discussed above with Dominion Energy, Virginia Power, Dominion Energy Gas and Questar Gas. DESC’s short-term financing is supported through its access as

co-borrower

to the facility. At December 31, 2019, the

sub-limit

for DESC was $500 million.

Questar Gas’ short-term financing is supported through its access as

co-borrower

to the joint revolving credit facility discussed above with Dominion Energy, Virginia Power, Dominion Energy Gas and DESC. At December 31, 2019, the

sub-limit

for Questar Gas was $250 million.

South Carolina Fuel Company, Inc.’s credit facility was terminated in February 2019. SCANA and PSNC’s credit facilities were terminated in March 2019. Liquidity needs for these entities may be satisfied through short-term intercompany borrowings from Dominion Energy.

In April 2019, DESC renewed its FERC authority through April 2020 to issue short-term indebtedness (pursuant to Section 204 of the Federal Power Act) in amounts not to exceed $2.2 billion outstanding with maturity dates of one year or less. In addition, in April 2019, GENCO renewed its FERC authority through April 2020 to issue short-term indebtedness not to exceed $200 million outstanding with maturity dates of one year or less. In January 2020, DESC and GENCO applied to FERC for a two-year short-term borrowing authorization. The applications are pending.

In addition to the credit facilities mentioned above, SBL Holdco has $30 million of credit facilities which had an original stated maturity date of December 2017 with automatic

one-year

renewals through the maturity of the SBL Holdco term loan agreement in December 2023. Dominion Solar Projects III, Inc. has $25 million of credit facilities which had an original stated maturity date of May 2018 with automatic

one-year

renewals through the maturity of the Dominion Solar Projects III, Inc. term loan agreement in May 2024. At December 31, 2019, no amounts were outstanding under either of these facilities.

In February 2019, Dominion Energy Midstream terminated its $500 million revolving credit facility subsequent to repaying the outstanding balance of $73 million, plus accrued interest.

In addition to the joint revolving credit facility mentioned above, Dominion Energy also has a credit facility with a maturity date in June 2020 which allows Dominion Energy to issue up to approximately $21 million in letters of credit. At December 31, 2019, Dominion Energy had $21 million in letters of credit outstanding under this agreement.

In September 2019, Dominion Energy Questar borrowed $3.0 billion under a 364-Day Term Loan Agreement that accrued interest at a variable rate. The proceeds from the borrowing were used to repay the principal of Cove Point’s $3.0 billion term loan due in 2021. Dominion Energy provided a guarantee to support Dominion Energy Questar’s obligation under the

364-Day

Term Loan Agreement. In November and December 2019, principal of $1.0 billion and $2.0 billion, respectively, plus accrued interest was repaid.

Virginia Power

Virginia Power’s short-term financing is supported through its access as

co-borrower

to the joint revolving credit facility. The credit facility can be used for working capital, as support for the combined commercial paper programs of the borrowers under the credit facility and for other general corporate purposes.

Virginia Power’s share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, Dominion Energy Gas, Questar Gas and DESC were as follows:

Facility LimitOutstanding Commercial Paper (1)Outstanding Letters of Credit
(millions)
At December 31, 2019
Joint revolving credit facility (2)$6,000$243$ 7
At December 31, 2018
Joint revolving credit facility (2)$6,000$314$16
(1)The weighted-average interest rates of the outstanding commercial paper supported by the credit facility was 2.10% and 2.94% at December 31, 2019 and 2018, respectively.
(2)The full amount of the facility is available to Virginia Power, less any amounts outstanding to co-borrowers Dominion Energy, Dominion Energy Gas, Questar Gas and DESC. The sub-limit for Virginia Power is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At December 31, 2019, the sub-limit for Virginia Power was $1.5 billion. If Virginia Power has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $2.0 billion (or the sub-limit, whichever is less) of letters of credit.

Dominion Energy Gas

Dominion Energy Gas’ short-term financing is supported by its access as

co-borrower

to the joint revolving credit facility. The credit facility can be used for working capital, as support for the combined commercial paper programs of the borrowers under the credit facility and for other general corporate purposes.

Dominion Energy Gas’ share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, Virginia Power, Questar Gas and DESC were as follows:

Facility LimitOutstanding Commercial Paper (1)Outstanding Letters of Credit
(millions)
At December 31, 2019
Joint revolving credit facility (2)$1,500$62$—
At December 31, 2018
Joint revolving credit facility (2)$1,500$10$—
(1)The weighted-average interest rates of the outstanding commercial paper supported by the credit facility was 1.98% and 2.58% at December 31, 2019 and 2018, respectively.
(2)A maximum of $1.5 billion of the facility is available to Dominion Energy Gas, assuming adequate capacity is available after giving effect to uses by co-borrowers Dominion Energy, Virginia Power, Questar Gas and DESC. The sub-limit for Dominion Energy Gas is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At December 31, 2019, the sub-limit for Dominion Energy Gas was $750 million. If Dominion Energy Gas has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the sub-limit, whichever is less) of letters of credit.
157

Combined Notes to Consolidated Financial Statements, Continued

Note 18. Long-term Debt

At December 31,2019 Weighted- average Coupon (1)20192018
(millions, except percentages)
Dominion Energy Gas Holdings, LLC:
Unsecured senior notes:
Variable rate, due 20212.49%$500$500
2.5% to 4.8%, due 2019 to 2049 (2)3.44%4,6313,587
Cove Point, term loan, due 2021 (3)—3,000
Dominion Energy Midstream:
Term loan, variable rate, due 2019—300
Revolving credit agreement, variable rate, due 2021 (4)—73
Dominion Energy Questar Pipeline, unsecured senior notes, 3.53% to 4.875%, due 2028 to 20414.23%430430
Dominion Energy Gas Holdings, LLC total principal$5,561$7,890
Securities due within one year2.80%(699)(748)
Credit facility borrowings (4)—(73)
Unamortized discount and debt issuance costs(41)(47)
Finance leases5—
Dominion Energy Gas Holdings, LLC total long-term debt$4,826$7,022
Virginia Electric and Power Company:
Unsecured senior notes:
2.75% to 8.875%, due 2019 to 20494.27%$11,789$11,090
Tax- exempt financings, 1.80% to 5.0%, due 2023 to 2041 (5) (6)2.02%625664
Virginia Electric and Power Company total principal$12,414$11,754
Securities due within one year4.29%(1)(350)
Unamortized discount, premium and debt issuances costs, net(88)(83)
Finance leases16—
Virginia Electric and Power Company total long-term debt$12,341$11,321
Dominion Energy, Inc.:
Unsecured senior notes:
Variable rates, due 2019 and 20202.31%$300$800
1.6% to 7.0%, due 2019 to 2049 (7)4.15%7,6887,488
Unsecured junior subordinated notes:
2.579% to 4.104%, due 2019 to 20243.01%2,9502,100
Payable to affiliated trust, 8.4%, due 20318.40%1010
Enhanced junior subordinated notes:
Variable rates, due 2066 (8)4.41%397422
5.25% and 5.75%, due 2054 and 20765.48%1,4851,485
Remarketable subordinated notes, 2.0%, due 2021 and 2024—1,400
Questar Gas, unsecured senior notes, 2.98% to 7.20%, due 2024 to 20514.25%750750
SCANA:
Unsecured medium term notes, 4.125% to 6.25%, due 2020 to 2022 (9)(10)5.06%508—
Unsecured senior notes, variable rate, due 2034 (11)2.61%66—
PSNC, senior debentures and notes, 4.13% to 7.45%, due 2020 to 20475.05%700—
DESC:
First mortgage bonds, 3.22% to 6.625%, due 2021 to 2065 (12)5.42%3,267—
Tax- exempt financings: (13)
Variable rate due 20381.65%35—
GENCO, variable rates due 2038 (14)1.65%33—
3.625% and 4.00%, due 2028 and 20333.90%54—
Other3.69%1—
Secured senior notes, 4.82%, due 2042 (15)4.82%345362
Term loans, variable rates, due 2023 and 2024 (15)4.24%527582
Tax- exempt financing, 1.7%, due 20331.70%2727
Dominion Energy Gas Holdings, LLC total principal (from above)5,5617,890
Virginia Electric and Power Company total principal (from above)12,41411,754
Dominion Energy, Inc. total principal$37,118$35,070
Fair value hedge valuation (16)4(20)
Securities due within one year (8)(10)(11)(17)3.41%(3,133)(3,624)
Credit facility borrowings (4)—(73)
Unamortized discount, premium and debt issuance costs, net(270)(248)
Finance leases10539
Dominion Energy, Inc. total long-term debt$33,824$31,144
158
(1)Represents weighted-average coupon rates for debt outstanding as of December 31, 2019.
(2)Amount includes foreign currency remeasurement adjustments.
(3)In September 2019, Cove Point repaid its $3.0 billion term loan due in 2021.
(4)In February 2019, Dominion Energy Midstream repaid its $300 million variable rate term loan due in December 2019 and terminated the credit facility due in March 2021 subsequent to repaying the $73 million outstanding balance. As such, credit facility borrowings are presented within current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets at December 31, 2018.
(5)These financings relate to certain pollution control equipment at Virginia Power’s generating facilities.
(6)In May 2019, Virginia Power redeemed its $40 million 5.0% Economic Development Authority of the County of Chesterfield Pollution Control Refunding Revenue Bonds, Series 2009A, due in 2023 at the principal outstanding plus accrued interest.
(7)Includes debt assumed by Dominion Energy from the merger of its former CNG subsidiary.
(8)In February 2020, Dominion Energy purchased and cancelled the remaining $111 million and $286 million of its June 2006 hybrids and September 2006 hybrids, respectively, both of which would have otherwise matured in 2066. As such, these borrowings are presented within securities due within one year in Dominion Energy’s Consolidated Balance Sheets at December 31, 2019.
(9)In March 2019, SCANA purchased certain of its medium term notes having an aggregate purchase price of $300 million pursuant to tender offer that expired in the first quarter of 2019.
(10)In February 2020, SCANA provided notice to redeem the remaining principal outstanding of $183 million of its 4.75% medium-term notes and $155 million of its 4.125% medium-term notes plus accrued interest and make-whole premiums in March 2020. The notes would have otherwise matured in May 2021 and February 2022, respectively. As such, these borrowings are presented within securities due within one year in Dominion Energy’s Consolidated Balance Sheets at December 31, 2019.
(11)In January 2020, SCANA provided notice to redeem its floating rate senior notes at the remaining principal outstanding of $66 million plus accrued interest in March 2020. The notes would have otherwise matured in June 2034. As such, these borrowings are presented within securities due within one year in Dominion Energy’s Consolidated Balance Sheets at December 31, 2019.
(12)In February, March and September 2019, DESC purchased certain of its first mortgage bonds having an aggregate purchase price of $1.8 billion pursuant to tender offers. The February and March tender offers expired in the first quarter of 2019 and the September tender offer expired in the third quarter of 2019.
(13)Industrial revenue bonds totaling $68 million are secured by letters of credit that expire, subject to renewal, in the fourth quarter of 2020.
(1 4 )In May 2019, GENCO redeemed its 5.49% senior secured notes due in 2024 at the remaining principal outstanding of $33 million plus accrued interest. In June 2019, the first mortgage lien on an electric generating facility that previously secured these notes was released.
(1 5 )Represents debt associated with Eagle Solar, SBL Holdco and Dominion Solar Projects III, Inc. The debt is nonrecourse to Dominion Energy and is secured by Eagle Solar’s, SBL Holdco’s and Dominion Solar Projects III, Inc’s interest in certain solar facilities.
(1 6 )Represents the valuation of certain fair value hedges associated with Dominion Energy’s fixed rate debt.
(1 7 )Includes $20 million of estimated mandatory prepayments due within one year based on estimated cash flows in excess of debt service at SBL Holdco and Dominion Solar Projects III, Inc.

Based on stated maturity dates rather than early redemption dates that could be elected by instrument holders, the scheduled principal payments of long-term debt at December 31, 2019, were as follows:

20202021202220232024ThereafterTotal
(millions, except percentages)
Dominion Energy Gas$700$500$—$650$1,050$2,661$5,561
Weighted-average coupon2.80%2.49%—3.29%2.97%3.95%
Virginia Power
Unsecured senior notes$—$—$750$700$350$9,989$11,789
Tax- exempt financings————625625
Total$—$—$750$700$350$10,614$12,414
Weighted-average coupon——3.15%2.75%3.45%4.35%
Dominion Energy
Term loans (1 )$35$35$34$259$164$—$527
First mortgage bonds—33———3,2343,267
Unsecured senior notes (2)(3)1,2751,2371,6592,3551,74519,09227,363
Secured senior notes1517191617261345
Tax- exempt financings—————774774
Unsecured junior subordinated notes payable to affiliated trusts—————1010
Unsecured junior subordinated notes1,0001,250——700—2,950
Enhanced junior subordinated notes (4)—————1,8821,882
Total$2,325$2,572$1,712$2,630$2,626$25,253$37,118
Weighted-average coupon3.09%3.15%3.10%2.95%3.19%4.62%
(1)Excludes mandatory prepayments associated with SBL Holdco and Dominion Solar Projects III, Inc. based on cash flows in excess of debt service. At December 31, 2019, $20 million of estimated mandatory prepayments due within one year were included in securities due within one year in Dominion Energy’s Consolidated Balance Sheets.
(2)In January 2020, SCANA provided notice to redeem its floating rate senior notes at the remaining principal outstanding of $66 million plus accrued interest in March 2020. The notes would have otherwise matured in June 2034.
(3)In February 2020, SCANA provided notice to redeem the remaining principal outstanding of $183 million of its 4.75% medium-term notes and $155 million of its 4.125% medium-term notes plus accrued interest and make-whole premiums in March 2020. The notes would have otherwise matured in May 2021 and February 2022, respectively.
(4)In February 2020, Dominion Energy purchased and cancelled the remaining $111 million and $286 million of its June 2006 hybrids and September 2006 hybrids, respectively, both of which would have otherwise matured in 2066. As such, these borrowings are presented within current liabilities in Dominion Energy’s Consolidated Balance Sheets at December 31, 2019.
159

Combined Notes to Consolidated Financial Statements, Continued

The Companies’ short-term credit facility and long-term debt agreements contain customary covenants and default provisions. As of December 31, 2019, there were no events of default under these covenants.

Senior Note Redemptions

In November 2018 and December 2018, Dominion Energy redeemed the following outstanding series of senior notes: 2011 Series A 4.45% Senior Notes due 2021, 2014 Series B 2.50% Senior Notes due 2019, 2014 Series C 3.625% Senior Notes due 2024 and 2018 Series A Floating Rate Senior Notes due 2020 with an aggregate outstanding principal of $2.2 billion. The aggregate redemption price paid was $2.2 billion and represents the principal amount outstanding, accrued and unpaid interest and the applicable make-whole premium of $34 million. Total charges of $69 million, including the make-whole premium, were recognized and recorded in interest expense in Dominion Energy’s Consolidated Statements of Income.

Enhanced Junior Subordinated Notes

In June 2006 and September 2006, Dominion Energy issued $300 million of June 2006 hybrids and $500 million of September 2006 hybrids, respectively. The June 2006 hybrids and the September 2006 hybrids bore interest at the three-month LIBOR plus 2.825%, reset quarterly and at the three-month LIBOR plus 2.3%, reset quarterly, respectively. Dominion Energy executed RCCs in connection with its issuance of the June 2006 hybrids and the September 2006 hybrids. Under the terms of the RCCs, redemptions of the hybrids were subject to certain conditions. In 2019, Dominion Energy purchased and cancelled $12 million and $13 million of its June 2006 hybrids and September 2006 hybrids, respectively. In February 2020, Dominion Energy purchased and cancelled the remaining $111 million and $286 million of its June 2006 hybrids and September 2006 hybrids, respectively, both of which would have otherwise matured in 2066. All purchases were conducted in compliance with the applicable RCC, each of which was terminated in February 2020.

In October 2014, Dominion Energy issued $685 million of October 2014 hybrids that will bear interest at 5.75% per year until October 1, 2024. Thereafter, they will bear interest at the three-month LIBOR plus 3.057%, reset quarterly.

In July 2016, Dominion Energy issued $800 million of 5.25% July 2016 hybrids. The July 2016 hybrids are listed on the NYSE under the symbol DRUA.

Dominion Energy may defer interest payments on the hybrids on one or more occasions for up to 10 consecutive years. If the interest payments on the hybrids are deferred, Dominion Energy may not make distributions related to its capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments during the deferral period. Also, during the deferral period, Dominion Energy may not make any payments on or redeem or repurchase any debt securities that are equal in right of payment with, or subordinated to, the hybrids.

Remarketable Subordinated Notes

In July 2014, Dominion Energy issued $1.0 billion of 2014 Series A 6.375% Equity Units, initially in the form of Corporate Units. In August 2016, Dominion Energy issued $1.4 billion of 2016 Series A 6.75% Equity Units, initially in the form of Corporate

Units. The Corporate Units were listed on the NYSE under the symbols DCUC and DCUD, respectively.

Each 2014 Series A Corporate Unit consisted of a stock purchase contract and 1/20 interest in a RSN issued by Dominion Energy. Each 2016 Series A Corporate Unit consisted of a stock purchase contract, a 1/40 interest in a 2016 Series

A-1

RSN issued by Dominion Energy and a 1/40 interest in a 2016 Series

A-2

RSN issued by Dominion Energy. The stock purchase contracts obligated the holders to purchase shares of Dominion Energy common stock at a future settlement date prior to the relevant RSN maturity date. The purchase price paid under the stock purchase contracts was $50 per Corporate Unit and the number of shares purchased was determined under a formula based upon the average closing price of Dominion Energy common stock near the settlement date. The RSNs were pledged as collateral to secure the purchase of common stock under the related stock purchase contracts.

In May 2017, Dominion Energy successfully remarketed the $1.0 billion 2014 Series A 1.50% RSNs due 2020 pursuant to the terms of the related 2014 Equity Units. In connection with the remarketing, the interest rate on the junior subordinated notes was reset to 2.579%, payable on a semi-annual basis and Dominion Energy ceased to have the ability to redeem the notes at its option or defer interest payments.

In June 2019, Dominion Energy successfully remarketed the $700 million 2016 Series

A-1

2.0% RSNs due 2021 and $700 million 2016 Series

A-2

2.0% RSNs due 2024 pursuant to the terms of the related 2016 Equity Units. In connection with the remarketing, the interest rates on the Series

A-1

and Series

A-2

notes were reset to 2.715% and 3.071%, respectively, payable on a semi-annual basis, and Dominion Energy ceased to have the ability to redeem the notes at its option or defer interest payments.

At December 31, 2019, the securities are included in junior subordinated notes in Dominion Energy’s Consolidated Balance Sheets. Dominion Energy did not receive any proceeds from the remarketings. Remarketing proceeds belonged to the investors holding the related equity units and were temporarily used to purchase a portfolio of treasury securities. Upon maturity of each portfolio, the proceeds were applied on behalf of investors on the related stock purchase contract settlement date to pay the purchase price to Dominion Energy for issuance of 12.5 million shares of its common stock in July 2017 and 18.5 million shares of its common stock in August 2019.

Note 19. Preferred Stock

Dominion Energy is authorized to issue up to 20 million shares of preferred stock, which may be designated into separate classes. At December 31, 2019, Dominion Energy had issued and outstanding 2.4 million shares preferred stock, 1.6 million and 0.8 million of which were designated as the Series A Preferred Stock and the Series B Preferred Stock, respectively. No shares of preferred stock were outstanding at December 31, 2018.

DESC is authorized to issue up to 20 million shares of preferred stock. At December 31, 2019, DESC had issued and outstanding 1,000 shares of preferred stock, all of which were held by SCANA and are eliminated in consolidation.

160

2019 Corporate Units

In June 2019, Dominion Energy issued $1.6 billion of 2019 Equity Units, initially in the form of 2019 Series A Corporate Units. The Corporate Units are listed on the NYSE under the symbol DCUE. The net proceeds were used for general corporate purposes and to repay short-term debt, including commercial paper.

Each 2019 Series A Corporate Unit consists of a stock purchase contract and a 1/10, or 10%, undivided beneficial ownership interest in one share of Series A Preferred Stock. Beginning in June 2022, the Series A Preferred Stock is convertible at the option of the holder into Dominion Energy common stock under a formula based upon the average closing price of Dominion Energy common stock prior to the conversion date. The Series A Preferred Stock is redeemable in cash by Dominion Energy beginning September 2022 at the liquidation preference. Settlement of any conversion is payable in cash, common stock or a combination thereof, at Dominion Energy’s election.

The stock purchase contracts obligate the holders to purchase shares of Dominion Energy common stock in June 2022. The purchase price to be paid under the stock purchase contracts is $100 per Corporate Unit and the number of shares to be purchased will be determined under a formula based upon the average closing price of Dominion Energy common stock near the settlement date. The Series A Preferred Stock was pledged upon issuance as collateral to secure the purchase of common stock under the related stock purchase contracts.

Dominion Energy pays cumulative dividends on the Series A Preferred Stock and quarterly contract adjustment payments on the stock purchase contracts, at the rates described below. Dominion Energy may elect to pay such dividends and/or payments in cash, shares of Dominion Energy common stock or a

combination of cash and shares of Dominion Energy common stock. Dominion Energy may defer the contract adjustment payments for one or more consecutive periods but generally not beyond the purchase contract settlement date. If payments are deferred, Dominion Energy may not make any distributions related to its capital stock, including dividends, redemptions, repurchases or liquidation payments. Also, during the deferral period, Dominion Energy may not make any payments on or redeem, repay or repurchase any debt securities that are equal in right of payment with, or subordinated to, the contract adjustment payments or make any payment on any guarantee of a security of a subsidiary if the guarantee ranks equal or junior to the contract adjustment payments. Unless all accumulated and unpaid dividends on the Series A Preferred Stock have been declared and paid, Dominion Energy may not make any distributions on any of its capital stock ranking equal or junior to the Series A Preferred Stock as to dividends or upon liquidation, as applicable, including dividends, redemptions, repurchases or liquidation payments. In such circumstances, Dominion Energy also may not make any contract adjustment payments or other similar types of payments, subject to certain exceptions.

Dominion Energy has recorded the present value of the stock purchase contract payments as a liability offset to common stock. Stock purchase contract payments are recorded against this liability. Accretion of the stock purchase contract liability is recorded as imputed interest expense. In calculating diluted EPS, Dominion Energy applies the treasury stock method to the stock purchase contracts and the

if-converted

method to the Series A Preferred Stock. Under the terms of the stock purchase contracts, assuming no anti-dilution or other adjustments, the maximum number of shares of common stock Dominion Energy will issue in June 2022 is 21.8 million.

Selected information about Dominion Energy’s 2019 Equity Units is presented below:

Issuance DateUnits IssuedTotal Net Proceeds (1)Total Preferred Stock (2)Cumulative Dividend RateStock Purchase Contract Annual RateStock Purchase Contract Liability (3)Stock Purchase Contract Settlement Date
(millions except interest rates)
6/14/201916$1,582$1,6101.75%5.5%$2506/1/2022
(1)Issuance costs of $28 million were recorded as a reduction to preferred stock ($14 million) and common stock ($14 million) in the Consolidated Balance Sheets.
(2)Dominion Energy recorded dividends of $15 million ($9.479 per share) for the year ended December 31, 2019.
(3)Payments of $38 million were made in 2019. The stock purchase contract liability was $212 million at December 31, 2019.

Series B Preferred Stock

In December 2019, Dominion Energy issued 800,000 shares of Series B Preferred Stock for $791 million, net of $9 million of issuance costs. The preferred stock has a liquidation preference of $1,000 per share and currently pays a 4.65% dividend per share on the liquidation preference. Dividends are paid cumulatively on a semi-annual basis, commencing June 15, 2020. Dominion Energy recorded dividends of $2 million ($1.9375 per share) for the year ended December 31, 2019. The dividend rate for the Series B Preferred Stock will be reset every five years beginning on December 15, 2024 to equal the then-current five-year U.S. Treasury rate plus a spread of 2.993%. Unless all accumulated and unpaid dividends on the Series B Preferred Stock have been declared and paid, Dominion Energy may not make any dis

tributions on any of its capital stock ranking equal or junior to the Series B Preferred Stock as to dividends or upon liquidation, including through dividends, redemptions, repurchases or otherwise.

Dominion Energy may, at its option, redeem the Series B Preferred Stock in whole or in part on December 15, 2024 or on any subsequent fifth anniversary of such date at a price equal to $1,000 per share plus any accumulated and unpaid dividends. Dominion Energy may also, at its option, redeem the Series B Preferred Stock in whole but not in part at a price equal to $1,020 per share plus any accumulated and unpaid dividends at any time within a certain period of time following any change in the criteria ratings agencies use to assign equity credit to securities such as the Series B Preferred Stock that has certain adverse effects on the equity credit actually received by the Series B Preferred Stock.

161

Combined Notes to Consolidated Financial Statements, Continued

Holders of the Series B Preferred Stock have no voting rights except in the limited circumstances provided for in the terms of the Series B Preferred Stock or as otherwise required by applicable law. The Series B Preferred Stock is not subject to any sinking fund or other obligation of ours to redeem, repurchase or retire the Series B Preferred Stock. The preferred stock contains no conversion rights.

Virginia Power

Virginia Power is authorized to issue up to 10 million shares of preferred stock, $100 liquidation preference; however, none were issued and outstanding at December 31, 2019 or 2018.

Note 20. Equity

Common Stock

Dominion Energy

During 2019, 2018 and 2017, Dominion Energy recorded, net of fees and commissions, $11.0 billion, $2.5 billion and $1.3 billion from the issuance of approximately 157 million, 36 million and 17 million shares of common stock, respectively, for acquisitions, settlements of stock purchase contracts and through various programs including Dominion Energy Direct

®

and an

at-the-market

program.

Acquisitions

During 2019, Dominion Energy issued 95.6 million shares of common stock in connection with the acquisition of SCANA. At the time of issuance, these common stock shares were valued at $6.8 billion. See Note 3 for further information on the issuance of Dominion Energy common stock in connection with the SCANA Combination.

In January 2019, Dominion Energy and Dominion Energy Midstream closed on an agreement and plan of merger pursuant to which Dominion Energy acquired each outstanding common unit representing limited partner interests in Dominion Energy Midstream not already owned by Dominion Energy through the issuance of 22.5 million shares of common stock valued at $1.6 billion. Under the terms of the agreement and plan of merger, each publicly held outstanding common unit representing limited partner interests in Dominion Energy Midstream was converted into the right to receive 0.2492 shares of Dominion Energy common stock. Immediately prior to the closing, each Series A Preferred Unit representing limited partner interests in Dominion Energy Midstream was converted into common units representing limited partner interests in Dominion Energy Midstream in accordance with the terms of Dominion Energy Midstream’s partnership agreement. The merger was accounted for by Dominion Energy following the guidance for a change in a parent company’s ownership interest in a consolidated subsidiary. Because Dominion Energy controls Dominion Energy Midstream both before and after the merger, the changes in Dominion Energy’s ownership interest in Dominion Energy Midstream were accounted for as an equity transaction and no gain or loss was recognized. In connection with the merger, Dominion Energy recognized $40 million of income taxes in equity primarily attributable to establishing additional regulatory liabilities related to excess deferred income taxes and changes in state income taxes.

Subsequent to this activity, as a result of the Dominion Energy Gas Restructuring, Dominion Energy Gas is considered to have acquired all of the outstanding partnership interests of Dominion Energy Midstream and Dominion Energy Midstream became a wholly-owned subsidiary of Dominion Energy Gas.

Pension Plan Contribution

In December 2019, Dominion Energy contributed 6.1 million shares of its common stock valued at $499 million to the qualified defined benefit pension plans. See Note 22 for further information regarding activity surrounding pension plan contributions.

Dominion Energy Direct

®

Dominion Energy maintains Dominion Energy Direct

®

and a number of employee savings plans through which contributions may be invested in Dominion Energy’s common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans. Currently, Dominion Energy is issuing new shares of common stock for these direct stock purchase plans. During 2019, Dominion Energy received cash of $309 million from the issuance of 4.0 million of such shares through Dominion Energy Direct

®

and employee savings plans.

Stock Purchase Contracts

In August 2019, Dominion Energy issued 18.5 million shares under the related stock purchase contracts entered into as part of Dominion Energy’s 2016 Equity Units and received proceeds of $1.4 billion. In 2017, Dominion Energy issued 12.5 million shares under the related stock purchase contracts entered into as part of Dominion Energy’s 2014 Equity Units and received proceeds of $1.0 billion. See Note 18 for further information surrounding these stock purchase contracts.

At-the-Market

Program

In June 2017, Dominion Energy filed an SEC shelf registration for the sale of debt and equity securities including the ability to sell common stock through an

at-the-market

program. Also, in June 2017, Dominion Energy entered into three separate sales agency agreements to effect sales under the program and pursuant to which it may offer from time to time up to $500 million aggregate amount of its common stock. Sales of common stock can be made by means of privately negotiated transactions, as transactions on the NYSE at market prices or in such other transactions as are agreed upon by Dominion Energy and the sales agents in conformance with applicable securities laws. In January 2018, Dominion Energy provided sales instructions to one of the sales agents and issued 6.6 million shares through

at-the-market

issuances and received cash proceeds of $495 million, net of fees and commissions paid of $5 million. Following these issuances, Dominion Energy had no remaining ability to issue stock under the 2017 sales agency agreements and completed the program. In February 2018, Dominion Energy entered into six separate sales agency agreements to effect sales under a new

at-the-market

program pursuant to which it may offer from time to time up to $1.0 billion aggregate amount of its common stock. These agreements replaced the sales agency agreements entered into by Dominion Energy in June 2017. Sales of common stock can be made by means of private negotiated transactions, as transactions

162

on the NYSE at market prices or in such other transactions as are agreed upon by Dominion Energy and the sales agents in conformance with applicable securities laws. In the fourth quarter of 2018, Dominion Energy provided sales instructions to two of the sales agents and issued 2.7 million shares through

at-the-market

issuances and received cash proceeds of $197 million, net of fees and commissions paid of $2 million. In the first quarter of 2019, Dominion Energy provided sales instructions to one of the sales agents and issued 2.1 million shares and received cash proceeds of $154 million, net of fees and commissions paid of $2 million. In the fourth quarter of 2019, Dominion Energy provided sales instructions to two of the sales agents and issued 7.8 million shares and received cash proceeds of $639 million, net of fees and commissions paid of $6 million. Following these issuances, Dominion Energy had no remaining ability to issue stock under the 2018 sales agency agreements and completed the program.

Forward Sale Agreements

In 2018, Dominion Energy entered into separate forward sale agreements with Goldman Sachs & Co. LLC and Credit Suisse Capital LLC, as forward purchasers, and an underwriting agreement with Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. LLC, as representatives of the several underwriters named therein, relating to an aggregate of 20 million shares of Dominion Energy common stock. The underwriting agreement granted the underwriters a

30-day

option to purchase up to an additional three million shares of Dominion Energy common stock, which the underwriters exercised with respect to approximately 2.1 million shares in April 2018. Dominion Energy entered into separate forward sale agreements with the forward purchasers with respect to the additional shares. In December 2018, Dominion Energy received proceeds of $1.4 billion (after deducting underwriting discounts, but before deducting expenses, and subject to forward price adjustments under the forward sale agreements) upon the physical settlement of 22.1 million shares.

Repurchase of Common Stock

Dominion Energy did not repurchase any shares in 2019 or 2018 and does not plan to repurchase shares during 2020, except for shares tendered by employees to satisfy tax withholding obligations on vested restricted stock, which do not count against its stock repurchase authorization.

Virginia Power

In 2019, 2018 and 2017, Virginia Power did not issue any shares of its common stock to Dominion Energy.

Noncontrolling Interests

Sale of Interest in Cove Point

In December 2019, Dominion Energy completed the sale of its 25% noncontrolling limited partnership interest in Cove Point to Brookfield in exchange for cash consideration of $2.1 billion, subject to working capital adjustments. See Note 3 for further information on the sale of this interest.

Remeasurement of Dominion Energy Midstream Units

In May 2018, all of the subordinated units of Dominion Energy Midstream held by Dominion Energy were converted into common units on a 1:1 ratio following the payment of Dominion Energy Midstream’s distribution for the first quarter of 2018. In

June 2018, Dominion Energy, as general partner, exercised an incentive distribution right reset as defined in Dominion Energy Midstream’s partnership agreement and received 27 million common units representing limited partner interests in Dominion Energy Midstream. As a result of the increase in its ownership interest in Dominion Energy Midstream, Dominion Energy recorded a decrease in noncontrolling interest, and a corresponding increase in shareholders’ equity, of $375 million reflecting the change in the carrying value of the interest in the net assets of Dominion Energy Midstream held by others.

Accumulated Other Comprehensive Income (Loss)

Presented in the table below is a summary of AOCI by component:

At December 31,20192018
(millions)
Dominion Energy
Net deferred losses on derivatives-hedging activities, net of $135 and $79 tax$(407)$(234)
Net unrealized gains on nuclear decommissioning trust funds, net of $(13) and $— tax372
Net unrecognized pension and other postretirement benefit costs, net of $492 and $519 tax(1,421)(1,465)
Other comprehensive loss from equity method investees, net of $1 and $— tax(2)(2)
Total AOCI, including noncontrolling interests$(1,793)$(1,699)
Less other comprehensive income attributable to noncontrolling interests—1
Total AOCI, excluding noncontrolling interests$(1,793)$(1,700)
Virginia Power
Net deferred losses on derivatives-hedging activities, net of $11 and $4 tax$(34)$(13)
Net unrealized gains on nuclear decommissioning trust funds, net of $(1) and $— tax51
Total AOCI$(29)$(12)
Dominion Energy Gas
Net deferred losses on derivatives-hedging activities, net of $28 and $8 tax$(82)$(25)
Net unrecognized pension costs, net of $41 and $56 tax(106)(144)
Total AOCI, including noncontrolling interests(188)(169)
Less other comprehensive income (loss) attributable to noncontrolling interests(1)—
Total AOCI, excluding noncontrolling interests$(187)$(169)
163

Combined Notes to Consolidated Financial Statements, Continued

Dominion Energy

The following table presents Dominion Energy’s changes in AOCI by component, net of tax:

Deferred gains and losses on derivatives- hedging activitiesUnrealized gains and losses on investment securitiesUnrecognized pension and other postretirement benefit costsOther comprehensive loss from equity method investeesTotal
(millions)
Year Ended December 31, 2019
Beginning balance$(235)$ 2$(1,465)$(2)$(1,700)
Other comprehensive income before reclassifications: gains (losses)(110)39(22)—(93)
Amounts reclassified from AOCI: (gains) losses (1)(62)(4)66——
Net current period other comprehensive income (loss)(172)3544—(93)
Ending balance$(407)$37$(1,421)$(2)$(1,793)
Year Ended December 31, 2018
Beginning balance$(302)$747$(1,101)$(3)$(659)
Other comprehensive income before reclassifications: gains (losses)30(18)(215)1(202)
Amounts reclassified from AOCI: (gains) losses (1)102578—185
Net current period other comprehensive income (loss)132(13)(137)1(17)
Cumulative-effect of changes in accounting principle(64)(732)(227)—(1,023)
Less other comprehensive income (loss) attributable to noncontrolling interests1———1
Ending balance$(235)$ 2$(1,465)$(2)$ (1,700)
(1)See table below for details about these reclassifications.

The following table presents Dominion Energy’s reclassifications out of AOCI by component:

Details about AOCI componentsAmounts reclassified from AOCIAffected line item in the Consolidated Statements of Income
(millions)
Year Ended December 31, 2019
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts$(146)Operating revenue
3Purchased gas
Interest rate contracts54Interest and related charges
Foreign currency contracts6Other Income
Total(83)
Tax21Income tax expense
Total, net of tax$(62)
Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities$(5)Other income
Total(5)
Tax1Income tax expense
Total, net of tax$(4)
Unrecognized pension and other postretirement benefit costs:
Amortization of prior-service costs (credits)$(24)Other income
Amortization of actuarial losses113Other income
Total89
Tax(23)Income tax expense
Total, net of tax$66
Year Ended December 31, 2018
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts$90Operating revenue
(14)Purchased gas
Interest rate contracts48Interest and related charges
Foreign currency contracts13Other Income
Total137
Tax(35)Income tax expense
Total, net of tax$102
Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities$7Other income
Total7
Tax(2)Income tax expense
Total, net of tax$5
Unrecognized pension and other postretirement benefit costs:
Prior-service costs (credits)$(21)Other income
Actuarial losses120Other income
Total99
Tax(21)Income tax expense
Total, net of tax$78
164

Virginia Power

The following table presents Virginia Power’s changes in AOCI by component, net of tax:

Deferred gains and losses on derivatives- hedging activitiesUnrealized gains and losses on investment securitiesTotal
(millions)
Year Ended December 31, 2019
Beginning balance$(13)$1$(12)
Other comprehensive income before reclassifications: gains (losses)(22)5(17)
Amounts reclassified from AOCI: (gains) losses (1)1(1)—
Net current period other comprehensive income (loss)(21)4(17)
Ending balance$(34)$5$(29)
Year Ended December 31, 2018
Beginning balance$(12)$74$62
Other comprehensive income before reclassifications: gains (losses)1—1
Amounts reclassified from AOCI: gains (losses) (1)1—1
Net current period other comprehensive income (loss)2—2
Cumulative-effect of changes in accounting principle(3)(73)(76)
Ending balance$(13)$1$(12)
(1)See table below for details about these reclassifications.

The following table presents Virginia Power’s reclassifications out of AOCI by component:

Details about AOCI componentsAmounts reclassified from AOCIAffected line item in the Consolidated Statements of Income
(millions)
Year Ended December 31, 2019
(Gains) losses on cash flow hedges:
Interest rate contracts$ 1Interest and related charges
Total1
Tax—Income tax expense
Total, net of tax$ 1
Unrealized (gains) and losses on investment securities:
Realized (gain) loss on sale of securities$ (2)Other income
Impairment—Other income
Total(2)
Tax1Income tax expense
Total, net of tax$ (1)
Year Ended December 31, 2018
(Gains) losses on cash flow hedges:
Interest rate contracts$ 1Interest and related charges
Total1
Tax—Income tax expense
Total, net of tax$ 1

Dominion Energy Gas

The following table presents Dominion Energy Gas’ changes in AOCI by component, net of tax:

Deferred gains and losses on derivatives- hedging activitiesUnrecognized pension and other postretirement benefit costsTotal
(millions)
Year Ended December 31, 2019
Beginning balance$(25)$(144)$(169)
Other comprehensive income before reclassifications: gains (losses)(61)33(28)
Amounts reclassified from AOCI: (gains) losses (1)5510
Net current period other comprehensive income (loss)(56)38(18)
Dominion Energy Gas Restructuring(1)—(1)
Less other comprehensive income attributable to noncontrolling interests(1)—(1)
Ending balance$(81)$(106)$(187)
Year Ended December 31, 2018
Beginning balance$(23)$(75)$(98)
Other comprehensive income before reclassifications: gains (losses)(16)(52)(68)
Amounts reclassified from AOCI: gains (losses) (1)19423
Net current period other comprehensive income (loss)3(48)(45)
Cumulative-effect of changes in accounting principle(5)(21)(26)
Ending balance$(25)$(144)$(169)
(1)See table below for details about these reclassifications.
165

Combined Notes to Consolidated Financial Statements, Continued

The following table presents Dominion Energy Gas’ reclassifications out of AOCI by component:

Details about AOCI componentsAmounts reclassified from AOCIAffected line item in the Consolidated Statements of Income
(millions)
Year Ended December 31, 2019
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts$ (4)Net income from discontinued operations
Interest rate contracts5Interest and related charges
Foreign currency contracts6Other income
Total7
Tax(2)Income tax expense
Total, net of tax$ 5
Unrecognized pension costs:
Actuarial losses$ 7Other income
Total7
Tax(2)Income tax expense
Total, net of tax$ 5
Year Ended December 31, 2018
Deferred (gains) and losses on derivatives-hedging activities:
Commodity contracts$ 8Net income from discontinued operations
Interest rate contracts5Interest and related charges
Foreign currency contracts13Other income
Total26
Tax(7)Income tax expense
Total, net of tax$19
Unrecognized pension costs:
Actuarial losses$ 6Other income
Total6
Tax(2)Income tax expense
Total, net of tax$ 4

Stock-Based Awards

The 2014 Incentive Compensation Plan permits stock-based awards that include restricted stock, performance grants, goal-based stock, stock options and stock appreciation rights. The

Non-Employee

Directors Compensation Plan permits grants of restricted stock and stock options. Under provisions of these plans, employees and

non-employee

directors may be granted options to purchase common stock at a price not less than its fair market value at the date of grant with a maximum term of eight years. Option terms are set at the discretion of the CGN Committee of the Board of Directors or the Board of Directors itself, as provided under each plan. No options are outstanding under either plan. At December 31, 2019, approximately 21 million shares were available for future grants under these plans.

Goal-based stock awards are granted in lieu of cash-based performance grants to certain officers who have not achieved a certain targeted level of share ownership. As of December 31, 2019, unrecognized compensation cost related to nonvested goal-based stock awards was immaterial.

Dominion Energy measures and recognizes compensation expense relating to share-based payment transactions over the vesting period based on the fair value of the equity or liability instruments issued. Dominion Energy’s results for the years ended December 31, 2019, 2018 and 2017 include $46 million, $48 million and $45 million,

respectively, of compensation costs and $11 million, $12 million and $16 million, respectively of income tax benefits related to Dominion Energy’s stock-based compensation arrangements. Stock-based compensation cost is reported in other operations and maintenance expense in Dominion Energy’s Consolidated Statements of Income. Excess Tax Benefits are classified as a financing cash flow.

Restricted Stock

Restricted stock grants are made to officers under Dominion Energy’s LTIP and may also be granted to certain key

non-officer

employees. The fair value of Dominion Energy’s restricted stock awards is equal to the closing price of Dominion Energy’s stock on the date of grant. New shares are issued for restricted stock awards on the date of grant and generally vest over a three-year service period. The following table provides a summary of restricted stock activity for the years ended December 31, 2019, 2018 and 2017:

SharesWeighted—average Grant Date Fair Value
(thousands)
Nonvested at December 31, 2016886$71.40
Granted45474.24
Vested(287)68.90
Cancelled and forfeited(10)72.37
Nonvested at December 31, 20171,043$73.32
Granted53472.92
Vested(316)73.59
Cancelled and forfeited(53)74.25
Nonvested at December 31, 20181,208$73.03
Granted61476.49
Vested(324)71.75
Cancelled and forfeited(96)77.16
Nonvested at December 31, 20191,402$74.77

As of December 31, 2019, unrecognized compensation cost related to nonvested restricted stock awards totaled $59 million and is expected to be recognized over a weighted-average period of 2.1 years. The fair value of restricted stock awards that vested was $23 million, $23 million and $21 million in 2019, 2018 and 2017, respectively. Employees may elect to have shares of restricted stock withheld upon vesting to satisfy tax withholding obligations. The number of shares withheld will vary for each employee depending on the vesting date fair market value of Dominion Energy stock and the applicable federal, state and local tax withholding rates.

Cash-Based Performance Grants

Cash-based performance grants are made to Dominion Energy’s officers under Dominion Energy’s LTIP. The actual payout of cash-based performance grants will vary between zero and 200% of the targeted amount based on the level of performance metrics achieved.

166

In February 2017, two cash-based performance grants were made to officers as Dominion Energy transitioned from a

two-year

performance period to a three-year performance period. Payout of the

two-year

performance grant occurred in January 2019 based on the achievement of two performance metrics during 2017 and 2018: TSR relative to that of companies that are members of Dominion Energy’s compensation peer group and ROIC with an additional partial payout based on Dominion Energy’s price-earnings ratio relative to that of the members of Dominion Energy’s compensation peer group. The total payout under the two-year grant was

$13 million. Payout

of the three-year performance grant occurred in January 2020 based on the achievement of two performance metrics during 2017, 2018 and 2019: TSR relative to that of companies that are members of Dominion Energy’s compensation peer group and ROIC with an additional partial payout based on Dominion Energy’s price-earnings ratio relative to that of the members of Dominion Energy’s compensation peer group.

The

total of the payout under the three-year grant was $13 million and a liability of $13 million had been accrued for the award.

In February 2018, a cash-based performance grant was made to officers. Payout of the performance grant is expected to occur by March 15, 2021 based on the achievement of two performance metrics during 2018, 2019 and 2020: TSR relative to that of companies that are members of Dominion Energy’s compensation peer group and ROIC. There are additional opportunities to earn a portion of the award based on Dominion Energy’s absolute TSR or relative price-earnings ratio performance. At December 31, 2019, the targeted amount of the three-year grant was $15 million and a liability of $8 million had been accrued for this award.

In February 2019, a cash-based performance grant was made to officers. Payout of the performance grant is expected to occur by March 15, 2022 based on the achievement of two performance metrics during 2019, 2020 and 2021: TSR relative to that of companies that are members of Dominion Energy’s compensation peer group and ROIC. There are additional opportunities to earn a portion of the award based on Dominion Energy’s absolute TSR or relative price-earnings ratio performance. At December 31, 2019, the targeted amount of the three-year grant was $16 million and a liability of $5 million had been accrued for this award.

Note 21. Dividend Restrictions

The Virginia Commission may prohibit any public service company, including Virginia Power, from declaring or paying a dividend to an affiliate if found to be inconsistent with the public interest. At December 31, 2019, the Virginia Commission had not restricted the payment of dividends by Virginia Power.

The North Carolina Commission, in its order approving the SCANA Combination, limited cumulative dividends payable to Dominion Energy by Virginia Power and PSNC to (i) the amount of retained earnings at closing of the SCANA Combination plus (ii) any future earnings recorded by Virginia Power and PSNC after such date. In addition, notice to the North Carolina Commission is required if payment of dividends causes the equity component of Virginia Power and PSNC’s capital structure to fall below 45%.

The Ohio Commission may prohibit any public service company, including East Ohio, from declaring or paying a dividend to

an affiliate if found to be detrimental to the public interest. At December 31, 2019, the Ohio Commission had not restricted the payment of dividends by East Ohio.

Pursuant to the SCANA Merger Approval Order, the amount of any DESC dividends paid must be reasonable and consistent with the long-term payout ratio of the electric utility industry and gas distribution industry. There is no specific restriction on the payment of dividends by DESC.

At December 31, 2019, DESC’s retained earnings are below the balance established by the Federal Power Act as a reserve on earnings attributable to hydroelectric generation plants. As a result, DESC is prohibited from the payment of dividends without regulatory approval until the balance of its retained earnings increases.

The Utah Commission may prohibit any public service company, including Questar Gas, from declaring or paying a dividend to an affiliate if found to be detrimental to the public interest. At December 31, 2019, the Utah Commission had not restricted the payment of dividends by Questar Gas.

Certain agreements associated with the Companies’ credit facility contain restrictions on the ratio of debt to total capitalization. These limitations did not restrict the Companies’ ability to pay dividends or receive dividends from their subsidiaries at December 31, 2019.

In connection with the SCANA Combination, under the terms of the merger agreement, Dominion Energy could not declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, other than regular quarterly cash dividends from January 2018 through January 2019.

As part of the merger agreement with Dominion Energy Midstream from November 2018 through January 2019, Dominion Energy could not declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, other than regular quarterly cash dividends.

See Notes 18 and 19 for a description of potential restrictions on common stock dividend payments by Dominion Energy in connection with the deferral of contract adjustment payments on the 2019 Equity Units or a failure to pay dividends on the Series A Preferred Stock or Series B Preferred Stock.

Note 22. Employee Benefit Plans

Dominion Energy and Dominion Energy Gas—Defined Benefit Plans

Dominion Energy provides certain retirement benefits to eligible active employees, retirees and qualifying dependents. Dominion Energy Gas participates in a number of the Dominion Energy-sponsored retirement plans. Under the terms of its benefit plans, Dominion Energy reserves the right to change, modify or terminate the plans. From time to time in the past, benefits have changed, and some of these changes have reduced benefits.

Dominion Energy maintains qualified noncontributory defined benefit pension plans covering virtually all employees. Retirement benefits are based primarily on years of service, age and the employee’s compensation. Dominion Energy’s funding policy is to contribute annually an amount that is in accordance with the provisions of ERISA. The pension programs also provide

167

Combined Notes to Consolidated Financial Statements, Continued

benefits to certain retired executives under company-sponsored nonqualified employee benefit plans. The nonqualified plans are funded through contributions to grantor trusts. Dominion Energy also provides retiree healthcare and life insurance benefits with annual employee premiums based on several factors such as age, retirement date and years of service.

Pension benefits for Dominion Energy Gas employees not represented by collective bargaining units are covered by the Dominion Energy Pension Plan, a defined benefit pension plan sponsored by Dominion Energy that provides benefits to multiple Dominion Energy subsidiaries. Pension benefits for Dominion Energy Gas employees represented by collective bargaining units are covered by a sep

a

rate pension plan that provides benefits to employees of both DETI and Hope. Employee compensation is the basis for allocating pension costs and obligations between DETI and Hope.

Retiree healthcare and life insurance benefits for Dominion Energy Gas employees not represented by collective bargaining units are covered by the Dominion Energy Retiree Health and Welfare Plan, a plan sponsored by Dominion Energy that provides certain retiree healthcare and life insurance benefits to multiple Dominion Energy subsidiaries. Retiree healthcare and life insurance benefits for Dominion Energy Gas employees represented by collective bargaining units are covered by a sep

a

rate other postretirement benefit plan that provides benefits to both DETI and Hope. Employee headcount is the basis for allocating other postretirement benefit costs and obligations between DETI and Hope.

Dominion Energy Gas included the separate pension and other postretirement benefit plans for East Ohio employees covered by collective bargaining units through November 2019, the effective date of the Dominion Energy Gas Restructuring. See Note 3 for more information on the Dominion Energy Gas Restructuring.

Pension and other postretirement benefit costs are affected by employee demographics (including age, compensation levels and years of service), the level of contributions made to the plans and earnings on plan assets. These costs may also be affected by changes in key assumptions, including expected long-term rates of return on plan assets, discount rates, healthcare cost trend rates, mortality rates and the rate of compensation increases.

Dominion Energy uses December 31 as the measurement date for all of its employee benefit plans, including those in which Dominion Energy Gas participates. Dominion Energy uses the market-related value of pension plan assets to determine the expected return on plan assets, a component of net periodic pension cost, for all pension plans, including those in which Dominion Energy Gas participates. The market-related value recognizes changes in fair value on a straight-line basis over a four-year period, which reduces

year-to-year

volatility. Changes in fair value are measured as the difference between the expected and actual plan asset returns, including dividends, interest and realized and unrealized investment gains and losses. Since the market-related value recognizes changes in fair value over a four-year period, the future market-related value of pension plan assets will be impacted as previously unrecognized changes in fair value are recognized.

Dominion Energy’s pension and other postretirement benefit plans hold investments in trusts to fund employee benefit payments. Dominion Energy’s pension and other postretirement plan assets experienced aggregate actual returns (losses) of $2.1 billion and $(605) million in 2019 and 2018, respectively, versus expected returns of $848 million and $806 million, respectively. Dominion Energy Gas’ pension and other postretirement plan

assets for employees represented by collective bargaining units experienced aggregate actual returns (losses) of $167 million and $(129) million in 2019 and 2018, respectively, versus expected returns of $70 million and $178 million, respectively. Differences between actual and expected returns on plan assets are accumulated and amortized during future periods. As such, any investment-related declines in these trusts will result in future increases in the net periodic cost recognized for such employee benefit plans and will be included in the determination of the amount of cash to be contributed to the employee benefit plans.

Voluntary Retirement Program

In March 2019, the Companies announced a voluntary retirement program to employees that meet certain age and service requirements. The voluntary retirement program will not compromise safety or the Companies’ ability to comply with applicable laws and regulations. In 2019, upon the determinations made concerning the number of employees that elected to participate in the program, Dominion Energy recorded a charge of $427 million ($319 million

after-tax)

included within other operations and maintenance expense ($291 million), other taxes ($24 million) and other income ($112 million), Virginia Power recorded a charge of $198 million ($146 million

after-tax)

included within other operations and maintenance expense ($190 million) and other taxes ($8 million) and Dominion Energy Gas recorded a charge of $74 million ($58 million

after-tax)

included within other operations and maintenance expense ($39 million), other taxes ($2 million), other income ($1 million) and discontinued operations ($32 million) in the respective Consolidated Statements of Income.

In the second quarter of 2019, Dominion Energy and Dominion Energy Gas remeasured their pension and other postretirement benefit plans as a result of the voluntary retirement program. The remeasurement resulted in an increase in the pension benefit obligation of $484 million and $32 million and an increase in the fair value of the pension plan assets of $671 million and $146 million for Dominion Energy and Dominion Energy Gas, respectively. In addition, the remeasurement resulted in an increase in the accumulated postretirement benefit obligation of $101 million and $8 million and an increase in the fair value of the other postretirement benefit plan assets of $156 million and $29 million for Dominion Energy and Dominion Energy Gas, respectively. The impact of the remeasurement on net periodic benefit cost (credit) was recognized prospectively from the remeasurement date. The discount rate used for the remeasurement was 4.07%—4.10% for the Dominion Energy pension plans, 4.10% for Dominion Energy Gas pension plans, 4.05%—4.08% for the Dominion Energy other postretirement benefit plans, and 4.05% for the Dominion Energy Gas other postretirement benefit plans. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018.

In the third quarter of 2019, Dominion Energy remeasured a pension plan as a result of a settlement from the voluntary retirement program at SCANA. The settlement and related remeasurement resulted in an increase in the pension benefit obligation of $37 million and an increase in the fair value of the pension plan assets of $51 million for Dominion Energy. The impact of the remeasurement on net periodic benefit cost (credit) was recognized prospectively from the remeasurement date. The discount rate used for the remeasurement was 3.57%. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018.

168

Funded Status

The following table summarizes the changes in pension plan and other postretirement benefit plan obligations and plan assets and includes a statement of the plans’ funded status for Dominion Energy and Dominion Energy Gas (for employees represented by collective bargaining units):

Pension BenefitsOther Postretirement Benefits
Year Ended December 31,2019201820192018
(millions, except percentages)
Dominion Energy
Changes in benefit obligation:
Benefit obligation at beginning of year$8,500$9,052$1,363$1,529
Dominion Energy SCANA Combination (See Note 3)854—253—
Service cost1621572627
Interest cost3943376856
Benefits paid(470)(358)(96)(87)
Actuarial (gains) losses during the year1,054(688)111(158)
Plan amendments———(4)
Settlements and curtailments (1)(48)—44—
Benefit obligation at end of year$10,446$8,500$1,769$1,363
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year$7,197$8,062$1,581$1,729
Dominion Energy SCANA Combination (See Note 3)727———
Actual return (loss) on plan assets1,747(513)349(92)
Employer contributions55761212
Benefits paid(470)(358)(62)(68)
Settlements (2)(127)———
Fair value of plan assets at end of year$9,631$7,197$1,880$1,581
Funded status at end of year$(815)$(1,303)$111$218
Amounts recognized in the Consolidated Balance Sheets at December 31:
Noncurrent pension and other postretirement benefit assets$1,266$1,003$442$276
Other current liabilities(29)(34)(17)(2)
Noncurrent pension and other postretirement benefit liabilities(2,052)(2,272)(314)(56)
Net amount recognized$(815)$(1,303)$111$218
Significant assumptions used to determine benefit obligations as of December 31:
Discount rate3.47%–3.63%4.42%–4.43%3.44%–3.52%4.37%–4.38%
Weighted average rate of increase for compensation4.23%4.32%n/an/a
Dominion Energy Gas
Changes in benefit obligation:
Benefit obligation at beginning of year$730$773$256$290
Dominion Energy Gas Restructuring (See Note 3)(468)—(135)—
Service cost61814
Interest cost1129511
Benefits paid(15)(34)(8)(18)
Actuarial (gains) losses during the year30(56)1(27)
Plan amendments———(4)
Settlements and curtailments (1)1—1—
Benefit obligation at end of year$295$730$121$256
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year$1,656$1,803$311$333
Dominion Energy Gas Restructuring (See Note 3)(1,084)—$(126)—
Actual return (loss) on plan assets129(113)38(16)
Employer contributions——1212
Benefits paid(15)(34)(8)(18)
Fair value of plan assets at end of year$686$1,656$227$311
Funded status at end of year$391$926$106$55
Amounts recognized in the Consolidated Balance Sheets at December 31:
Noncurrent pension and other postretirement benefit assets$391$310$106$63
Noncurrent assets of discontinued operations—616——
Noncurrent liabilities of discontinued operations———(8)
Net amount recognized$391$926$106$55
Significant assumptions used to determine benefit obligations as of December 31:
Discount rate3.63%4.42%3.44%4.37%
Weighted average rate of increase for compensation4.64%4.55%n/an/a
(1)2019 amounts relate primarily to a settlement as a result of the voluntary retirement program.
169

Combined Notes to Consolidated Financial Statements, Continued

The ABO for all of Dominion Energy’s defined benefit pension plans was $9.7 billion and $7.8 billion at December 31, 2019 and 2018, respectively. The ABO for the defined benefit pension plans covering Dominion Energy Gas employees represented by collective bargaining units was $279 million and $689 million at December 31, 2019 and 2018, respectively.

Under its funding policies, Dominion Energy evaluates plan funding requirements annually, usually in the fourth quarter after receiving updated plan information from its actuary. Based on the funded status of each plan and other factors, Dominion Energy determines the amount of contributions for the current year, if any, at that time. During 2019, Dominion Energy made $520 million of contributions to its

qualified

defined

benefit pension plans, including 6.1 million shares of its common stock valued at $499 million. The shares were contributed through a private placement, exempt from registration requirements, with an independent fiduciary and investment manager to a separate account within the qualified defined benefit pension plans. Dominion Energy also entered into a registration rights agreement with the independent fiduciary and investment manager pursuant to which Dominion Energy agreed to provide registrations rights on customary terms with respect to the shares. Dominion Energy Gas did not make any contributions to its qualified defined benefit pension plans in 2019. Dominion Energy expects to make $29 million of the minimum required contributions in 2020, and no contributions are currently expected in 2020 for Dominion Energy Gas.

Certain regulatory authorities have held that amounts recovered in utility customers’ rates for other postretirement benefits, in excess of benefits actually paid during the year, must be deposited in trust funds dedicated for the sole purpose of paying such benefits. Accordingly, certain of Dominion Energy’s subsidiaries, including Dominion Energy Gas, fund other postretirement benefit costs through VEBAs. Dominion Energy’s remaining subsidiaries do not prefund other postretirement benefit costs but instead pay claims as presented. Dominion Energy’s contributions to VEBAs, all of which pertained to Dominion Energy Gas employees, totaled $12 million for 2019 and 2018, and Dominion Energy expects to contribute approximately $12 million to the Dominion Energy VEBAs in 2020, all of which pertains to Dominion Energy Gas employees.

Dominion Energy and Dominion Energy Gas do not expect any pension or other postretirement plan assets to be returned during 2020.

The following table provides information on the benefit obligations and fair value of plan assets for plans with a benefit obligation in excess of plan assets for Dominion Energy and Dominion Energy Gas (for employees represented by collective bargaining units):

Pension BenefitsOther Postretirement Benefits
As of December 31,2019201820192018
(millions)
Dominion Energy
Benefit obligation$9,552$7,705$341$164
Fair value of plan assets7,4715,39810136
Dominion Energy Gas
Benefit obligation$—$—$—$134
Fair value of plan assets———126

The following table provides information on the ABO and fair value of plan assets for Dominion Energy’s pension plans with an ABO in excess of plan assets:

As of December 31,20192018
(millions)
Accumulated benefit obligation$8,852$7,056
Fair value of plan assets7,4715,398

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) plans:

Estimated Future Benefit Payments
Pension BenefitsOther Postretirement Benefits
(millions)
Dominion Energy
2020$535$120
2021472117
2022511116
2023519114
2024536113
2025-20292,792528
Dominion Energy Gas
2020$15$8
2021158
2022158
2023158
2024158
2025-20297936

Plan Assets

Dominion Energy’s overall objective for investing its pension and other postretirement plan assets is to achieve appropriate long-term rates of return commensurate with prudent levels of risk. As a participating employer in various pension plans sponsored by Dominion Energy, Dominion Energy Gas is subject to Dominion Energy’s investment policies for such plans. To minimize risk, funds are broadly diversified among asset classes, investment strategies and investment advisors. The strategic target asset allocations for Dominion Energy’s pension funds are 28% U.S. equity, 18%

non-U.S.

equity, 35% fixed income, 3% real estate and 16% other alternative investments. U.S. equity includes investments in

large-cap,

mid-cap

and

small-cap

companies located in the U.S.

Non-U.S.

equity includes investments in

large-cap

and

small-cap

companies located outside of the U.S. including both developed and emerging markets. Fixed income includes corporate debt instruments of companies from diversified industries and U.S. Treasuries. The U.S. equity,

non-U.S.

equity and fixed income investments are in individual securities as well as mutual funds. Real estate includes equity real estate investment trusts and investments in partnerships. Other alternative investments include partnership investments in private equity, debt and hedge funds that follow several different strategies.

Dominion Energy also utilizes common/collective trust funds as an investment vehicle for its defined benefit plans. A common/collective trust fund is a pooled fund operated by a bank or trust company for investment of the assets of various organizations and individuals in a well-diversified portfolio. Common/collective trust funds are funds of grouped assets that follow various investment strategies.

170

Strategic investment policies are established for Dominion Energy’s prefunded benefit plans based upon periodic asset/liability studies. Factors considered in setting the investment policy include employee demographics, liability growth rates, future discount rates, the funded status of the plans and the expected long-term rate of return on plan assets. Deviations from the plans’ strategic allocation are a function of Dominion Energy’s assessments regarding short-term risk and reward opportunities in the capital markets and/or short-term market movements which result in the plans’ actual asset allocations varying

from the strategic target asset allocations. Through periodic rebalancing, actual allocations are brought back in line with the target. Future asset/liability studies will focus on strategies to further reduce pension and other postretirement plan risk, while still achieving attractive levels of returns. Financial derivatives may be used to obtain or manage market exposures and to hedge assets and liabilities.

For fair value measurement policies and procedures related to pension and other postretirement benefit plan assets, see Note 6.

The fair values of Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) pension plan assets by asset category are as follows:

At December 31,20192018
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
(millions)
Dominion Energy
Cash and cash equivalents$22$1$ —$23$17$1$—$18
Common and preferred stocks:
U.S. (1)2,284——2,2841,645——1,645
International1,634——1,6341,061——1,061
Insurance contracts—360—360—318—318
Corporate debt instruments273859—1,13223729—752
Government securities58757—81525605—630
Total recorded at fair value$4,271$1,977$—$6,248$2,771$1,653$—$4,424
Assets recorded at NAV (2) :
Common/collective trust funds2,3551,849
Alternative investments:
Real estate funds91108
Private equity funds787633
Debt funds159155
Hedge funds1417
Total recorded at NAV$3,406$2,762
Total investments (3)$9,654$7,186
Dominion Energy Gas
Cash and cash equivalents$1$—$ —$1$4$—$—$4
Common and preferred stocks:
U.S.177——177378——378
International114——114244——244
Insurance contracts—28—28—73—73
Corporate debt instruments366—695168—173
Government securities259—616139—145
Total recorded at fair value$297$153$—$450$637$380$—$1,017
Assets recorded at NAV (2) :
Common/collective trust funds157425
Alternative investments:
Real estate funds725
Private equity funds61146
Debt funds1236
Hedge funds14
Total recorded at NAV$238$636
Total investments (4)$688$1,653
(1)Includes $508 million of Dominion Energy common stock at December 31, 2019.
(2)These investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.
(3)Excludes net assets related to pending sales of securities of $52 million, net accrued income of $24 million, and includes net assets related to pending purchases of securities of $99 million at December 31, 2019. Excludes net assets related to pending sales of securities of $12 million, net accrued income of $21 million, and includes net assets related to pending purchases of securities of $22 million at December 31, 2018.
(4)Excludes net assets related to pending sales of securities of $2 million, net accrued income of $2 million, and includes net assets related to pending purchases of securities of $6 million at December 31, 2019. Excludes net assets related to pending sales of securities of $3 million, net accrued income of $5 million, and includes net assets related to pending purchases of securities of $5 million at December 31, 2018.
171

Combined Notes to Consolidated Financial Statements, Continued

The fair values of Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) other postretirement plan assets by asset category are as follows:

At December 31,20192018
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
(millions)
Dominion Energy
Cash and cash equivalents$2$—$—$2$1$1$—$2
Common and preferred stocks:
U.S.719——719554——554
International206——206170——170
Insurance contracts—21—21—19—19
Corporate debt instruments150—51144—45
Government securities244—46237—39
Total recorded at fair value$930$115$—$1,045$728$101$—$829
Assets recorded at NAV (1) :
Common/collective trust funds717650
Alternative investments:
Real estate funds810
Private equity funds10080
Debt funds1010
Hedge funds11
Total recorded at NAV$836$751
Total investments (2)$1,881$1,580
Dominion Energy Gas
Common and preferred stocks:
U.S.$86$—$—$86$113$—$—$113
International21——2130——30
Total recorded at fair value$107$—$—$107$143$—$—$143
Assets recorded at NAV (1) :
Common/collective trust funds105148
Alternative investments:
Real estate funds12
Private equity funds1418
Debt funds——
Total recorded at NAV$120$168
Total investments$227$311
(1)These investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.
(2)Excludes net assets related to pending sales of securities of $2 million, net accrued income of $2 million, and includes net assets related to pending purchases of securities of $5 million at December 31, 2019. Excludes net assets related to pending sales of securities of $1 million, net accrued income of $2 million, and includes net assets related to pending purchases of securities of $2 million at December 31, 2018.
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The Plan’s investments are determined based on the fair values of the investments and the underlying investments, which have been determined as follows:

•Cash and Cash Equivalents —Investments are held primarily in short-term notes and treasury bills, which are valued at cost plus accrued interest.
•Common and Preferred Stocks —Investments are valued at the closing price reported on the active market on which the individual securities are traded.
•Insurance Contracts —Investments in Group Annuity Contracts with John Hancock were entered into after 1992 and are stated at fair value based on the fair value of the underlying securities as provided by the managers and include investments in U.S. government securities, corporate debt instruments, state and municipal debt securities.
•Corporate Debt Instruments —Investments are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar instruments, the instrument is valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks or a broker quote, if available.
•Government Securities —Investments are valued using pricing models maximizing the use of observable inputs for similar securities.
•Common/Collective Trust Funds —Common/collective trust funds invest in debt and equity securities and other instruments with characteristics similar to those of the funds’ benchmarks. The primary objectives of the funds are to seek investment returns that approximate the overall performance of their benchmark indexes. These benchmarks are major equity indices, fixed income indices, and money market indices that focus on growth, income, and liquidity strategies, as applicable. Investments in common/collective trust funds are stated at the NAV as determined by the issuer of the common/collective trust funds and are based on the fair value of the underlying investments held by the fund less its liabilities. The NAV is used as a practical expedient to estimate fair value. The common/collective trust funds do not have any unfunded commitments, and do not have any applicable liquidation periods or defined terms/periods to be held. The majority of the common/collective trust funds have limited withdrawal or redemption rights during the term of the investment.
•Alternative Investments —Investments in real estate funds, private equity funds, debt funds and hedge funds are stated at fair value based on the NAV of the Plan’s proportionate share of the partnership, joint venture or other alternative investment’s fair value as determined by reference to audited financial statements or NAV statements provided by the investment manager. The NAV is used as a practical expedient to estimate fair value.
173

Combined Notes to Consolidated Financial Statements, Continued

Net Periodic Benefit (Credit) Cost

The service cost component and

non-service

cost components of net periodic benefit (credit) cost are reflected in other operations and maintenance expense and other income, respectively, in the Consolidated Statements of Income. The components of the provision for net periodic benefit (credit) cost and amounts recognized in other comprehensive income and regulatory assets and liabilities for Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) plans are as follows:

Pension BenefitsOther Postretirement Benefits
Year Ended December 31,201920182017201920182017
(millions, except percentages)
Dominion Energy
Service cost$162$157$138$26$27$26
Interest cost394337345685660
Expected return on plan assets(708)(663)(639)(140)(143)(128)
Amortization of prior service (credit) cost111(52)(52)(51)
Amortization of net actuarial loss172193162101113
Settlements and curtailments72——42——
Net periodic benefit (credit) cost$93$25$7$(46)$(101)$(80)
Changes in plan assets and benefit obligations recognized in other comprehensive income and regulatory assets and liabilities:
Current year net actuarial (gain) loss$16$490$142$(98)$78$12
Prior service (credit) cost——52(4)(73)
Settlements and curtailments6—1——2
Less amounts included in net periodic benefit cost:
Amortization of net actuarial loss(172)(193)(162)(10)(11)(13)
Amortization of prior service credit (cost)(1)(1)(1)525251
Total recognized in other comprehensive income and regulatory assets and liabilities$(151)$296$(15)$(54)$115$(21)
Significant assumptions used to determine periodic cost:
Discount rate3.57%- 4.43%3.80%-3.81%3.31%-4.50%4.05% - 4.41%3.76%3.92%-4.47%
Expected long-term rate of return on plan assets7.00%- 8.65%8.75%8.75%8.50%8.50%8.50%
Weighted average rate of increase for compensation4.20%4.09%4.09%n/an/an/a
Healthcare cost trend rate (1)6.50% - 6.60%7.00%7.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (1)5.00%5.00%5.00%
Year that the rate reaches the ultimate trend rate (1)2023-202520222021
Dominion Energy Gas (2)
Service cost$6$18$15$1$4$4
Interest cost11293051112
Expected return on plan assets(54)(150)(141)(16)(28)(24)
Amortization of prior service (credit) cost———(5)(4)(3)
Amortization of net actuarial loss71916332
Settlements and curtailments1——1——
Net periodic benefit (credit) cost$(29)$(84)$(80)$(11)$(14)$(9)
Changes in plan assets and benefit obligations recognized in other comprehensive income and regulatory assets and liabilities:
Current year net actuarial (gain) loss$(46)$207$(75)$(21)$16$18
Prior service cost————(4)(61)
Less amounts included in net periodic benefit cost:
Amortization of net actuarial loss(7)(19)(16)(3)(3)(2)
Amortization of prior service credit (cost)———543
Total recognized in other comprehensive income and regulatory assets and liabilities$(53)$188$(91)$(19)$13$(42)
Significant assumptions used to determine periodic cost:
Discount rate4.10%-4.42%3.81%4.50%4.05%-4.37%3.81%4.47%
Expected long-term rate of return on plan assets8.65%8.75%8.75%8.50%8.50%8.50%
Weighted average rate of increase for compensation4.55%4.11%4.11%n/an/an/a
Healthcare cost trend rate (1)6.50%7.00%7.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (1)5.00%5.00%5.00%
Year that the rate reaches the ultimate trend rate (1)202520222021
(1)Assumptions used to determine net periodic cost for the following year.
(2)Amounts related to East Ohio are presented within discontinued operations.
174

The components of AOCI and regulatory assets and liabilities for Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) plans that have not been recognized as components of net periodic benefit (credit) cost are as follows:

Pension BenefitsOther Postretirement Benefits
At December 31,2019201820192018
(millions)
Dominion Energy
Net actuarial loss$3,327$3,477$241$350
Prior service (credit) cost57(339)(393)
Total (1)$3,332$3,484$(98)$(43)
Dominion Energy Gas
Net actuarial loss$150$555$44$89
Prior service (credit) cost——(49)(52)
Total (2)$150$555$(5)$37
(1)As of December 31, 2019, of the $3.3 billion and $(98) million related to pension benefits and other postretirement benefits, $2.0 billion and $(65) million, respectively, are included in AOCI, with the remainder included in regulatory assets and liabilities. As of December 31, 2018, of the $3.5 billion and $(43) million related to pension benefits and other postretirement benefits, $2.0 billion and $(41) million, respectively, are included in AOCI, with the remainder included in regulatory assets and liabilities.
(2)As of December 31, 2019, of the $150 million related to pension benefits, $147 million is included in AOCI, with the remainder included in regulatory assets and liabilities; the $(5) million related to other postretirement benefits is included entirely in regulatory assets and liabilities. As of December 31, 2018, of the $555 million related to pension benefits, $200 million is included in AOCI, with the remainder included in noncurrent assets of discontinued operations; of the $37 million related to other postretirement benefits , $22 million is included in noncurrent assets of discontinued operations with the remainder included in regulatory assets and liabilities.

The following table provides the components of AOCI and regulatory assets and liabilities for Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) plans as of December 31, 2019 that are expected to be amortized as components of net periodic benefit (credit) cost in 2020:

Pension BenefitsOther Postretirement Benefits
(millions)
Dominion Energy
Net actuarial loss$194$5
Prior service (credit) cost1(50)
Dominion Energy Gas
Net actuarial loss$7$2
Prior service (credit) cost—(5)

The expected long-term rates of return on plan assets, discount rates, healthcare cost trend rates and mortality are critical assumptions in determining net periodic benefit (credit) cost. Dominion Energy develops

non-investment

related assumptions, which are then compared to the forecasts of an independent investment advisor to ensure reasonableness. An internal committee selects the final assumptions used for Dominion Energy’s pension and other postretirement plans, including those in which Dominion Energy Gas participates, including discount rates, expected long-term rates of return, healthcare cost trend rates and mortality rates.

Dominion Energy determines the expected long-term rates of return on plan assets for its pension plans and other postretirement benefit plans, including those in which Dominion Energy Gas participates, by using a combination of:

•Expected inflation and risk-free interest rate assumptions;
•Historical return analysis to determine long term historic returns as well as historic risk premiums for various asset classes;
•Expected future risk premiums, asset classes’ volatilities and correlations;
•Forward-looking return expectations derived from the yield on long-term bonds and the expected long-term returns of major capital market assumptions; and
•Investment allocation of plan assets.

Dominion Energy determines discount rates from analyses of AA/Aa rated bonds with cash flows matching the expected payments to be made under its plans, including those in which Dominion Energy Gas participates.

Mortality rates are developed from actual and projected plan experience for postretirement benefit plans. Dominion Energy’s actuary conducts an experience study periodically as part of the process to select its best estimate of mortality. Dominion Energy considers both standard mortality tables and improvement factors as well as the plans’ actual experience when selecting a best estimate.

Assumed healthcare cost trend rates have a significant effect on the amounts reported for Dominion Energy’s retiree healthcare plans, including those in which Dominion Energy Gas participates. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for Dominion Energy and Dominion Energy Gas’ (for employees represented by collective bargaining units) other postretirement benefit plans:

Other Postretirement Benefits
One percentage point increaseOne percentage point decrease
(millions)
Dominion Energy
Effect on net periodic cost for 2020$20$(11)
Effect on other postretirement benefit obligation at December 31, 2019153(128)
Dominion Energy Gas
Effect on net periodic cost for 2020$2$(2)
Effect on other postretirement benefit obligation at December 31, 201914(12)

Dominion Energy Gas (Employees Not Represented by Collective Bargaining Units) and Virginia Power—Participation in Defined Benefit Plans

Virginia Power employees and Dominion Energy Gas employees not represented by collective bargaining units are covered by the Dominion Energy Pension Plan described above. As participating employers, Virginia Power and Dominion Energy Gas are subject to Dominion Energy’s funding policy, which is to contribute annually an amount that is in accordance with ERISA. During 2019, Virginia Power and Dominion Energy Gas made no contributions to the Dominion Energy Pension Plan, and no contributions to this plan are currently expected in 2020. Virginia Power’s net periodic pension cost related to this plan was $152 million, $126 million and $110 million in 2019, 2018 and 2017, respectively. Dominion Energy Gas’ net periodic pension

175

Combined Notes to Consolidated Financial Statements, Continued

credit related to this plan was $(8) million, $(35) million and $(35) million in 2019, 2018 and 2017, respectively. Net periodic pension (credit) cost is reflected in other operations and maintenance expense in their respective Consolidated Statements of Income, except for $(14) million, $(21) million and $(20) million of Dominion Energy Gas’ costs in 2019, 2018 and 2017, respectively, that are recorded in net income from discontinued operations. The funded status of various Dominion Energy subsidiary groups and employee compensation are the basis for determining the share of total pension costs for participating Dominion Energy subsidiaries. See Note 25 for Virginia Power and Dominion Energy Gas amounts due to/from Dominion Energy related to this plan.

Retiree healthcare and life insurance benefits, for Virginia Power employees and for Dominion Energy Gas employees not represented by collective bargaining units, are covered by the Dominion Energy Retiree Health and Welfare Plan described above. Virginia Power’s net periodic benefit (credit) cost related to this plan was $(27) million, $(51) million and $(42) million in 2019, 2018 and 2017, respectively. Dominion Energy Gas’ net periodic benefit (credit) cost related to this plan was $(4) million, $(8) million and $(6) million for 2019, 2018 and 2017, respectively. Net periodic benefit (credit) cost is reflected in other operations and maintenance expenses in their respective Consolidated Statements of Income, except for

less than $(1

) million, $(2) million and $(2) million of Dominion Energy Gas’ costs in 2019, 2018 and 2017, respectively, that are recorded in net income from discontinued operations. Employee headcount is the basis for determining the share of total other postretirement benefit costs for participating Dominion Energy subsidiaries. See Note 25 for Virginia Power and Dominion Energy Gas amounts due to/from Dominion Energy related to this plan.

Dominion Energy holds investments in trusts to fund employee benefit payments for the pension and other postretirement benefit plans in which Virginia Power and Dominion Energy Gas’ employees participate. Any investment-related declines in these trusts will result in future increases in the net periodic cost recognized for such employee benefit plans and will be included in the determination of the amount of cash that Virginia Power and Dominion Energy Gas will provide to Dominion Energy for their shares of employee benefit plan contributions.

Certain regulatory authorities have held that amounts recovered in rates for other postretirement benefits, in excess of benefits actually paid during the year, must be deposited in trust funds dedicated for the sole purpose of paying such benefits. Accordingly, Virginia Power and Dominion Energy Gas fund other postretirement benefit costs through VEBAs.

During 2019 and 2018, Virginia Power and Dominion Energy Gas made

no

contributions to the VEBAs and does

no

t

expect to contribute to the VEBAs in 2020.

Defined Contribution Plans

Dominion Energy also sponsors defined contribution employee savings plans that cover substantially all employees. During 2019, 2018 and 2017, Dominion Energy recognized $73 million, $51 million and $45 million, respectively, as employer matching contributions to these plans. Dominion Energy Gas participates in these employee savings plans, both specific to Dominion Energy

Gas and that cover multiple Dominion Energy subsidiaries. During 2019, 2018 and 2017, Dominion Energy Gas recognized $4 million, $8 million and $8 million, respectively, as employer matching contributions to these plans. Virginia Power also participates in these employee savings plans. During 2019, 2018 and 2017, Virginia Power recognized $20 million, $20 million and $19 million, respectively, as employer matching contributions to these plans.

Note 23. Commitments and Contingencies

As a result of issues generated in the ordinary course of business, the Companies are involved in legal proceedings before various courts and are periodically subject to governmental examinations (including by regulatory authorities), 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 the Companies to estimate a range of possible loss. For such matters that the Companies 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 the Companies are able to estimate a range of possible loss. For legal proceedings and governmental examinations that the Companies are 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. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. 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 estimated range of possible loss may not represent the Companies’ 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. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on the Companies’ financial position, liquidity or results of operations.

Environmental Matters

The Companies are 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.

Air

CAA

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. Many of the Companies’ facilities are subject to the CAA’s permitting and other requirements.

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MATS

In February 2019, the EPA published a proposed rule to reverse its previous finding that it is appropriate and necessary to regulate toxic emissions from power plants. However, the emissions standards and other requirements of the MATS rule would remain in place as the EPA is not proposing to remove coal and

oil-fired

power plants from the list of sources that are regulated under MATS. Although litigation of the MATS rule and the outcome of the EPA’s rulemaking are still pending, the regulation remains in effect and Dominion Energy and Virginia Power are complying with the applicable requirements of the rule and do not expect any adverse impacts to their operations at this time.

Ozone Standards

The EPA published final

non-attainment

designations for the October 2015 ozone standard in June 2018. States have until August 2021 to develop plans to address the new standard. Until the states have developed implementation plans for the standard, the Companies are unable to predict whether or to what extent the new rules will ultimately require additional controls. The expenditures required to implement additional controls could have a material impact on the Companies’ results of operations and cash flows.

Oil and Gas NSPS

In August 2012, the EPA issued an NSPS impacting new and modified facilities in the natural gas production and gathering sectors and made revisions to the NSPS for natural gas processing and transmission facilities. These rules establish equipment performance specifications and emissions standards for control of VOC emissions for natural gas production wells, tanks, pneumatic controllers, and compressors in the upstream sector. In June 2016, the EPA issued another NSPS regulation, for the oil and natural gas sector, to regulate methane and VOC emissions from new and modified facilities in transmission and storage, gathering and boosting, production and processing facilities. All projects which commenced construction after September 2015 are required to comply with this regulation. In October 2018, the EPA published a proposed rule reconsidering and amending portions of the 2016 rule, including but not limited to, the fugitive emissions requirements at well sites and compressor stations. The amended portions of the 2016 rule were effective immediately upon publication. Until the proposed rule regarding reconsideration is final, Dominion Energy and Dominion Energy Gas are implementing the 2016 regulation. Dominion Energy and Dominion Energy Gas are still evaluating whether potential impacts on results of operations, financial condition and/or cash flows related to this matter will be material.

ACE Rule

In July 2019, the EPA published the final rule informally referred to as the ACE Rule, as a replacement for the Clean Power Plan. ACE Rule applies to existing coal-fired power plants. The final rule includes unit-specific performance standards based on the degree of emission reduction levels achievable from unit efficiency improvements to be determined by the permitting agency. The ACE Rule requires states to develop plans by July 2022, to implement these performance standards. These state plans must be approved by the EPA by January 2024. While the impacts of

this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.

Carbon Regulations

In August 2016, the EPA issued a draft rule proposing to reaffirm that a source’s obligation to obtain a PSD or Title V permit for GHGs is triggered only if such permitting requirements are first triggered by

non-GHG,

or conventional, pollutants that are regulated by the New Source Review program, and to set a significant emissions rate at 75,000 tons per year of CO2 equivalent emissions under which a source would not be required to apply BACT for its GHG emissions. Until the EPA ultimately takes final action on this rulemaking, the Companies cannot predict the impact to their results of operations, financial condition and/or cash flows.

In December 2018, the EPA proposed revised Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources. The proposed rule would amend the previous determination that the best system of emission reduction for newly constructed coal-fired steam generating units is no longer partial carbon capture and storage. Instead, the proposed revised best system of emission reduction for this source category is the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units) in combination with the best operating practices.

State Regulations

In May 2019, VDEQ issued a final rule establishing a state carbon regulation program with a 28.0 million ton initial state-wide carbon cap in 2020. The cap is reduced by approximately three percent per year through 2030, resulting in an ultimate cap of 19.6 million tons. The final rule includes a provision for VDEQ to delay implementation of the rule and possible adjustments to the baseline cap pending authorization from the General Assembly and Governor of Virginia. Once VDEQ is authorized to begin implementation of the rule, the impacts of this program could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows; however, the existing regulatory framework in Virginia provides rate recovery mechanisms that could substantially mitigate any such impact.

Water

The CWA, as amended, is a comprehensive program requiring a broad range of regulatory tools including a permit program to authorize and regulate discharges to surface waters with strong enforcement mechanisms. The Companies must comply with applicable aspects of the CWA programs at their operating facilities.

Regulation 316(b)

In October 2014, the final regulations under Section 316(b) of the CWA that govern existing facilities and new units at existing facilities that employ a cooling water intake structure and that have flow levels exceeding a minimum threshold became effective.

177

Combined Notes to Consolidated Financial Statements, Continued

The rule establishes a national standard for impingement based on seven compliance options, but forgoes the creation of a single technology standard for entrainment. Instead, the EPA has delegated entrainment technology decisions to state regulators. State regulators are to make

case-by-case

entrainment technology determinations after an examination of five mandatory facility-specific factors, including a social cost-benefit test, and six optional facility-specific factors. The rule governs all electric generating stations with water withdrawals above two MGD, with a heightened entrainment analysis for those facilities over 125 MGD. Dominion Energy and Virginia Power currently have 13 and seven facilities, respectively, that are subject to the final regulations. Dominion Energy anticipates that it may have to install impingement control technologies at certain of these stations that have once-through cooling systems. Dominion Energy and Virginia Power are currently evaluating the need or potential for entrainment controls under the final rule as these decisions will be made on a

case-by-case

basis after a thorough review of detailed biological, technology, cost and benefit studies. DESC is conducting studies and implementing plans as required by the rule to determine appropriate intake structure modifications at certain facilities to ensure compliance with this rule. While the impacts of this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.

Effluent Limitations Guidelines

In September 2015, the EPA released a final rule to revise the Effluent Limitations Guidelines for the Steam Electric Power Generating Category. The final rule establishes updated standards for wastewater discharges that apply primarily at coal and oil steam generating stations. Affected facilities are required to convert from wet to dry or closed cycle coal ash management, improve existing wastewater treatment systems and/or install new wastewater treatment technologies in order to meet the new discharge limits. In April 2017, the EPA granted two separate petitions for reconsideration of the Effluent Limitations Guidelines final rule and stayed future compliance dates in the rule. Also in April 2017, the U.S. Court of Appeals for the Fifth Circuit granted the EPA’s request for a stay of the pending consolidated litigation challenging the rule while the EPA addresses the petitions for reconsideration. In September 2017, the EPA signed a rule to postpone the earliest compliance dates for certain waste streams regulations in the Effluent Limitations Guidelines final rule from November 2018 to November 2020; however, the latest date for compliance for these regulations remains December 2023. While the impacts of this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.

Waste Management and Remediation

The operations of the Companies are subject to a variety of state and federal laws and regulations governing the management and

disposal of solid and hazardous waste, and release of hazardous substances associated with current and/or historical operations. The CERCLA, as amended, and similar state laws, may impose joint, several and strict liability for cleanup on potentially responsible parties who owned, operated or arranged for disposal at facilities affected by a release of hazardous substances. In addition, many states have created programs to incentivize voluntary remediation of sites where historical releases of hazardous substances are identified and property owners or responsible parties decide to initiate cleanups.

From time to time, Dominion Energy, Virginia Power or Dominion Energy Gas may be identified as a potentially responsible party in connection with the alleged release of hazardous substances or wastes at a site. Under applicable federal and state laws, the Companies could be responsible for costs associated with the investigation or remediation of impacted sites, or subject to contribution claims by other responsible parties for their costs incurred at such sites. The Companies also may identify, evaluate and remediate other potentially impacted sites under voluntary state programs. Remediation costs may be subject to reimbursement under the Companies’ insurance policies, rate recovery mechanisms, or both. Except as described below, the Companies do not believe these matters will have a material effect on results of operations, financial condition and/or cash flows.

Dominion Energy has determined that it is associated with former manufactured gas plant sites, including certain sites associated with Virginia Power. At 11 sites associated with Dominion Energy, including certain sites acquired in the SCANA Combination, remediation work has been substantially completed under federal or state oversight. Where required, the sites are following state-approved groundwater monitoring programs. Dominion Energy has proposed or expects to propose remediation plans associated with three sites, including one at Virginia Power, and expects to conduct remediation activities primarily in 2020. As of December 31, 2019, Dominion Energy and Virginia Power have $34 million and $16 million, respectively, of reserves recorded, including a charge of $16 million ($12 million after-tax) that Virginia Power recorded in 2018, in other operations and maintenance expense in the Consolidated Statements of Income. In addition, for one site associated with Dominion Energy, an updated work plan submitted to SCDHEC in September 2018,

would increase costs by approximately $8 million if approved. Dominion Energy is associated with 13 additional sites, including two associated with Virginia Power, which are not under investigation by any state or federal environmental agency nor the subject of any current or proposed plans to perform remediation activities. Due to the uncertainty surrounding such sites, Dominion Energy and Virginia Power are unable to make an estimate of the potential financial statement impacts.

Ash Pond and Landfill Closure Costs

In April 2015, the EPA enacted a final rule regulating CCR landfills, existing ash ponds that still receive and manage CCRs, and inactive ash ponds that do not receive, but still store, CCRs. Dominion Energy currently operates inactive ash ponds, existing ash ponds and CCR landfills subject to the final rule at 11 different facilities, eight of which are at Virginia Power. This rule created a legal obligation for Dominion Energy and Virginia Power to retrofit or close all of its inactive and existing ash ponds over a

178

certain period of time, as well as perform required monitoring, corrective action, and post-closure care activities as necessary.

In December 2016, legislation was enacted that creates a framework for

EPA-

approved state CCR permit programs. In August 2017, the EPA issued interim guidance outlining the framework for state CCR program approval. The EPA has enforcement authority until state programs are approved. The EPA and states with approved programs both will have authority to enforce CCR requirements under their respective rules and programs. In September 2017, the EPA agreed to reconsider portions of the CCR rule in response to two petitions for reconsideration. In March 2018, the EPA proposed certain changes to the CCR rule related to issues remanded as part of the pending litigation and other issues the EPA is reconsidering. Several of the proposed changes would allow states with approved CCR permit programs additional flexibilities in implementing their programs. In July 2018, the EPA promulgated the first phase of changes to the CCR rule. Until all phases of the CCR rule are promulgated, Dominion Energy and Virginia Power cannot forecast potential incremental impacts or costs related to existing coal ash sites in connection with future implementation of the 2016 CCR legislation and reconsideration of the CCR rule. In August 2018, the U.S. Court of Appeals for the D.C. Circuit issued its decision in the pending challenges of the CCR rule, vacating and remanding to the EPA three provisions of the rule. Dominion Energy and Virginia Power do not expect the scope of the U.S. Court of Appeals for the D.C. Circuit’s decision to impact their closure plans, but cannot forecast incremental impacts associated with any future changes to the CCR rule in connection with the court’s remand.

In April 2017, the Governor of Virginia signed legislation into law that placed a moratorium on the VDEQ issuing solid waste permits for closure of ash ponds at Virginia Power’s Bremo, Chesapeake, Chesterfield and Possum Point power stations until May 2018. The law also required Virginia Power to conduct an assessment of closure alternatives for the ash ponds at these four stations, to include an evaluation of excavation for recycling or

off-site

disposal, surface and groundwater conditions and safety. Virginia Power completed the assessments and provided the report on December 1, 2017. In April 2018, the Governor of Virginia signed legislation into law extending the existing permit moratorium until July 2019. The legislation also required Virginia Power to solicit and compile by November 2018, information from third parties on the suitability, cost and market demand for beneficiation or recycling of coal ash from these units. The coal ash recycling business plan was submitted to the legislature in November 2018. The extended moratorium does not apply to a permit required for an impoundment where CCRs have already been removed and placed in another impoundment

on-site,

are being removed from an impoundment, or are being processed in connection with a recycling or beneficial use project. In connection with this legislation, in the second quarter of 2018, Virginia Power recorded an increase to its ARO and a related environmental liability related to future ash pond and landfill closure costs of $131 million, which resulted in an $81 million ($60 million

after-tax)

charge recorded in other operations and maintenance expense in its Consolidated Statement of Income, a $46 million increase in property, plant and equipment associated with asset retirement costs and a $4 million increase in regulatory assets.

In March 2019, the Governor of Virginia signed into law legislation which requires any CCR unit located at Virginia Power’s Bremo, Chesapeake, Chesterfield or Possum Point power stations that stop accepting CCR prior to July 2019 be closed by removing the CCR to an approved landfill or through recycling for beneficial reuse. The legislation further requires that at least 6.8 million cubic yards of CCR be beneficially reused. Costs associated with the closure of these CCR units are recoverable through a rate adjustment clause approved by the Virginia Commission with a revenue requirement that cannot exceed $225 million in any

12-month

period. Associated costs that are allocated to customers outside of Virginia, and not actually recovered from such customers, are recoverable through the Virginia rate adjustment clause. In connection with this legislation, Virginia Power recorded a $2.4 billion ARO related to the cost of landfills and beneficial reuse, with an offsetting increase to property, plant and equipment of $1.3 billion for the Chesterfield power station and an increase primarily to regulatory assets for the remaining portion related to the Bremo, Chesapeake and Possum Point power stations during the first quarter of 2019. In addition, Virginia Power revised its estimated cash flows for the existing ARO related to future ash pond and landfill closure costs, which resulted in a decrease of $202 million and a corresponding $113 million ($84 million

after-tax)

benefit in other operations and maintenance expense in the Consolidated Statement of Income in the first quarter of 2019.

Other Legal Matters

The Companies are defendants in a number of lawsuits and claims involving unrelated incidents of property damage and personal injury. Due to the uncertainty surrounding these matters, the Companies are unable to make an estimate of the potential financial statement impacts; however, they could have a material impact on results of operations, financial condition and/or cash flows.

SCANA Legal Proceedings

The following describes certain legal proceedings involving Dominion Energy, SCANA or DESC relating to events occurring before closing of the SCANA Combination. Dominion Energy intends to vigorously contest the lawsuits, claims and assessments which have been filed or initiated against SCANA and DESC. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material. For certain of these matters, and unless otherwise noted therein, Dominion Energy is unable to estimate a reasonable range of possible loss and the related financial statement impacts, but for any such matter there could be a material impact to its results of operations, financial condition and/or cash flows. For the matters for which Dominion Energy is able to reasonably estimate a probable loss, Dominion Energy’s Consolidated Balance Sheets include reserves of $696 million and insurance receivables of $111 million, included within other receivables at December 31, 2019. Dominion Energy’s Consolidated Statements of Income for the year ended December 31, 2019 includes charges of $641 million ($480 million

after-tax

), included within impairment of assets and other charges, included within the Corporate and Other segment.

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Combined Notes to Consolidated Financial Statements, Continued

Ratepayer Class Actions

In May 2018, a consolidated complaint against DESC, SCANA and the State of South Carolina was filed in the State Court of Common Pleas in Hampton County, South Carolina (the DESC Ratepayer Case). In September 2018, the court certified this case as a class action. The plaintiffs allege, among other things, that DESC was negligent and unjustly enriched, breached alleged fiduciary and contractual duties and committed fraud and misrepresentation in failing to properly manage the NND Project, and that DESC committed unfair trade practices and violated state anti-trust laws. The plaintiffs sought a declaratory judgment that DESC may not charge its customers for any past or continuing costs of the NND Project, sought to have SCANA and DESC’s assets frozen and all monies recovered from Toshiba Corporation and other sources be placed in a constructive trust for the benefit of ratepayers and sought specific performance of the alleged implied contract to construct the NND Project.

In December 2018, the State Court of Common Pleas in Hampton County entered an order granting preliminary approval of a class action settlement and a stay of

pre-trial

proceedings in the DESC Ratepayer Case. The settlement agreement, contingent upon the closing of the SCANA Combination, provided that SCANA and DESC would establish an escrow account and proceeds from the escrow account would be distributed to the class members, after payment of certain taxes, attorneys’ fees and other expenses and administrative costs. The escrow account would include (1) up to $2.0 billion, net of a credit of up to $2.0 billion in future electric bill relief, which would inure to the benefit of the escrow account in favor of class members over a period of time established by the South Carolina Commission in its order related to matters before the South Carolina Commission related to the NND Project, (2) a cash payment of $115 million and (3) the transfer of certain DESC-owned real estate or sales proceeds from the sale of such properties, which counsel for the DESC Ratepayer Class estimate to have an aggregate value between $60 million and $85 million. At the closing of the SCANA Combination, SCANA and DESC funded the cash payment portion of the escrow account. The court held a fairness hearing on the settlement in May 2019. In June 2019, the court entered an order granting final approval of the settlement, which order became effective July 2019. In July 2019, DESC transferred $117 million representing the cash payment, plus accrued interest, to the plaintiffs. In addition, property, plant and equipment with a net recorded value of $54 million is in the process of being transferred to the plaintiffs in coordination with the court-appointed real estate trustee to satisfy the settlement agreement.

In September 2017, a purported class action was filed by Santee Cooper ratepayers against Santee Cooper, DESC, Palmetto Electric Cooperative, Inc. and Central Electric Power Cooperative, Inc. in the State Court of Common Pleas in Hampton County, South Carolina (the Santee Cooper Ratepayer Case). The allegations are substantially similar to those in the DESC Ratepayer Case. The plaintiffs seek a declaratory judgment that the defendants may not charge the purported class for reimbursement for past or future costs of the NND Project. In March 2018, the plaintiffs filed an amended complaint including as additional named defendants, including certain then current and former directors of Santee Cooper and SCANA. In June 2018, Santee Cooper filed a Notice of Petition for Original

Jurisdiction with the Supreme Court of

South Carolina. In December 2018, Santee Cooper filed its answer to the plaintiffs’ fourth amended complaint and filed cross claims against DESC, which was denied. In October 2019, Santee Cooper voluntarily consented to stay its cross claims against DESC pending the outcome of the trial of the underlying case. In November 2019, DESC removed the case to the U.S. District Court for the District of South Carolina. In December 2019, the plaintiffs and Santee Cooper filed a motion to remand the case to state court. In January 2020, the case was remanded to state court. In February 2020, the parties executed a preliminary settlement term sheet relating to this matter as well as the Luquire Case and the Glibowski Case described below. The proposed settlement is expected to be $520 million, of which Dominion Energy’s portion is $320 million. The parties are currently negotiating a settlement agreement based on the preliminary settlement term sheet that will be presented to the court for preliminary approval. This case is pending.

In July 2019, a similar purported class action was filed by certain Santee Cooper ratepayers against DESC, SCANA, Dominion Energy and former directors and officers of SCANA in the State Court of Common Pleas in Orangeburg, South Carolina (the Luquire Case). In August 2019, DESC, SCANA and Dominion Energy were voluntarily dismissed from the case. The claims are similar to the Santee Cooper Ratepayer Case. In February 2020, the parties executed a preliminary settlement term sheet as described above relating to this matter as well as the Santee Cooper Ratepayer Case and the Glibowski Case. This case is pending.

RICO Class Action

In January 2018, a purported class action was filed, and subsequently amended, against SCANA, DESC and certain former executive officers in the U.S. District Court for the District of South Carolina (the Glibowski Case). The plaintiff alleges, among other things, that SCANA, DESC and the individual defendants participated in an unlawful racketeering enterprise in violation of RICO and conspired to violate RICO by fraudulently inflating utility bills to generate unlawful proceeds. The DESC Ratepayer Class Action settlement described previously contemplates dismissal of claims by DESC ratepayers in this case against DESC, SCANA and their officers. In August 2019, the individual defendants filed motions to dismiss. In February 2020, the parties executed a preliminary settlement term sheet as described above relating to this matter as well as the Santee Cooper Ratepayer Case and the Luquire Case. This case is pending.

SCANA Shareholder Litigation

In September 2017, a purported class action was filed against SCANA and certain former executive officers and directors in the U.S. District Court for the District of South Carolina. Subsequent additional purported class actions were separately filed against all or nearly all of these defendants. In January 2018, the U.S. District Court for the District of South Carolina consolidated these suits, and the plaintiffs filed a consolidated amended complaint in March 2018. The plaintiffs allege, among other things, that the defendants violated §10(b) of the Securities Exchange Act of 1934, as amended, and Rule

10b-5

promulgated thereunder, and that the individually named defendants are liable under §20(a) of the same act. In June 2018, the defendants filed motions to dismiss. In March 2019, the U.S. District Court for the District of South Carolina granted in part and denied in part

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the defendants’ motions to dismiss. In December 2019, the parties executed a settlement agreement pursuant to which SCANA will pay $192.5 million, up to $32.5 million of which can be satisfied through the issuance of shares of Dominion Energy common stock, subject to approval by the U.S. District Court for the District of South Carolina. In February 2020, the U.S. District Court for the District of South Carolina granted preliminary approval of the settlement agreement, pending a fairness hearing.

In September 2017, a shareholder derivative action was filed against certain former executive officers and directors of SCANA in the State Court of Common Pleas in Richland County, South Carolina. In September 2018, this action was consolidated with another action in the Business Court Pilot Program in Richland County. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties to shareholders by their gross mismanagement of the NND Project, and that the defendants were unjustly enriched by bonuses they were paid in connection with the project. The defendants have filed a motion to dismiss the consolidated action. In February 2019, one action was voluntarily dismissed. This case is pending.

In January 2018, a purported class action was filed against SCANA, Dominion Energy and certain former executive officers and directors of SCANA in the State Court of Common Pleas in Lexington County, South Carolina (the City of Warren Lawsuit). The plaintiff alleges, among other things, that defendants violated their fiduciary duties to shareholders by executing a merger agreement that would unfairly deprive plaintiffs of the true value of their SCANA stock, and that Dominion Energy aided and abetted these actions. Among other remedies, the plaintiff seeks to enjoin and/or rescind the merger. In February 2018, Dominion Energy removed the case to the U.S. District Court for the District of South Carolina, and filed a Motion to Dismiss in March 2018. In June 2018, the case was remanded back to the State Court of Common Pleas in Lexington County. Dominion Energy appealed the decision to remand to the U.S. Court of Appeals for the Fourth Circuit, where the appeal was consolidated with a similar appeal in the Metzler Lawsuit discussed below. In June 2019, the U.S. Court of Appeals for the Fourth Circuit reversed the order remanding the case to state court. The case is pending in the U.S. District Court for the District of South Carolina.

In February 2018, a purported class action was filed against Dominion Energy and certain former directors of SCANA and DESC in the State Court of Common Pleas in Richland County, South Carolina (the Metzler Lawsuit). The allegations made and the relief sought by the plaintiffs are substantially similar to that described for the City of Warren Lawsuit. In February 2018, Dominion Energy removed the case to the U.S. District Court for the District of South Carolina, and filed a Motion to Dismiss in March 2018. In August 2018, the case was remanded back to the State Court of Common Pleas in Richland County. Dominion Energy appealed the decision to remand to the U.S. Court of Appeals for the Fourth Circuit, where the appeal was consolidated with the City of Warren Lawsuit. In June 2019, the U.S. Court of Appeals for the Fourth Circuit reversed the order remanding the case to state court. The case is pending in the U.S. District Court for the District of South Carolina.

In September 2019, the U.S. District Court for the District of South Carolina granted the plaintiffs’ motion to consolidate the City of Warren Lawsuit and the Metzler Lawsuit. In October 2019, the plaintiffs filed an amended complaint against certain former directors and executive officers of SCANA and DESC,

which stated substantially similar allegations to those in the City of Warren Lawsuit and the Metzler Lawsuit. In November 2019, the defendants filed a motion to dismiss. This case is pending.

In May 2019, a case was filed against certain former executive officers and directors of SCANA in the State Court of Common Pleas in Richland County, South Carolina. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties to shareholders by their gross mismanagement of the NND Project, were unjustly enriched by the bonuses they were paid in connection with the project and breached their fiduciary duties to

secure and obtain the best price for the sale of SCANA. Also in May 2019, the case was removed to the U.S. District Court of South Carolina by the

non-South

Carolina defendants. In June 2019, the plaintiffs filed a motion to remand the case to state court. In January 2020, the case was remanded to state court. This case is pending.

Employment Class Actions and Indemnification

In August 2017, a case was filed in the U.S. District Court for the District of South Carolina on behalf of persons who were formerly employed at the NND Project. In July 2018, the court certified this case as a class action. In February 2019, certain of these plaintiffs filed an additional case, which case has been dismissed and the plaintiffs have joined the case filed August 2017. The plaintiffs allege, among other things, that SCANA, DESC, Fluor Corporation and Fluor Enterprises, Inc. violated the Worker Adjustment and Retraining Notification Act in connection with the decision to stop construction at the NND Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment and are seeking damages, which could be as much as $100 million for 100% of the NND Project.

In September 2018, a case was filed in the State Court of Common Pleas in Fairfield County, South Carolina by Fluor Enterprises, Inc. and Fluor Daniel Maintenance Services, Inc. against DESC and Santee Cooper. The plaintiffs make claims for indemnification, breach of contract and promissory estoppel arising from, among other things, the defendants’ alleged failure and refusal to defend and indemnify the Fluor defendants in the aforementioned case. These cases are pending.

FILOT Litigation and Related Matters

In November 2017, Fairfield County filed a complaint and a motion for temporary injunction against DESC in the State Court of Common Pleas in Fairfield County, South Carolina, making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of implied duty of good faith and fair dealing and unfair trade practices related to DESC’s termination of the FILOT agreement between DESC and Fairfield County related to the NND Project. The plaintiff sought a temporary and permanent injunction to prevent DESC from terminating the FILOT agreement. The plaintiff withdrew the motion for temporary injunction in December 2017. This case is pending.

Governmental Proceedings and Investigations

In June 2018, DESC received a notice of proposed assessment of approximately $410 million, excluding interest, from the SCDOR following its audit of DESC’s sales and use tax returns for the periods September 1, 2008 through December 31, 2017. The proposed assessment, which includes 100% of the NND Project, is based on the SCDOR’s position that DESC’s sales and

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Combined Notes to Consolidated Financial Statements, Continued

use tax exemption for the NND Project does not apply because the facility will not become operational. DESC has protested the proposed assessment, which remains pending.

In September and October 2017, SCANA was served with subpoenas issued by the U.S. Attorney’s Office for the District of South Carolina and the Staff of the SEC’s Division of Enforcement seeking documents related to the NND Project. In February 2020, the SEC filed a complaint against SCANA, two of its former executive officers and DESC in the U.S. District Court for the District of South Carolina alleging that the defendants violated federal securities laws by making false and misleading statements about the NND Project. In addition, the South Carolina Law Enforcement Division is conducting a criminal investigation into the handling of the NND Project by SCANA and DESC. These matters are pending. SCANA and DESC are cooperating fully with the investigations, including responding to additional subpoenas and document requests; however, Dominion Energy cannot currently predict whether or to what extent SCANA or DESC may incur a material liability.

Other Litigation

In December 2018, arbitration proceedings commenced between DESC and Cameco Corporation related to a supply agreement signed in May 2008. This agreement provides the terms and conditions under which DESC agreed to purchase uranium hexafluoride from Cameco Corporation over a period from 2010 to 2020. Cameco Corporation alleges that DESC violated this agreement by failing to purchase the stated quantities of uranium hexafluoride for the 2017 and 2018 delivery years. DESC denies that it is in breach of the agreement and believes that it has reduced its purchase quantity within the terms of the agreement. This matter is pending.

Abandoned NND Project

DESC, for itself and as agent for Santee Cooper, entered into an engineering, construction and procurement contract with Westinghouse and WECTEC in 2008 for the design and construction of the NND Project, of which DESC’s ownership share is 55%. Various difficulties were encountered in connection with the project. The ability of Westinghouse and WECTEC to adhere to established budgets and construction schedules was affected by many variables, including unanticipated difficulties encountered in connection with project engineering and the construction of project components, constrained financial resources of the contractors, regulatory, legal, training and construction processes associated with securing approvals, permits and licenses and necessary amendments to them within projected time frames, the availability of labor and materials at estimated costs and the efficiency of project labor. There were also contractor and supplier performance issues, difficulties in timely meeting critical regulatory requirements, contract disputes, and changes in key contractors or subcontractors. These matters preceded the filing for bankruptcy protection by Westinghouse and WECTEC in March 2017, and were the subject of comprehensive analyses performed by SCANA and Santee Cooper.

Based on the results of SCANA’s analysis, and in light of Santee Cooper’s decision to suspend construction on the NND Project, in July 2017, SCANA determined to stop the construction of the units and to pursue recovery of costs incurred in connection with the construction under the abandonment provisions of the Base Load

Review Act or through other means. This decision by SCANA became the focus of numerous legislative, regulatory and legal proceedings. Some of these proceedings remain unresolved and are described above.

In September 2017, DESC, for itself and as agent for Santee Cooper, filed with the U.S. Bankruptcy Court for the Southern

District of New York Proofs of Claim for unliquidated damages against each of Westinghouse and WECTEC. These Proofs of Claim were based upon the anticipatory repudiation and material breach by Westinghouse and WECTEC of the contract, and assert against Westinghouse and WECTEC any and all claims that are based thereon or that may be related thereto.

Westinghouse’s reorganization plan was confirmed by the U.S. Bankruptcy Court for the Southern District of New York and became effective in August 2018. In connection with the effectiveness of the reorganization plan, the contract associated with the NND Project was deemed rejected. DESC is contesting approximately $285 million of filed liens in Fairfield County, South Carolina. Most of these asserted liens are claims that relate to work performed by Westinghouse subcontractors before the Westinghouse bankruptcy, although some of them are claims arising from work performed after the Westinghouse bankruptcy.

Westinghouse has indicated that some unsecured creditors have sought or may seek amounts beyond what Westinghouse allocated when it submitted its reorganization plan to the U.S. Bankruptcy Court for the Southern District of New York. If any unsecured creditor is successful in its attempt to include its claim as part of the class of general unsecured creditors beyond the amounts in the bankruptcy reorganization plan allocated by Westinghouse, it is possible that the reorganization plan will not provide for payment in full or nearly in full to its

pre-petition

trade creditors. The shortfall could be significant.

DESC and Santee Cooper were responsible for amounts owed to Westinghouse for valid work performed by Westinghouse subcontractors on the NND Project after the Westinghouse bankruptcy filing until termination of the interim assessment agreement. In December 2019, DESC and Santee Cooper entered into a confidential settlement agreement with W Wind Down Co LLC resolving claims relating to the interim assessment agreement.

Further, some Westinghouse subcontractors who have made claims against Westinghouse in the bankruptcy proceeding also filed against DESC and Santee Cooper in South Carolina state court for damages. Many of these claimants have also asserted construction liens against the NND Project site. DESC also intends to oppose these claims and liens. With respect to claims of Westinghouse subcontractors, DESC believes there were sufficient amounts previously funded during the interim assessment agreement period to pay such validly asserted claims. With respect to the Westinghouse subcontractor claims which relate to other periods, DESC understands that such claims will be paid pursuant to Westinghouse’s confirmed bankruptcy reorganization plan. DESC further understands that the amounts paid under the plan may satisfy such claims in full. Therefore, DESC believes that the Westinghouse subcontractors may be paid substantially (and potentially in full) by Westinghouse. While Dominion Energy cannot be assured that it will not have any exposure on account of unpaid Westinghouse subcontractor claims, which DESC is presently disputing, Dominion Energy believes it is unlikely that it will be required to make payments on account of such claims.

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Appalachian Gateway

Gas Producers Litigation

In connection with the Appalachian Gateway project, Dominion Energy Field Services, Inc. entered into contracts for firm purchase rights with a group of small gas producers. In June 2016, the gas producers filed a complaint in the Circuit Court of Marshall County, West Virginia against Dominion Energy, DETI and Dominion Energy Field Services, Inc., among other defendants, claiming that the contracts are unenforceable and seeking compensatory and punitive damages. During the third quarter of 2016, Dominion Energy, DETI and Dominion Energy Field Services, Inc. were served with the complaint. Also in the third quarter of 2016, Dominion Energy and DETI, with the consent of the other defendants, removed the case to the U.S. District Court for the Northern District of West Virginia. In October 2016, the defendants filed a motion to dismiss and the plaintiffs filed a motion to remand. In February 2017, the U.S. District Court entered an order remanding the matter to the Circuit Court of Marshall County, West Virginia. In March 2017, Dominion Energy was voluntarily dismissed from the case; however, DETI and Dominion Energy Field Services, Inc. remained parties to the matter. In April 2017, the case was transferred to the Business Court Division of West Virginia. In January 2018, the court granted the motion to dismiss filed by the defendants on two counts. In 2019, all claims were settled between Dominion Energy Field Services, Inc. and the gas producers, and all claims against DETI and Dominion Energy Field Services, Inc. were dismissed with no material impact to Dominion Energy or Dominion Energy Gas’ results of operations, financial condition or cash flows.

FERC

FERC staff in the Office of Enforcement, Division of Investigations, conducted a non-public investigation of Virginia Power’s offers of combustion turbines generators into the PJM day-ahead markets from April 2010 through September 2014. FERC staff notified Virginia Power of its preliminary findings relating to Virginia Power’s alleged violation of FERC’s rules in connection with these activities. Virginia Power provided its response to FERC staff’s preliminary findings letter explaining why Virginia Power’s conduct was lawful and refuting any allegation of wrongdoing. In May 2019, FERC issued an order approving an agreement between Virginia Power and FERC staff that settled any and all potential claims relating to the types of activities that were the subject of the investigation, under which Virginia Power neither admits nor denies the alleged violations and paid $7 million in disgorgement to PJM and a $7 million penalty to the U.S. Department of the Treasury.

Nuclear Matters

In March 2011, a magnitude 9.0 earthquake and subsequent tsunami caused significant damage at the Fukushima Daiichi nuclear power station in northeast Japan. These events resulted in significant nuclear safety reviews by the NRC and industry groups such as the Institute of Nuclear Power Operations. Like other U.S. nuclear operators, Dominion Energy has gathered supporting data and participated in industry initiatives focused on the ability to respond to and mitigate the consequences of, design-basis and beyond-design-basis events at its stations.

In July 2011, an NRC task force provided initial recommendations based on its review of the Fukushima Daiichi accident and in October 2011 the NRC staff prioritized these recommendations into Tiers 1, 2 and 3. Tier 1 recommendations consisted of actions which the NRC staff determined should be started without unnecessary delay. Tier 2 and 3 items consisted of items which could not be initiated in the near term because of resource restraints, the need for further technical assessment, or were dependent on activities related to the higher priority Tier 1 issues. In December 2011, the NRC Commissioners approved the agency staff’s prioritization and recommendations, and that same month an appropriations act directed the NRC to require reevaluation of external hazards (not limited to seismic and flooding hazards) as soon as possible.

Based on the prioritized recommendations, in March 2012, the NRC issued orders and information requests requiring specific reviews and actions to all operating reactor licensees, construction permit holders and combined license holders based on the lessons learned from the Fukushima Daiichi event. The orders applicable to Dominion Energy requiring implementation of safety enhancements related to mitigation strategies for responding to extreme natural events resulting in the loss of power at plants, and enhancing spent fuel pool instrumentation have been implemented. The information requests issued by the NRC requested each reactor licensee to reevaluate the seismic and external flooding hazards at their facility using

present-day

methods and information, conduct walkdowns of their facility to ensure protection against these hazards in their current design basis, and to reevaluate their emergency communications systems and staffing levels. The walkdowns of each unit have been completed, audited by the NRC and found to be adequate. Reevaluation of the emergency communications systems and staffing levels was completed as part of the effort to comply with the orders. Reevaluation of the seismic hazards is complete and final with NRC acceptance received for all Dominion Energy facilities. Reevaluation of the external flooding hazards is complete for all Dominion Energy facilities. However, NRC acceptance of the external flooding hazards reevaluations for Millstone and Surry have not yet been received. NRC is expected to accept these external flooding hazards analyses in 2020. Dominion Energy and Virginia Power do not currently expect that compliance with the NRC’s information requests will materially impact their financial position, results of operations or cash flows during the implementation period. The NRC staff has resolved the Tier 2 and Tier 3 recommendations and no additional future actions on the part of Dominion Energy are anticipated with respect to these recommendations. Therefore, Dominion Energy and Virginia Power do not expect material financial impacts related to compliance with Tier 2 and Tier 3 recommendations.

Nuclear Operations

Nuclear Decommissioning—Minimum Financial Assurance

The NRC requires nuclear power plant owners to annually update minimum financial assurance amounts for the future decommissioning of their nuclear facilities. Decommissioning involves the decontamination and removal of radioactive contaminants from a nuclear power station once operations have ceased, in accordance with standards established by the NRC.

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Combined Notes to Consolidated Financial Statements, Continued

The 2019 calculation for the NRC minimum financial assurance amount, aggregated for Dominion Energy and Virginia Power’s nuclear units, excluding joint owners’ assurance amounts and Millstone Unit 1 and Kewaunee, as those units are in a decommissioning state, was $2.8 billion and $1.8 billion, respectively, and has been satisfied by a combination of the funds being collected and deposited in the nuclear decommissioning trusts and the real annual rate of return growth of the funds allowed by the NRC. The 2019 NRC minimum financial assurance amounts above were calculated using preliminary December 31, 2019 U.S. Bureau of Labor Statistics indices. Dominion Energy believes that the amounts currently available in its decommissioning trusts and their expected earnings will be sufficient to cover expected decommissioning costs for the Millstone and Kewaunee units. Virginia Power also believes that the decommissioning funds and their expected earnings for the Surry and North Anna units will be sufficient to cover decommissioning costs, particularly when combined with future ratepayer collections and contributions to these decommissioning trusts, if such future collections and contributions are required. This reflects a positive long-term outlook for trust fund investment returns as the decommissioning of the units will not be complete for decades. Dominion Energy and Virginia Power will continue to monitor these trusts to ensure they meet the NRC minimum financial assurance requirement, which may include, if needed, the use of parent company guarantees, surety bonding or other financial instruments recognized by the NRC. See Note 9 for additional information on nuclear decommissioning trust investments.

Nuclear Insurance

The Price-Anderson Amendments Act of 1988 provides the public up to $14.1 billion of liability protection on a per site, per nuclear incident basis, via obligations required of owners of nuclear power plants, and allows for an inflationary provision adjustment every five years. During the second quarter of 2019, the total liability protection per nuclear incident available to all participants in the Secondary Financial Protection Program decreased from $14.1 billion to $13.9 billion. This decrease does not impact Dominion Energy’s responsibility per active unit under the Price-Anderson Amendments Act of 1988. Dominion Energy and Virginia Power have purchased $450 million of coverage from commercial insurance pools for Millstone, Surry and North Anna with the remainder provided through the mandatory industry retrospective rating plan. In the event of a nuclear incident at any licensed nuclear reactor in the U.S., Dominion Energy and Virginia Power could be assessed up to $138 million for each of their licensed reactors not to exceed $21 million per year per reactor. There is no limit to the number of incidents for which this retrospective premium can be assessed. The NRC granted an exemption in March 2015 to remove Kewaunee from the Secondary Financial Protection program. This same exemption permitted Dominion Energy to reduce Kewaunee’s required level of liability coverage to $100 million. This reduction was implemented in January 2018, following the removal and storage of the spent nuclear fuel from the spent fuel pool. The current levels of nuclear property insurance coverage for Dominion Energy and Virginia Power’s nuclear units are as follows:

Coverage
(billions)
Dominion Energy
Millstone$1.70
Kewaunee0.05
Summer2.75
Virginia Power (1)
Surry$1.70
North Anna1.70
(1)Surry and North Anna share a blanket property limit of $200 million.

Dominion Energy and Virginia Power’s nuclear property insurance coverage for Millstone, Surry and North Anna exceeds the NRC minimum requirement for nuclear power plant licensees of $1.06 billion per reactor site. In March 2015, the NRC granted an exemption which allowed Kewaunee to reduce its property insurance limit to $50 million. This reduction was implemented in January 2018, following the removal and storage of the spent nuclear fuel from the spent fuel pool. This includes coverage for premature decommissioning and functional total loss. The NRC requires that the proceeds from this insurance be used first, to return the reactor to and maintain it in a safe and stable condition and second, to decontaminate the reactor and station site in accordance with a plan approved by the NRC. Nuclear property insurance is provided by NEIL, a mutual insurance company, and is subject to retrospective premium assessments in any policy year in which losses exceed the funds available to the insurance company. Dominion Energy and Virginia Power’s maximum retrospective premium assessment for the current policy period is $81 million and $50 million, respectively. Based on the severity of the incident, the Board of Directors of the nuclear insurer has the discretion to lower or eliminate the maximum retrospective premium assessment. Dominion Energy and Virginia Power have the financial responsibility for any losses that exceed the limits or for which insurance proceeds are not available because they must first be used for stabilization and decontamination.

Millstone and Virginia Power also purchase accidental outage insurance from NEIL to mitigate certain expenses, including replacement power costs, associated with the prolonged outage of a nuclear unit due to direct physical damage. Under this program, Dominion Energy and Virginia Power are subject to a retrospective premium assessment for any policy year in which losses exceed funds available to NEIL. Dominion Energy and Virginia Power’s maximum retrospective premium assessment for the current policy period is $31 million and $10 million, respectively.

ODEC, a part owner of North Anna, and Massachusetts Municipal and Green Mountain, part owners of Millstone’s Unit 3, are responsible to Dominion Energy and Virginia Power for their share of the nuclear decommissioning obligation and insurance premiums on applicable units, including any retrospective premium assessments and any losses not covered by insurance.

Under Price-Anderson, DESC (for itself and on behalf of Santee-Cooper) maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Summer. Price-Anderson provides funds up to $14.0 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $450 million by American Nuclear Insurers with the remaining coverage provided by a mandatory program of

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deferred premiums that could be assessed, after a nuclear incident, against all owners of commercial nuclear reactors. Each reactor licensee is liable for up to $138 million per reactor owned for each nuclear incident occurring at any reactor in the U.S., provided that not more than $21 million of the liability per reactor would be assessed per year. DESC’s maximum assessment, based on its

two-thirds

ownership of Summer, would be $92 million per incident, but not more than $14 million per year. Both the maximum assessment per reactor and the maximum yearly assessment are adjusted for inflation at least every five years.

DESC currently maintains insurance policies (for itself and on behalf of Santee Cooper) with NEIL. The policies provide coverage to Summer for property damage and outage costs up to $2.75 billion resulting from an event of nuclear origin and up to $2.33 billion resulting from an event of a

non-nuclear

origin. The NEIL policies in aggregate, are subject to a maximum loss of $2.75 billion for any single loss occurrence. The NEIL policies permit retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premium, DESC’s portion of the retrospective premium assessment would not exceed $24 million. DESC currently maintains an excess property insurance policy (for itself and on behalf of Santee Cooper) with the European Mutual Association for Nuclear Insurance. The policy provides coverage to Summer for property damage and outage costs up to $415 million resulting from an event of a

non-nuclear

origin. The European Mutual Association for Nuclear Insurance policy permits retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premium, DESC’s portion of the retrospective premium assessment would not exceed $2 million.

To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from an incident at Summer exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that DESC’s rates would not recover the cost of any purchased replacement power, DESC will retain the risk of loss as a self-insurer. DESC has no reason to anticipate a serious nuclear or other incident. However, if such an incident were to occur, it likely would have a material impact on DESC’s results of operations, cash flows and financial position.

Spent Nuclear Fuel

Dominion Energy and Virginia Power entered into contracts with the DOE for the disposal of spent nuclear fuel under provisions of the Nuclear Waste Policy Act of 1982. The DOE failed to begin accepting the spent fuel on January 31, 1998, the date provided by the Nuclear Waste Policy Act and by Dominion Energy and Virginia Power’s contracts with the DOE. Dominion Energy and Virginia Power have previously received damages award payments and settlement payments related to these contracts.

By mutual agreement of the parties, the settlement agreements are extendable to provide for resolution of damages incurred after 2013. The settlement agreements for the Surry, North Anna and Millstone nuclear power stations have been extended to provide for periodic payments for damages incurred through December 31, 2019, and additional extensions are contemplated by the settlement agreements. A similar agreement for Summer extends until the DOE has accepted the same amount of spent fuel from the

facility as if it has fully performed its contractual obligations. In June 2018, a lawsuit for Kewaunee was filed in the U.S. Court of Federal Claims for recovery of spent nuclear fuel storage costs incurred for the period January 1, 2014 through December 31, 2017. In March 2019, Dominion Energy amended its filing for recovery of spent nuclear fuel storage to include costs incurred for the year ended December 31, 2018. This matter is pending.

In 2019, Virginia Power received payments of $15 million for resolution of claims incurred at North Anna and Surry for the period of January 1, 2017 through December 31, 2017 and $11 million for resolution of claims incurred at Millstone for the period of July 1, 2017 through June 30, 2018. In 2019, Dominion Energy received payment of $3 million for resolution of its share of claims incurred at Summer for the period of January 1, 2018 through December 31, 2018.

In 2018, Virginia Power and Dominion Energy received payments of $16 million for resolution of claims incurred at North Anna and Surry for the period of January 1, 2016 through December 31, 2016, and $13 million for resolution of claims incurred at Millstone for the period of July 1, 2016 through June 30, 2017.

In 2017, Virginia Power and Dominion Energy received payments of $22 million for resolution of claims incurred at North Anna and Surry for the period of January 1, 2015 through December 31, 2015, and $14 million for resolution of claims incurred at Millstone for the period of July 1, 2015 through June 30, 2016.

Dominion Energy and Virginia Power continue to recognize receivables for certain spent nuclear fuel-related costs that they believe are probable of recovery from the DOE. Dominion Energy’s receivables for spent nuclear fuel-related costs totaled $52 million and $49 million at December 31, 2019 and 2018, respectively. Virginia Power’s receivables for spent nuclear fuel-related costs totaled $35 million and $30 million at December 31, 2019 and 2018, respectively.

Dominion Energy and Virginia Power will continue to manage their spent fuel until it is accepted by the DOE.

Long-Term Purchase Agreements

At December 31, 2019, Dominion Energy had the following long-term commitments that are noncancelable or are cancelable only under certain conditions, and that a third party has used to secure financing for the facility that will provide the contracted goods or services:

20202021202220232024ThereafterTotal
(millions)
Purchased electric capacity (1)$45$44$44$44$44$494$715
(1)Commitments represent estimated amounts payable for energy under power purchase contracts with qualifying facilities which expire at various dates through 2046. Energy payments are generally based on fixed dollar amounts per month and totaled $29 million for the year ended December 31, 2019.

Guarantees, Surety Bonds and Letters of Credit

In October 2017, Dominion Energy entered into a guarantee agreement to support a portion of Atlantic Coast Pipeline’s obligation under a $3.4 billion revolving credit facility with a

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Combined Notes to Consolidated Financial Statements, Continued

stated maturity date of October 2021. Dominion Energy’s maximum potential loss exposure under the terms of the guarantee is limited to 48% of the outstanding borrowings under the revolving credit facility, an equal percentage to Dominion Energy’s ownership in Atlantic Coast Pipeline. As of December 31, 2019, Atlantic Coast Pipeline has borrowed $1.8 billion against the revolving credit facility and borrowed an additional $27 million in January and February 2020. Dominion Energy’s Consolidated Balance Sheet includes a liability of $14 million and $21 million associated with this guarantee agreement at December 31, 2019 and 2018, respectively.

In addition, at December 31, 2019, Dominion Energy had issued an additional $27 million of guarantees, primarily to support other equity method investees. No amounts related to the other guarantees have been recorded.

Dominion Energy also enters into guarantee arrangements on behalf of its consolidated subsidiaries, primarily to facilitate their commercial transactions with third parties. If any of these subsidiaries fail to perform or pay under the contracts and the counterparties seek performance or payment, Dominion Energy would be obligated to satisfy such obligation. To the extent that a liability subject to a guarantee has been incurred by one of Dominion Energy’s consolidated subsidiaries, that liability is included in the Consolidated Financial Statements. Dominion Energy is not required to recognize liabilities for guarantees issued on behalf of its subsidiaries unless it becomes probable that it will have to perform under the guarantees. Terms of the guarantees typically end once obligations have been paid. Dominion Energy currently believes it is unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries’ obligations.

At December 31, 2019, Dominion Energy had issued the following subsidiary guarantees:

Maximum Exposure
(millions)
Commodity transactions (1)$2,215
Nuclear obligations (2)182
Cove Point (3)1,900
Solar (4)477
Other (5)377
Total (6)$5,151
(1)Guarantees related to commodity commitments of certain subsidiaries. These guarantees were provided to counterparties in order to facilitate physical and financial transaction related commodities and services.
(2)Guarantees primarily related to certain DGI subsidiaries’ regarding all aspects of running a nuclear facility.
(3)Guarantees related to Cove Point, in support of terminal services, transportation and construction. Cove Point has two guarantees that have no maximum limit and, therefore, are not included in this amount.
(4)Includes guarantees to facilitate the development of solar projects. Also includes guarantees entered into by DGI on behalf of certain subsidiaries to facilitate the acquisition and development of solar projects.
(5)Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations, construction projects and insurance programs. Due to the uncertainty of worker’s compensation claims, the parental guarantee has no stated limit.
(6)Excludes Dominion Energy’s guarantees for the new corporate office properties discussed further within Note 15.

Additionally, at December 31, 2019, Dominion Energy had purchased $163 million of surety bonds, including $77 million at Virginia Power and $26 million at Dominion Energy Gas, and

authorized the issuance of letters of credit by financial institutions of $89 million to facilitate commercial transactions by its subsidiaries with third parties. Under the terms of surety bonds, the Companies are obligated to indemnify the respective surety bond company for any amounts paid.

Indemnifications

As part of commercial contract negotiations in the normal course of business, the Companies may sometimes agree to make payments to compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events. The specified events may involve an adverse judgment in a lawsuit or the imposition of additional taxes due to a change in tax law or interpretation of the tax law. The Companies are unable to develop an estimate of the maximum potential amount of any other future payments under these contracts because events that would obligate them have not yet occurred or, if any such event has occurred, they have not been notified of its occurrence. However, at December 31, 2019, the Companies believe any other future payments, if any, that could ultimately become payable under these contract provisions, would not have a material impact on their results of operations, cash flows or financial position.

Note 24. Credit Risk

Dominion Energy

As a diversified energy company, Dominion Energy transacts primarily with major companies in the energy industry and with commercial and residential energy consumers. These transactions principally occur in the Northeast,

mid-Atlantic,

Midwest and Rocky Mountain and Southeast regions of the U.S. Dominion Energy does not believe that this geographic concentration contributes significantly to its overall exposure to credit risk. In addition, as a result of its large and diverse customer base, Dominion Energy is not exposed to a significant concentration of credit risk for receivables arising from electric and gas utility operations.

Dominion Energy’s exposure to credit risk is concentrated primarily within its energy marketing and price risk management activities, as Dominion Energy transacts with a smaller, less diverse group of counterparties and transactions may involve large notional volumes and potentially volatile commodity prices. Energy marketing and price risk management activities include marketing of merchant generation output, structured transactions and the use of financial contracts for enterprise-wide hedging purposes. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized

on-

or

off-balance

sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of any collateral. At December 31, 2019, Dominion Energy’s credit exposure totaled $233 million. Of this amount, investment grade counterparties, including those internally rated, represented 88%, and no single counterparty, whether investment grade or

non-investment

grade, exceeded $61 million of exposure.

Virginia Power

Virginia Power sells electricity and provides distribution and transmission services to customers in Virginia and northeastern North Carolina. Management believes that this geographic concentration risk is mitigated by the diversity of Virginia Power’s

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customer base, which includes residential, commercial and industrial customers, as well as rural electric cooperatives and municipalities. Credit risk associated with trade accounts receivable from energy consumers is limited due to the large number of customers. Virginia Power’s exposure to potential concentrations of credit risk results primarily from sales to wholesale customers. Virginia Power’s gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized

on-

or

off-balance

sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At December 31, 2019, Virginia Power’s credit exposure totaled $71 million. Of this amount, investment grade counterparties, including those internally rated, represented 96%, and no single counterparty exceeded $61 million of exposure.

Dominion Energy Gas

Dominion Energy Gas transacts mainly with major companies in the energy industry. These transactions principally occur in the eastern and Rocky Mountain regions of the U.S. Dominion Energy Gas does not believe that this geographic concentration contributes to its overall exposure to credit risk. In addition, as a result of its large and diverse customer base, Dominion Energy Gas is not exposed to a significant concentration of credit risk for receivables arising from its regulated operations. Dominion Energy Gas’ gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized

on-

or

off-balance

sheet exposure, taking into account contractual netting rights. Gross credit exposure is calculated prior to the application of collateral. At December 31, 2019, Dominion Energy Gas’ credit exposure totaled $46 million. Of this amount, investment grade counterparties, including those internally rated, represented 81%, and no single counterparty, whether investment grade or

non-investment

grade, exceeded $9 million of exposure.

Upon the Liquefaction Facility commencing commercial operations in April 2018, the majority of Cove Point’s revenue and earnings are expected to be generated from annual reservation payments under certain terminalling, storage and transportation contracts with the Export Customers. If such agreements were terminated and Cove Point was unable to replace such agreements on comparable terms, there could be a material impact on results of operations, financial condition and/or cash flows.

The Export Customers comprised approximately 34% and 32% of Dominion Energy Gas’ operating revenues for the years ended December 31, 2019 and 2018, respectively, with Dominion Energy Gas’ largest customer representing approximately 17% and 12% of such amounts.

In 2019, DETI provided service to 296 customers with approximately 98% of its storage and transportation revenue being provided through firm services. The ten largest customers provided approximately 38% of the total storage and transportation revenue and the thirty largest provided approximately 72% of the total storage and transportation revenue.

Credit-Related Contingent Provisions

The majority of Dominion Energy’s derivative instruments contain credit-related contingent provisions. These provisions require Dominion Energy to provide collateral upon the occurrence of specific events, primarily a credit rating downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were

fully triggered as of December 31, 2019 and 2018, Dominion Energy would have been required to post an additional $10 million and $1 million, respectively, of collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives,

non-derivative

contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. Dominion Energy had posted no collateral at December 31, 2019 and 2018, related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of December 31, 2019 and 2018 was $10 million and $1 million, respectively, which does not include the impact of any offsetting asset positions.

If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of December 31, 2019, Virginia Power would have been required to post an additional $8 million of collateral to its counterparties. Credit-related contingent provisions for Virginia Power were not material as of December 31, 2018.

Credit-related contingent provisions for Dominion Energy Gas were not material as of December 31, 2019 and 2018.

See Note 7 for further information about derivative instruments.

Note 25. Related-party Transactions

Virginia Power and Dominion Energy Gas engage in related party transactions primarily with other Dominion Energy subsidiaries (affiliates). Virginia Power and Dominion Energy Gas’ 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. Virginia Power and Dominion Energy Gas are included in Dominion Energy’s consolidated federal income tax return and, where applicable, combined income tax returns for Dominion Energy are filed in various states. See Note 2 for further information. Dominion Energy’s transactions with equity method investments are described in Note 9. A discussion of significant related party transactions follows.

Virginia Power

Transactions with Affiliates

Virginia Power transacts with affiliates for certain quantities of natural gas and other commodities in the ordinary course of business. Virginia Power also enters into certain commodity derivative contracts with affiliates. Virginia Power uses these contracts, which are principally comprised of forward commodity purchases, to manage commodity price risks associated with purchases of natural gas. See Notes 7 and 19 for more information. As of December 31, 2019, Virginia Power’s derivative assets and liabilities with affiliates were $3 million and $53 million, respectively. As of December 31, 2018, Virginia Power’s derivative assets and liabilities with affiliates were $26 million and $10 million, respectively.

Virginia Power participates in certain Dominion Energy benefit plans as described in Note 22. At December 31, 2019 and 2018, Virginia Power’s amounts due to Dominion Energy associated with the Dominion Energy Pension Plan and

187

Combined Notes to Consolidated Financial Statements, Continued

reflected in noncurrent pension and other postretirement benefit liabilities in the Consolidated Balance Sheets were $782 million and $632 million, respectively. At December 31, 2019 and 2018, Virginia Power’s amounts due from Dominion Energy associated with the Dominion Energy Retiree Health and Welfare Plan and reflected in noncurrent pension and other postretirement benefit assets in the Consolidated Balance Sheets were $287 million and $254 million, respectively.

DES and other affiliates provide accounting, legal, finance and certain administrative and technical services to Virginia Power. In addition, Virginia Power provides certain services to affiliates, including charges for facilities and equipment usage.

The financial statements for all years presented include costs for certain general, administrative and corporate expenses assigned by DES to Virginia Power on the basis of direct and allocated methods in accordance with Virginia Power’s services agreements with DES. Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DES resources that is attributable to the entity, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES service. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.

Presented below are significant transactions with DES and other affiliates:

Year Ended December 31,201920182017
(millions)
Commodity purchases from affiliates$690$930$674
Services provided by affiliates (1)503450453
Services provided to affiliates242425
(1)Includes capitalized expenditures of $133 million, $145 million and $144 million for the year ended December 31, 2019, 2018 and 2017, respectively.

Virginia Power has borrowed funds from Dominion Energy under short-term borrowing arrangements. There were $107 million and $224 million in short-term demand note borrowings from Dominion Energy as of December 31, 2019 and 2018, respectively. The weighted-average interest rate of these borrowings was 3.22% and 2.94% at December 31, 2019 and 2018, respectively. Virginia Power had no outstanding borrowings, net of repayments under the Dominion Energy money pool for its nonregulated subsidiaries as of December 31, 2019 and 2018. Interest charges related to Virginia Power’s borrowings from Dominion Energy were immaterial for the years ended December 31, 2019, 2018 and 2017.

There were no issuances of Virginia Power’s common stock to Dominion Energy in 2019, 2018 or 2017.

Dominion Energy Gas

Transactions with Related Parties

Dominion Energy Gas transacts with affiliates for certain quantities of natural gas and other commodities at market prices in the ordinary course of business. Additionally, Dominion Energy Gas provides transportation and storage services to affiliates. Dominion Energy Gas also enters into certain other contracts with affiliates, and related parties, including construction services, which are presented separately from contracts involving commodities or services. As of December 31, 2019 and 2018, Dominion Energy Gas did not

have any commodity derivative assets and liabilities. See Notes 7 and 20 for more information. See Note 9 for information regarding transactions with an affiliate. See Note 3 for information regarding the Dominion Energy Gas Restructuring, an affiliated transaction.

Dominion Energy Gas participates in certain Dominion Energy benefit plans as described in Note 22. At December 31, 2019 and 2018, Dominion Energy Gas’ amounts due from Dominion Energy associated with the Dominion Energy Pension Plan and reflected in noncurrent pension and other postretirement benefit assets in the Consolidated Balance Sheets were $326 million and $319 million, respectively. Dominion Energy Gas’ amounts due from Dominion Energy associated with the Dominion Energy Retiree Health and Welfare Plan and reflected in noncurrent pension and other postretirement benefit assets in the Consolidated Balance Sheets were $17 million and $13 million at December 31, 2019 and 2018, respectively.

DES, DECGS, DEQPS and other affiliates provide accounting, legal, finance and certain administrative and technical services to Dominion Energy Gas. Dominion Energy Gas provides certain services to related parties, including technical services.

The financial statements for all years presented include costs for certain general, administrative and corporate expenses assigned by DES, DECGS and DEQPS to Dominion Energy Gas on the basis of direct and allocated methods in accordance with Dominion Energy Gas’ services agreements with DES, DECGS and DEQPS. Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DES, DECGS and DEQPS resources that is attributable to the entity, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES service. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable. The costs of these services follow:

Year Ended December 31,201920182017
(millions)
Sales of natural gas and transportation and storage services$249$168$173
Purchases of natural gas and transportation and storage services12—10
Services provided by related parties (1)226169193
Services provided to related parties (2)164260190
(1)Includes capitalized expenditures of $19 million, $37 million and $53 million for the year ended December 31, 2019, 2018 and 2017, respectively.
(2)Amounts primarily attributable to Atlantic Coast Pipeline, a related party VIE.

The following table presents affiliated and related party balances reflected in Dominion Energy Gas’ Consolidated Balance Sheets:

At December 31,20192018
(millions)
Other receivables (1)$7$13
Imbalances receivable from affiliates816
Imbalances payable from affiliates (2)14
Other deferred charges and other assets12—
(1)Represents amounts due from Atlantic Coast Pipeline, a related party VIE.
(2)Amounts are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
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Affiliated receivables at December 31, 2019 and December 31, 2018 included $22 million and $7 million of accrued unbilled revenue, respectively. This revenue is based on estimated amounts of services provided but not yet billed to various affiliates.

Affiliated notes receivable from East Ohio and DGP borrowings under an IRCA with Dominion Energy Gas were $704 million at December 31, 2018. Interest income on the IRCAs was $14 million, $15 million and $5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In 2016, DMLPHCII issued a five-year $15.0 million promissory note to Dominion Energy. The interest rate is a fixed 2.75% per annum. Interest income earned on the promissory note was immaterial for the years ended December 31, 2019, 2018 and 2017.

In 2018, in connection with the closing of a $3.0 billion term loan, Cove Point loaned Dominion Energy $3.0 billion in exchange for a promissory note. The promissory note had an annual interest rate of 3.6% which was payable quarterly and was scheduled to mature in 2021. Interest income related to Dominion Energy’s borrowing was $82 million and $21 million for the years ended December 31, 2019 and December 31, 2018, respectively, presented in other income in the Consolidated Statements of Income and accrued interest was immaterial at December 31, 2018, presented in affiliated receivables in the Consolidated Balance Sheets. In September 2019, Dominion Energy repaid the promissory note to Cove Point and the proceeds were used by Cove Point to repay its $3.0 billion term loan.

In November 2019, Dominion Energy Gas issued a five-year promissory note to Dominion Energy under which it may lend up to $3.0 billion. Dominion Energy Gas’ affiliated notes receivable from Dominion Energy totaled $1.8 billion at December 31, 2019. The promissory note has a fixed annual interest rate of 2.5% payable

quarterly

. Interest income on the promissory note was $5 million for the year ended December 31, 2019.

At December 31, 2019 and 2018, Dominion Energy Gas’ affiliated notes receivable from East Ohio totaled $1.7 billion and $1.4 billion, respectively. These promissory notes have fixed annual interest rates between 3.67% to 4.90% which are payable semi-annually. Interest income on these promissory notes was $72 million for the year ended December 31, 2019 and $64 million for both the years ended December 31, 2018 and 2017.

Dominion Energy Gas’ borrowings under the IRCA with Dominion Energy totaled $251 million and $218 million as of December 31, 2019 and 2018, respectively. The weighted-average interest rate of these borrowings was 2.02% and 2.78% at December 31, 2019 and 2018, respectively. Interest charges related to Dominion Energy Gas’ total borrowings from Dominion Energy were $3 million for December 31, 2019 and less than $1 million for December 31, 2018 and 2017, respectively.

DCP had borrowings under an IRCA with Dominion Energy of $2.8 billion at December 31, 2018. The weighted-average interest rate for these borrowings was 3.43% at December 31, 2018. In October 2019, DCP repaid the outstanding balance and accrued interest utilizing funds from a capital contribution from Dominion Energy. Interest charges related to DCP’s total borrowings from Dominion Energy totaled $94 million, $96 million and $82 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In addition, DCP had borrowings of $9 million and $57 million with DES as of December 31, 2019 and 2018 respectively. The weighted-average interest rate for these borrowings was 3.85% and 3.45% at December 31, 2019 and 2018, respectively. Interest related to DCP’s total borrowings from DES totaled $3 million, $1 million and less than $1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

DMLPHCII had borrowings under an IRCA with Dominion Energy of $22 million December 31, 2018. The weighted-average interest rate for these borrowings was 3.43% at December 31, 2018. In October 2019, DMLPHCII repaid the outstanding balance and accrued interest utilizing funds from a capital contribution from Dominion Energy. Interest charges related to DMLPHCII’s total borrowings from Dominion Energy were less than $1 million for each of the years ended December 31, 2019, 2018 and 2017.

In the first quarter of 2019, Dominion Energy Midstream borrowed $395 million from Dominion Energy under a $400 million promissory note with Dominion Energy that was scheduled to mature in 2022. The interest rate was fixed 3.5% per annum. In October 2019, Dominion Energy Midstream repaid the outstanding balance and accrued interest utilizing funds from a capital contribution from Dominion Energy. Interest charges of $10 million were incurred for the year ended December 31, 2019.

For the periods ending December 31, 2019, 2018 and 2017, Dominion Energy Gas, including entities acquired in the Dominion Energy Gas Restructuring, distributed $603 million, $230 million and $239 million to Dominion Energy, respectively.

Note 26. Operating Segments

The Companies are organized primarily on the basis of products and services sold in the U.S. A description of the operations included in the Companies’ primary operating segments is as follows:

Primary Operating SegmentDescription of OperationsDominion EnergyVirginia PowerDominion Energy Gas
Dominion Energy VirginiaRegulated electric distributionXX
Regulated electric transmissionXX
Regulated electric generation fleet (1)XX
Gas Transmission & StorageRegulated gas transmission and storage (2)XX
LNG terminalling and storageXX
Nonregulated retail energy marketingX
Gas DistributionRegulated gas distribution and storage (3)X
Dominion Energy South CarolinaRegulated electric distributionX
Regulated electric transmissionX
Regulated electric generation fleetX
Regulated gas distribution and storageX
Contracted GenerationMerchant electric generation fleetX
189

Combined Notes to Consolidated Financial Statements, Continued

(1)Includes Virginia Power’s nonjurisdictional generation operations.
(2)Includes gathering and processing activities.
(3)Includes Wexpro’s natural gas development and production operations.

In addition to the operating segments above, the Companies also report a Corporate and Other segment.

Dominion Energy

The Corporate and Other Segment of Dominion Energy

includes its corporate, service companies and other functions (including unallocated debt). In addition, Corporate and Other includes specific items attributable to Dominion Energy’s operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.

In 2019, Dominion Energy reported

after-tax

net expenses of $2.6 billion in the Corporate and Other segment, with $2.0 billion of the net expenses attributable to specific items related to its operating segments.

The net expenses for specific items in 2019 primarily related to the impact of the following items:

•A $1.0 billion ($756 million after-tax) charge for refunds of amounts previously collected from retail electric customers of DESC for the NND Project, attributable to Dominion Energy South Carolina;
•$641 million ($480 million after-tax) of charges associated with litigation acquired in the SCANA Combination, attributable to Dominion Energy South Carolina;
•$484 million ($315 million after-tax) of charges for merger and integration-related costs associated with the SCANA Combination, including a $444 million ($332 million after-tax) charge related to a voluntary retirement program, attributable to:
•Dominion Energy Virginia ($151 million after-tax);
•Gas Distribution ($56 million after-tax);
•Dominion Energy South Carolina ($75 million after-tax); and
•Contracted Generation ($38 million after-tax); partially offset by
•Gas Transmission & Storage ($5 million after-tax benefit);
•A $346 million ($257 million after-tax) charge related to the early retirement of certain Virginia Power electric generation facilities, attributable to Dominion Energy Virginia;
•A $194 million tax charge for $258 million of income tax-related regulatory assets acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery, attributable to Dominion Energy South Carolina;
•A $160 million ($119 million after-tax) charge related to Virginia Power’s planned early retirement of certain automated meter reading infrastructure, attributable to Dominion Energy Virginia;
•A $135 million ($100 million after-tax) charge related to Virginia Power’s contract termination with a non-utility generator, attributable to Dominion Energy Virginia;
•A $114 million ($86 million after-tax) charge for property, plant and equipment acquired in the SCANA Combination primarily for which Dominion Energy committed to forgo recovery, attributable to Dominion Energy South Carolina; partially offset by
•A $553 million ($411 million after-tax) net gain related to investments in nuclear decommissioning trust funds attributable to:
•Dominion Energy Virginia ($49 million after-tax); and
•Contracted Generation ($362 million after-tax); and
•A $113 million ($84 million after-tax) benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019, attributable to Dominion Energy Virginia.

In 2018, Dominion Energy reported

after-tax

net expenses of $611 million in the Corporate and Other segment, with $88 million of the net expenses attributable to specific items related to its operating segments.

The net expenses for specific items in 2018 primarily related to the impact of the following items:

•A $219 million ($164 million after-tax) charge related to the impairment of certain gathering and processing assets attributable to Gas Transmission & Storage;
•A $215 million ($160 million after-tax) charge associated with Virginia legislation enacted in March 2018 that requires one-time rate credits of certain amounts to utility customers, attributable to Dominion Energy Virginia;
•A $170 million ($134 million after-tax) net loss related to our investments in nuclear decommissioning trust funds attributable to:
•Dominion Energy Virginia ($14 million after-tax); and
•Contracted Generation ($120 million after-tax);
•A $124 million ($88 million after-tax) charge for disallowance of FERC-regulated plant attributable to Gas Transmission & Storage;
•An $81 million ($60 million after-tax) charge associated primarily with the asset retirement obligations for ash ponds and landfills at certain utility generation facilities in connection with the enactment of Virginia legislation in April 2018 attributable to Dominion Energy Virginia; and
•A $70 million ($52 million after-tax) charge associated with major storm damage and service restoration attributable to Dominion Energy Virginia; partially offset by
•An $828 million ($619 million after-tax) benefit associated with the sale of certain merchant generation facilities and equity method investments attributable to:
•Contracted Generation ($229 million after-tax); and
•Gas Transmission & Storage ($390 million after-tax).

In 2017, Dominion Energy reported

after-tax

net benefits of $377 million in the Corporate and Other segment, with $861 million of the net benefits attributable to specific items related to its operating segments.

The net benefits for specific items in 2017 primarily related to the impact of the following items:

•A $1.0 billion tax benefit resulting from the remeasurement of deferred income taxes as a result of the 2017 Tax Reform Act, primarily attributable to:
•Dominion Energy Virginia ($83 million);
•Gas Transmission & Storage ($302 million);
•Gas Distribution ($56 million);
•Contracted Generation ($569 million); partially offset by
•$158 million ($96 million after-tax) of charges associated with equity method investments in wind-powered generation facilities, attributable to Contracted Generation.
190

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

Year Ended December 31,Dominion Energy VirginiaGas Transmission & StorageGas DistributionDominion Energy South CarolinaContracted GenerationCorporate and OtherAdjustments & EliminationsConsolidated Total
(millions)
2019
Total revenue from external customers$8,170$3,074$2,367$2,948$1,135$(1,122)$ —$16,572
Intersegment revenue(13)247184151,199(1,470)—
Total operating revenue8,1573,3212,3852,9521,15077(1,470)16,572
Depreciation, depletion and amortization1,21640033545217973—2,655
Equity in earnings of equity method investees—1612(4)(1)10—168
Interest income112114992160(386)101
Interest and related charges53040511624298768(386)1,773
Income tax expense (benefit)48226211416320(690)—351
Net income (loss) attributable to Dominion Energy1,786934488430276(2,556)—1,358
Investment in equity method investees—1,51732—7423—1,646
Capital expenditures3,002431848562367111—5,321
Total assets (billions)43.720.916.015.810.26.9(9.7)103.8
2018
Total revenue from external customers$8,401$1,867$1,769$ —$1,487$ (249)$ 91$13,366
Intersegment revenue(552)72316—8723(918)—
Total operating revenue7,8492,5901,785—1,495474(827)13,366
Depreciation, depletion and amortization1,158348263—21318—2,000
Equity in earnings of equity method investees—178——181—197
Interest income10143——80122(271)84
Interest and related charges51626279—124784(272)1,493
Income tax expense (benefit)38023695—75(206)—580
Net income (loss) attributable to Dominion Energy1,596844373—245(611)—2,447
Investment in equity method investees—1,159——8237—1,278
Capital expenditures2,640765647—247106—4,405
Total assets (billions)39.122.611.8—9.08.3(12.9)77.9
2017
Total revenue from external customers$8,254$1,054$1,778$ —$1,345$ (27)$ 182$12,586
Intersegment revenue(688)94617—9724(1,008)—
Total operating revenue7,5662,0001,795—1,354697(826)12,586
Depreciation, depletion and amortization1,141260258—20046—1,905
Equity in earnings of equity method investees—158——(171)(5)—(18)
Interest income19114——7794(222)82
Interest and related charges49710072—110648(222)1,205
Income tax expense (benefit)865291195—(160)(1,221)—(30)
Net income (loss) attributable to Dominion Energy1,466552351—253377—2,999
Capital expenditures2,7261,489452—979263—5,909

Intersegment sales and transfers for Dominion Energy are based on contractual arrangements and may result in intersegment profit or loss that is eliminated in consolidation.

191

Combined Notes to Consolidated Financial Statements, Continued

Virginia Power

The Corporate and Other Segment of Virginia Power

primarily includes specific items attributable to its operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.

In 2019, Virginia Power reported

after-tax

net expenses of $634 million in its Corporate and Other segment with $627 million of the net expenses attributable to its operating segment.

The net expenses for specific items in 2019 primarily related to the impact of the following items:

•A $346 million ($257 million after-tax) charge related to the early retirement of certain electric generation facilities;
•A $198 million ($146 million after-tax) charge related to a voluntary retirement program;
•A $160 million ($119 million after-tax) charge related to the planned early retirement of certain automated meter reading infrastructure;
•A $135 million ($100 million after-tax) charge related to a contract termination with a non-utility generator; and
•A $62 million ($46 million after-tax) charge related to the abandonment of a project at an electric generating facility, partially offset by
•A $113 million ($84 million after-tax) benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019.

In 2018, Virginia Power reported

after-tax

net expenses of $312 million in its Corporate and Other segment, all of which w

ere

attributable to its primary operating segment.

The net expenses for specific items in 2018 primarily related to the impact of the following items:

•A $215 million ($160 million after-tax) charge associated with Virginia legislation enacted in March 2018 that requires one-time rate credits of certain amounts to utility customers;
•An $81 million ($60 million after-tax) charge associated primarily with the asset retirement obligations for ash ponds and landfills at certain utility generation facilities in connection with the enactment of Virginia legislation in April 2018; and
•A $70 million ($52 million after-tax) charge associated with major storm damage and service restoration.

In 2017, Virginia Power reported an

after-tax

net benefit of $74 million in its Corporate and Other segment, all of which was attributable to its primary operating segment.

The net benefit for specific items in 2017 primarily related to the impact of the following item:

•A $93 million tax benefit resulting from the remeasurement of deferred income taxes as a result of the 2017 Tax Reform Act.

The following table presents segment information pertaining to Virginia Power’s operations:

Year Ended December 31,Dominion Energy VirginiaCorporate and OtherConsolidated Total
(millions)
2019
Operating revenue$8,137$ (29)$8,108
Depreciation and amortization1,21581,223
Interest income11—11
Interest expense (benefit) and related charges529(5)524
Income tax expense (benefit)481(217)264
Net income (loss)1,783(634)1,149
Capital expenditures2,981—2,981
Total assets (billions)41.4—41.4
2018
Operating revenue$7,835$(216)$7,619
Depreciation and amortization1,157(25)1,132
Interest income (expense)10—10
Interest expense (benefit) and related charges516(5)511
Income tax expense (benefit)378(78)300
Net income (loss)1,594(312)1,282
Capital expenditures2,542—2,542
Total assets (billions)37.0(0.1)36.9
2017
Operating revenue$7,556$ —$7,556
Depreciation and amortization1,141—1,141
Interest income (expense)19—19
Interest expense (benefit) and related charges497(3)494
Income tax expense (benefit)868(94)774
Net income1,466741,540
Capital expenditures2,729—2,729
192

Dominion Energy Gas

The Corporate and Other Segment of Dominion Energy Gas

primarily includes specific items attributable to Dominion Energy Gas’ operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources and the effect of certain items recorded at Dominion Energy Gas as a result of Dominion Energy’s basis in the net assets contributed. In addition, Corporate and Other includes the net impact of discontinued operations, which are discussed in Note 3.

In 2019, Dominion Energy Gas reported

an

after-tax

net benefit of $127 million in its Corporate and Other segment, with $12 million of net

expense

attributable to its operating segment.

The net

expense

for specific items in 2019 primarily related to the impact of the following items:

•A $48 million tax benefit resulting from changes in tax status of certain subsidiaries in connection with the Dominion Energy Gas Restructuring ; and
•A $42 million ($31 million after-tax) charge related to a voluntary retirement program.

In 2018, Dominion Energy Gas reported

after-tax

net expenses of $90 million in its Corporate and Other segment, with $107 million of these net expenses attributable to its operating segment.

The net expense for specific items in 2018 primarily related to a $124 million ($88 million

after-tax)

charge for disallowance of FERC-regulated plant.

In 2017, Dominion Energy Gas reported

an

after-tax

net benefit of $389 million in its Corporate and Other segment, with $156 million of the net

benefit

attributable to its operating segment.

The net benefit for specific items in 2017 primarily related to a $169 million tax benefit resulting from the remeasurement of deferred income taxes as a result of the 2017 Tax Reform Act.

The following table presents segment information pertaining to Dominion Energy Gas’ operations:

Year Ended December 31,Gas Transmission & StorageCorporate and OtherConsolidated Total
(millions)
2019
Operating revenue$2,186$ (17)$2,169
Depreciation and amortization367—367
Equity in earnings of equity method investees43—43
Interest income105—105
Interest and related charges3092311
Income tax expense (benefit)170(69)101
Net Income from discontinued operations—141141
Net Income attributable to Dominion Energy Gas594127721
Investment in equity method investees312—312
Capital expenditures391313704
Total assets (billions)18.8—18.8
2018
Operating revenue$1,996$ —$1,996
Depreciation and amortization333—333
Equity in earnings of equity method investees54—54
Interest income26—26
Interest and related charges1731174
Income tax expense (benefit)226(102)124
Net Income from discontinued operations—2424
Net Income (loss) attributable to Dominion Energy Gas571(90)481
Investment in equity method investees339—339
Capital expenditures7493601,109
Total assets (billions)19.96.926.8
2017
Operating revenue$1,523$ —$1,523
Depreciation and amortization242—242
Equity in earnings of equity method investees47—47
Interest income4—4
Interest and related charges60—60
Income tax expense (benefit)189(254)(65)
Net Income from discontinued operations—163163
Net Income attributable to Dominion Energy Gas314389703
Capital expenditures1,4593561,815
193

Combined Notes to Consolidated Financial Statements, Continued

N

ote 27. Quarterly Financial Data (Unaudited)

A summary of the Companies’ quarterly results of operations for the years ended December 31, 2019 and 2018 follows. Amounts reflect all adjustments necessary in the opinion of management for a fair statement of the results for the interim periods. Results for interim periods may fluctuate as a result of weather conditions, changes in rates and other factors.

Dominion Energy

First QuarterSecond QuarterThird QuarterFourth Quarter
(millions)
2019
Operating revenue$3,858$3,970$4,269$4,475
Income (loss) from operations(482)4611,3141,221
Net income (loss) including noncontrolling interests(677)589851,010
Net income (loss) attributable to Dominion Energy(680)549751,009
Basic EPS:
Net income (loss) attributable to Dominion Energy(0.86)0.071.191.22
Diluted EPS:
Net income (loss) attributable to Dominion Energy(0.86)0.051.171.21
Dividends per share (Series A Preferred Stock)—0.7294.3754.375
Dividends per share (Series B Preferred Stock)———1.9375
Dividends declared per common share0.91750.91750.91750.9175
2018
Operating revenue$3,466$3,088$3,451$3,361
Income from operations8757421,150834
Net income including noncontrolling interests526478883662
Net income attributable to Dominion Energy503449854641
Basic EPS:
Net income attributable to Dominion Energy0.770.691.310.97
Diluted EPS:
Net income attributable to Dominion Energy0.770.691.300.97
Dividends declared per common share0.8350.8350.8350.835

Dominion Energy’s 2019 results include the impact of the following significant items:

•Fourth quarter results include a $244 million after-tax charge related to litigation acquired in the SCANA Combination, offset by a $150 million net gain related to nuclear decommissioning trust funds.
•Second quarter results include a $316 million after-tax charge related to a voluntary retirement program, a $100 million after-tax charge related to a contract termination with a non-utility generator and a $75 million after-tax charge for litigation acquired in the SCANA Combination.
•First quarter results include $1.3 billion of after-tax merger and integration-related costs related to the SCANA Combination (inclusive of a $756 million after-tax charge for refunds of amounts previously collected from retail electric customers of DESC for the NND Project, a $277 million after-tax charge for certain regulatory assets and property, plant and equipment acquired in the SCANA Combination for which Dominion Energy committed to forego recovery and $134 million after-tax charge for litigation acquired in the SCANA Combination) and a $409 million after-tax charge for the planned early retirement of certain Virginia Power electric generation facilities and automated metering reading infrastructure , partially offset by $197 million after-tax net gain related to nuclear decommissioning trust funds and an $84 million after-tax revision to future ash ponds and landfill closure costs.

Dominion Energy’s 2018 results include the impact of the following significant items:

•Fourth quarter results include $536 million of after-tax gains from the sale of certain merchant generation facilities and equity method investments partially offset by a $164 million after-tax impairment charge for certain gathering and processing assets.
•Second quarter results include an $89 million after-tax charge for disallowance of FERC-regulated plant.
•First quarter results include a $160 million after-tax charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers.

Virginia Power

Virginia Power’s quarterly results of operations were as follows:

First QuarterSecond QuarterThird QuarterFourth Quarter
(millions)
2019
Operating revenue$1,965$1,938$2,264$1,941
Income from operations122238820659
Net income20100602427
2018
Operating revenue$1,748$1,829$2,232$1,810
Income from operations364533756418
Net income184339520239

Virginia Power’s 2019 results include the impact of the following significant item:

•Second quarter results include a $144 million after-tax charge related to a voluntary retirement program, a $100 million after-tax charge related to a contract termination with a non-utility generator and a $47 million after-tax charge for the abandonment of a project at an electric generation facility.
•First quarter results include a $409 million after-tax charge for the planned early retirement of certain electric generation facilities and automated metering reading infrastructure, partially offset by an $84 million after-tax revision to future ash ponds and landfill closure costs.
194

Virginia Power’s 2018 results include the impact of the following significant item:

•First quarter results include a $160 million after-tax charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers.

Dominion Energy Gas

Dominion Energy Gas’ quarterly results of operations were as follows:

First QuarterSecond QuarterThird QuarterFourth Quarter
(millions)
2019
Operating revenue$566$530$502$571
Income from continuing operations247179202276
Net income from continuing operations172123130276
Net income from discontinued operations54264516
Net income including noncontrolling interests226149175292
Net income attributable to Dominion Energy Gas190119151261
2018
Operating revenue$389$508$533$566
Income from continuing operations16790302228
Net income from continuing operations15784209182
Net income (loss) from discontinued operations564533(110)
Net income including noncontrolling interests21312924272
Net income attributable to Dominion Energy Gas1808319127

Dominion Energy Gas’s 2019 results include the impact of the following significant items:

•Second quarter results include a $58 million after-tax charge related to a voluntary retirement program , including $32 million in discontinued operations.

Dominion Energy Gas’s 2018 results include the impact of the following significant items:

•Fourth quarter results include a $165 million after-tax impairment charge for certain gathering and processing assets, included in discontinued operations.
•Second quarter results include an $89 million after-tax charge for disallowance of FERC-regulated plant.
195

Combined Notes to Consolidated Financial Statements, Continued

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