OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A discusses Dominion Energy’s results of operations and general financial condition and Virginia Power’s results of operations. MD&A should be read in conjunction with the Companies’ Consolidated Financial Statements. Virginia Power meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.
Contents of MD&A
MD&A consists of the following information:
| • | Forward-Looking Statements |
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| • | Accounting Matters – Dominion Energy |
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| • | Segment Results of Operations |
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| • | Liquidity and Capital Resources – Dominion Energy |
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| • | Future Issues and Other Matters – Dominion Energy |
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Forward-Looking Statements
This report contains statements concerning the Companies’ expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “continue,” “target” or other similar words.
The Companies make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:
| • | Unusual weather conditions and their effect on energy sales to customers and energy commodity prices; |
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| • | Extreme weather events and other natural disasters, including, but not limited to, hurricanes, high winds, severe storms, earthquakes, flooding, climate changes and changes in water temperatures and availability that can cause outages and property damage to facilities; |
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| • | The impact of extraordinary external events, such as the current pandemic health event resulting from COVID-19, and their collateral consequences, including extended disruption of economic activity in our markets and global supply chains; |
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| • | Federal, state and local legislative and regulatory developments, including changes in or interpretations of federal and state tax laws and regulations; |
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| • | Risks of operating businesses in regulated industries that are subject to changing regulatory structures; |
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| • | Changes to regulated electric rates collected by the Companies and regulated gas distribution, transportation and storage rates collected by Dominion Energy; |
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| • | Changes in rules for RTOs and ISOs in which the Companies join and/or participate, including changes in rate designs, changes in FERC’s interpretation of market rules and new and evolving capacity models; |
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| • | Risks associated with Virginia Power’s membership and participation in PJM, including risks related to obligations created by the default of other participants; |
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| • | Risks associated with entities in which Dominion Energy shares ownership with third parties, including risks that result from lack of sole decision making authority, disputes that may arise between Dominion Energy and third party participants and difficulties in exiting these arrangements; |
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| • | Changes in future levels of domestic and international natural gas production, supply or consumption; |
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| • | Impacts to Dominion Energy’s noncontrolling interest in Cove Point from fluctuations in future volumes of LNG imports or exports from the U.S. and other countries worldwide or demand for, purchases of, and prices related to natural gas or LNG; |
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| • | Timing and receipt of regulatory approvals necessary for planned construction or growth projects and compliance with conditions associated with such regulatory approvals; |
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| • | The inability to complete planned construction, conversion or growth projects at all, or with the outcomes or within the terms and time frames initially anticipated, including as a result of increased public involvement, intervention or litigation in such projects; |
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| • | Risks and uncertainties that may impact the Companies’ ability to develop and construct the CVOW Commercial Project within the currently proposed timeline, or at all, and consistent with current cost estimates along with the ability to recover such costs from customers; |
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| • | Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other substances, more extensive permitting requirements and the regulation of additional substances; |
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| • | Cost of environmental compliance, including those costs related to climate change; |
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| • | Changes in implementation and enforcement practices of regulators relating to environmental standards and litigation exposure for remedial activities; |
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| • | Difficulty in anticipating mitigation requirements associated with environmental and other regulatory approvals or related appeals; |
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| • | Unplanned outages at facilities in which the Companies have an ownership interest; |
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| • | The impact of operational hazards, including adverse developments with respect to pipeline and plant safety or integrity, equipment loss, malfunction or failure, operator error and other catastrophic events; |
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| • | Risks associated with the operation of nuclear facilities, including costs associated with the disposal of spent nuclear fuel, decommissioning, plant maintenance and changes in existing regulations governing such facilities; |
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| • | Changes in operating, maintenance and construction costs; |
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| • | Domestic terrorism and other threats to the Companies’ physical and intangible assets, as well as threats to cybersecurity; |
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| • | Additional competition in industries in which the Companies operate, including in electric markets in which Dominion Energy’s nonregulated generation facilities operate and potential competition from the development and deployment of alternative energy sources, such as self-generation and distributed generation technologies, and availability of market alternatives to large commercial and industrial customers; |
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| • | Competition in the development, construction and ownership of certain electric transmission facilities in the Companies’ service territory in connection with Order 1000; |
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| • | Changes in technology, particularly with respect to new, developing or alternative sources of generation and smart grid technologies; |
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| • | Changes in demand for the Companies’ services, including industrial, commercial and residential growth or decline in the Companies’ service areas, changes in supplies of natural gas delivered to Dominion Energy’s pipeline system, failure to maintain or replace customer contracts on favorable terms, changes in customer growth or usage patterns, including as a result of energy conservation programs, the availability of energy efficient devices and the use of distributed generation methods; |
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| • | Receipt of approvals for, and timing of, closing dates for acquisitions and divestitures; |
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| • | Impacts of acquisitions, divestitures, transfers of assets to joint ventures and retirements of assets based on asset portfolio reviews; |
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| • | The expected timing and likelihood of completing the sales of the Q-Pipe Group and Kewaunee, including the ability to obtain the requisite regulatory approvals and the terms and conditions of such regulatory approvals; |
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| • | Adverse outcomes in litigation matters or regulatory proceedings, including matters acquired in the SCANA Combination; |
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| • | Counterparty credit and performance risk; |
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| • | Fluctuations in the value of investments held in nuclear decommissioning trusts by the Companies and in benefit plan trusts by Dominion Energy; |
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| • | Fluctuations in energy-related commodity prices and the effect these could have on Dominion Energy’s earnings and the Companies’ liquidity position and the underlying value of their assets; |
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| • | Fluctuations in interest rates; |
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| • | Fluctuations in currency exchange rates of the Euro or Danish Krone associated with the CVOW Commercial Project; |
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| • | Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital; |
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| • | Global capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms; |
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| • | Political and economic conditions, including inflation and deflation; |
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| • | Employee workforce factors including collective bargaining agreements and labor negotiations with union employees; and |
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| • | Changes in financial or regulatory accounting principles or policies imposed by governing bodies. |
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Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part I. Item 1A. Risk Factors in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II. Item 1A. Risk Factors in this report.
The Companies’ forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Companies caution the reader not to place undue reliance on their forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. The Companies undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
Accounting Matters
Critical Accounting Policies and Estimates
As of September 30, 2021, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and in the Companies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. The policies disclosed included the accounting for regulated operations, AROs, income taxes, accounting for derivative contracts and financial instruments at fair value, use of estimates in goodwill impairment testing, use of estimates in long-lived asset and equity method investment impairment testing, employee benefit plans and held for sale classification.
Dominion Energy
Results of Operations
Presented below is a summary of Dominion Energy’s consolidated results:
| | 2021 | | | | 2020 | | | | $ Change | | |
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| (millions, except EPS) | | | | | | | | | | | | |
| Third Quarter | | | | | | | | | | | | |
| Net income attributable to Dominion Energy | | $ | 654 | | | $ | 356 | | | $ | 298 | |
| Diluted EPS | | | 0.79 | | | | 0.41 | | | | 0.38 | |
| Year-To-Date | | | | | | | | | | | | |
| Net income (loss) attributable to Dominion Energy | | $ | 1,947 | | | $ | (1,083 | ) | | $ | 3,030 | |
| Diluted EPS | | | 2.35 | | | | (1.38 | ) | | | 3.73 | |
Overview
Third Quarter 2021 vs. 2020
Net income attributable to Dominion Energy increased 84%, primarily due to the absence of charges associated with an impairment of interests in certain nonregulated solar generation facilities and the termination of a contract in connection with the sale of Fowler Ridge. In addition, there was a decrease in charges associated with Virginia Power’s 2021 Triennial Review. These increases were partially offset by a decrease in net investment earnings on nuclear decommissioning trust funds and increased unrealized losses on economic hedging activities.
Year-To-Date 2021 vs. 2020
Net income attributable to Dominion Energy increased $3.0 billion, primarily due to the absence of charges associated with the cancellation of the Atlantic Coast Pipeline Project and related portions of the Supply Header Project which are presented in discontinued operations, the planned early retirements of certain electric generation facilities in Virginia, an impairment of interests in certain nonregulated solar generation facilities and the termination of a contract in connection with the sale of Fowler Ridge. In addition, there was an increase in net investment earnings on nuclear decommissioning trust funds and a decrease in charges
associated with Virginia Power’s 2021 Triennial Review. These increases were partially offset by charges associated with the settlement of the South Carolina electric base rate case and increased unrealized losses on economic hedging activities.
Analysis of Consolidated Operations
Presented below are selected amounts related to Dominion Energy’s results of operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
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| | 2021 | | | | 2020 | | | | $ Change | | | | 2021 | | | | 2020 | | | | $ Change | | |
| (millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 3,176 | | | $ | 3,607 | | | $ | (431 | ) | | $ | 10,084 | | | $ | 10,651 | | | $ | (567 | ) |
| Electric fuel and other energy-related purchases | | | 703 | | | | 594 | | | | 109 | | | | 1,740 | | | | 1,758 | | | | (18 | ) |
| Purchased electric capacity | | | 26 | | | | 23 | | | | 3 | | | | 62 | | | | 36 | | | | 26 | |
| Purchased gas | | | 60 | | | | 37 | | | | 23 | | | | 665 | | | | 561 | | | | 104 | |
| Other operations and maintenance | | | 924 | | | | 977 | | | | (53 | ) | | | 2,806 | | | | 2,720 | | | | 86 | |
| Depreciation, depletion and amortization | | | 621 | | | | 595 | | | | 26 | | | | 1,833 | | | | 1,751 | | | | 82 | |
| Other taxes | | | 223 | | | | 203 | | | | 20 | | | | 702 | | | | 663 | | | | 39 | |
| Impairment of assets and other charges (benefits) | | | (222 | ) | | | 1,151 | | | | (1,373 | ) | | | 194 | | | | 1,963 | | | | (1,769 | ) |
| Earnings (loss) from equity method investees | | | 69 | | | | (5 | ) | | | 74 | | | | 214 | | | | — | | | | 214 | |
| Other income | | | 133 | | | | 286 | | | | (153 | ) | | | 732 | | | | 327 | | | | 405 | |
| Interest and related charges | | | 407 | | | | 306 | | | | 101 | | | | 978 | | | | 1,136 | | | | (158 | ) |
| Income tax expense (benefit) | | | 35 | | | | (110 | ) | | | 145 | | | | 200 | | | | (123 | ) | | | 323 | |
| Net income (loss) from discontinued operations including noncontrolling interests | | | 65 | | | | 19 | | | | 46 | | | | 119 | | | | (1,753 | ) | | | 1,872 | |
| Noncontrolling interests | | | 12 | | | | (225 | ) | | | 237 | | | | 22 | | | | (157 | ) | | | 179 | |
An analysis of Dominion Energy’s results of operations follows:
Third Quarter 2021 vs. 2020
Operating revenue decreased 12%, primarily reflecting:
| • | A $350 million decrease for refunds to be provided to retail electric customers in Virginia associated with the proposed settlement of the 2021 Triennial Review; |
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| • | A $261 million decrease associated with market prices affecting Millstone, including economic hedging impacts of net realized and unrealized losses on freestanding derivatives ($295 million); |
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| • | A $44 million decrease in sales to electric utility retail customers, primarily due to a decrease in cooling degree days; |
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| • | A $19 million decrease associated with settlements of economic hedges of certain Virginia Power regulated electric sales; and |
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| • | A $19 million decrease from Virginia Power riders. |
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These decreases were partially offset by:
| • | A $131 million increase in the fuel cost components included in utility rates as a result of an increase in commodity costs associated with sales to electric utility retail customers ($104 million) and gas utility customers ($27 million); |
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| • | A $47 million increase in sales to electric utility customers associated with economic and other usage factors; |
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| • | A $27 million increase from gas utility capital cost riders; and |
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| • | A $23 million increase in sales to electric utility retail customers associated with growth. |
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Electric fuel and other energy-related purchases increased 18%, primarily due to higher commodity costs for electric utilities, which are offset in operating revenue and do not impact net income.
Purchased gas increased 62%, primarily due to an increase in commodity costs for gas utilities, which are offset in operating revenue and do not impact net income.
Other operations and maintenance decreased 5%, primarily due to a decrease in certain Virginia Power expenditures which are primarily recovered through state- and FERC-regulated rates and do not impact net income ($35 million), a decrease in storm damage
and restoration costs in Virginia Power’s service territory ($22 million) and a decrease in merger and integration-related costs associated with the SCANA Combination ($16 million).
Other taxes increased 10%, primarily due to increased property taxes related to growth projects placed into service.
Impairment of assets and other charges (benefits) decreased $1.4 billion, primarily due to the absence of charges associated with certain nonregulated solar generation facilities ($665 million), the termination of a contract in connection with the sale of Fowler Ridge ($221 million) and litigation acquired in the SCANA Combination ($44 million). In addition, there was a decrease for a benefit from the establishment of a regulatory asset associated with the early retirements of certain coal- and oil-fired generating units associated with the proposed settlement of the 2021 Triennial Review ($549 million). These decreases were partially offset by increased charges for CCRO benefits provided to retail electric customers in Virginia associated with Virginia Power’s 2021 Triennial Review ($118 million).
Earnings from equity method investees increased $74 million, primarily due to an increase in equity method earnings from Cove Point following closing of the GT&S Transaction.
Other income decreased 53%, primarily due to a decrease in net investment gains on nuclear decommissioning trust funds ($204 million) partially offset by the absence of a charge for social justice commitments ($35 million) and an increase in non-service components of pension and other postretirement employee benefit plan credits ($33 million).
Interest and related charges increased 33%, primarily due to unrealized losses in 2021 as compared to unrealized gains in 2020 associated with freestanding derivatives ($83 million) and charges associated with the early redemption of certain securities in the third quarter of 2021 ($23 million), partially offset by the absence of borrowings in response to COVID-19 in 2020 ($18 million).
Income tax expense increased $145 million, primarily due to higher pre-tax income ($147 million) and the absence of prior year benefits including reductions in consolidated state deferred income taxes associated with gas transmission and storage operations ($45 million) and adjustments finalizing the effects of changes in tax status of certain subsidiaries in connection with the Dominion Energy Gas Restructuring ($24 million). These increases are partially offset by the absence of prior year income tax expense primarily associated with the impairment of nonregulated solar generating assets held in partnerships attributable to the noncontrolling interest ($55 million).
Net income from discontinued operations including noncontrolling interests increased $46 million, primarily due to the absence of charges associated with the Atlantic Coast Pipeline Project.
Noncontrolling interests increased $237 million, primarily due to the absence of impairments associated with certain nonregulated solar generation facilities ($267 million) partially offset by the closing of the GT&S Transaction in November 2020 ($32 million).
Year-To-Date 2021 vs. 2020
Operating revenue decreased 5%, primarily reflecting:
| • | A $459 million decrease associated with market prices affecting Millstone, including economic hedging impacts of net realized and unrealized losses on freestanding derivatives ($515 million); |
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| • | A $350 million decrease for refunds to be provided to retail electric customers in Virginia associated with the proposed settlement of the 2021 Triennial Review; |
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| • | A $151 million decrease from an unbilled revenue reduction at Virginia Power; |
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| • | A $49 million decrease as a result of the contribution of certain nonregulated natural gas retail energy contracts to Wrangler; |
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| • | A $47 million decrease in PJM off-system sales; |
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| • | A $29 million decrease in sales to electric utility customers associated with economic and other usage factors; and |
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| • | A $24 million decrease associated with settlements of economic hedges of certain Virginia Power regulated electric sales. |
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These decreases were partially offset by:
| • | A $164 million increase in the fuel cost component included in utility rates as a result of an increase in commodity costs associated with sales to gas utility customers ($130 million) and electric utility retail customers ($34 million); |
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| • | A $90 million increase from gas utility capital cost riders; |
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| • | A $65 million increase in sales to electric utility retail customers from an increase in heating degree days during the heating season ($85 million) partially offset by a decrease in cooling degree days during the cooling season ($20 million); |
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| • | A $61 million increase in sales to electric utility retail customers associated with growth; |
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| • | A $30 million increase from Virginia Power riders; and |
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| • | A $30 million increase from the absence of planned outages at Millstone. |
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Electric fuel and other energy-related purchases decreased 1%, primarily due to a decrease in PJM off-system sales ($47 million), partially offset by higher commodity costs for electric utilities ($34 million), which are offset in operating revenue and do not impact net income.
Purchased electric capacity increased 72%, primarily due to an increase in expense related to the annual PJM capacity performance market effective June 2020 ($17 million) and an increase in expense related to the annual PJM capacity performance market effective June 2021 ($13 million).
Purchased gas increased 19%, primarily due to an increase in commodity costs for gas utilities, which are offset in operating revenue and do not impact net income.
Other operations and maintenance increased 3%, primarily reflecting:
| • | A $45 million increase in costs of employer-provided healthcare; |
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| • | A $44 million charge related to a revision in estimated recovery of spent nuclear fuel costs associated with the decommissioning of Kewaunee; |
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| • | A $40 million increase in storm damage and restoration costs in Virginia Power’s service territory; and |
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| • | A $40 million increase in outside services; partially offset by |
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| • | A $39 million decrease in merger and integration-related costs associated with the SCANA Combination; |
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| • | The absence of a $30 million charge associated with credit risk on customer accounts related to COVID-19; and |
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| • | A $20 million decrease in outage costs. |
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Impairment of assets and other charges (benefits) decreased 90%, primarily reflecting:
| • | The absence of a charge associated with the planned early retirements of certain electric generation facilities in Virginia ($747 million); |
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| • | The absence of a charge associated with certain nonregulated solar generation facilities ($665 million); |
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| • | A benefit from the establishment of a regulatory asset associated with the early retirements of certain coal- and oil-fired generating units associated with the proposed settlement of the 2021 Triennial Review ($549 million); |
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| • | The absence of a contract termination charge in connection with the sale of Fowler Ridge ($221 million); |
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| • | The absence of dismantling costs associated with certain Virginia Power electric generation facilities ($30 million); and |
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| • | A decrease in charges for CCRO benefits provided to retail electric customers in Virginia associated with Virginia Power’s 2021 Triennial Review ($12 million); partially offset by |
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| • | Charges associated with the settlement of the South Carolina electric base rate case ($249 million); |
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| • | A charge for the forgiveness of Virginia retail electric customer accounts in arrears pursuant to Virginia’s 2021 budget process ($77 million); |
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| • | A charge for corporate office lease termination ($62 million); |
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| • | An increase in charges associated with litigation acquired in the SCANA Combination ($56 million); and |
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| • | A charge for the write-off of nonregulated retail software development assets ($20 million). |
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Earnings from equity method investees increased $214 million, primarily due to an increase in equity method earnings from Cove Point following closing of the GT&S Transaction.
Other income increased $405 million, primarily due to an increase in net investment gains on nuclear decommissioning trust funds ($267 million), an increase in non-service components of pension and other postretirement employee benefit plan credits ($97 million), the absence of a charge for social justice commitments ($40 million), the absence of charges associated with litigation acquired in the SCANA Combination ($25 million) and an increase in AFUDC associated with rate-regulated projects ($22 million), partially offset by charges associated with the settlement of the South Carolina electric base rate case ($18 million).
Interest and related charges decreased 14%, primarily due to unrealized gains in 2021 compared to unrealized losses in 2020 associated with freestanding derivatives ($150 million), the absence of borrowings in response to COVID-19 in 2020 ($42 million) and the absence of charges associated with the early redemption of certain securities in the first quarter of 2020 ($31 million), partially offset by charges associated with the early redemption of certain securities in the third quarter of 2021 ($23 million).
Income tax expense increased $323 million, primarily due to higher pre-tax income ($345 million) and the absence of prior year benefits including reductions in consolidated state deferred income taxes associated with gas transmission and storage operations ($45 million) and adjustments finalizing the effects of changes in tax status of certain subsidiaries in connection with the Dominion Energy Gas Restructuring ($24 million). These increases are partially offset by the benefit of a state legislative change ($21 million) and
the absence of prior year expense primarily associated with the impairment of nonregulated solar generating assets held in partnerships attributable to the noncontrolling interest ($55 million).
Net income from discontinued operations including noncontrolling interests increased $1.9 billion, primarily due to a decrease in charges associated with the Atlantic Coast Pipeline Project and related portions of the Supply Header Project ($2.1 billion) partially offset by the absence of operations sold in the GT&S Transaction ($231 million).
Noncontrolling interests increased $179 million, primarily due to the absence of impairments associated with certain nonregulated solar generation facilities ($267 million) partially offset by the closing of the GT&S Transaction in November 2020 ($97 million).
Segment Results of Operations
Segment results include the impact of intersegment revenues and expenses, which may result in intersegment profit and loss. Presented below is a summary of contributions by Dominion Energy’s operating segments to net income (loss) attributable to Dominion Energy:
| | Net Income (Loss) Attributable to Dominion Energy | | | | | | | | | | | | Diluted EPS | | | | | | | | | | |
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| | 2021 | | | | 2020 | | | | $ Change | | | | 2021 | | | | 2020 | | | | $ Change | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | | | | | | | | | | | | | | | | | | | | | | | |
| Dominion Energy Virginia | | $ | 599 | | | $ | 613 | | | $ | (14 | ) | | $ | 0.74 | | | $ | 0.74 | | | $ | — | |
| Gas Distribution | | | 69 | | | | 64 | | | | 5 | | | | 0.08 | | | | 0.08 | | | | — | |
| Dominion Energy South Carolina | | | 151 | | | | 157 | | | | (6 | ) | | | 0.19 | | | | 0.19 | | | | — | |
| Contracted Assets | | | 119 | | | | 112 | | | | 7 | | | | 0.15 | | | | 0.13 | | | | 0.02 | |
| Corporate and Other | | | (284 | ) | | | (590 | ) | | | 306 | | | | (0.37 | ) | | | (0.73 | ) | | | 0.36 | |
| Consolidated | | $ | 654 | | | $ | 356 | | | $ | 298 | | | $ | 0.79 | | | $ | 0.41 | | | $ | 0.38 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year-To-Date | | | | | | | | | | | | | | | | | | | | | | | | |
| Dominion Energy Virginia | | $ | 1,464 | | | $ | 1,479 | | | $ | (15 | ) | | $ | 1.81 | | | $ | 1.77 | | | $ | 0.04 | |
| Gas Distribution | | | 415 | | | | 375 | | | | 40 | | | | 0.52 | | | | 0.45 | | | | 0.07 | |
| Dominion Energy South Carolina | | | 337 | | | | 326 | | | | 11 | | | | 0.42 | | | | 0.39 | | | | 0.03 | |
| Contracted Assets | | | 373 | | | | 295 | | | | 78 | | | | 0.46 | | | | 0.35 | | | | 0.11 | |
| Corporate and Other | | | (642 | ) | | | (3,558 | ) | | | 2,916 | | | | (0.86 | ) | | | (4.34 | ) | | | 3.48 | |
| Consolidated | | $ | 1,947 | | | $ | (1,083 | ) | | $ | 3,030 | | | $ | 2.35 | | | $ | (1.38 | ) | | $ | 3.73 | |
Dominion Energy Virginia
Presented below are selected operating statistics related to Dominion Energy Virginia’s operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
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| | 2021 | | | | 2020 | | | | % Change | | | | 2021 | | | | 2020 | | | | % Change | | |
| Electricity delivered (million MWh) | | | 24.0 | | | | 23.8 | | | | 1 | % | | | 65.0 | | | | 63.3 | | | | 3 | % |
| Electricity supplied (million MWh): | | | | | | | | | | | | | | | | | | | | | | | | |
| Utility | | | 24.1 | | | | 24.2 | | | | — | | | | 65.5 | | | | 66.4 | | | | (1 | ) |
| Non-Jurisdictional | | | 0.3 | | | | 0.2 | | | | 50 | | | | 0.8 | | | | 0.5 | | | | 60 | |
| Degree days (electric distribution and utility service area): | | | | | | | | | | | | | | | | | | | | | | | | |
| Cooling | | | 1,176 | | | | 1,256 | | | | (6 | ) | | | 1,696 | | | | 1,708 | | | | (1 | ) |
| Heating | | | — | | | | 19 | | | | (100 | ) | | | 2,174 | | | | 1,908 | | | | 14 | |
| Average electric distribution customer accounts (thousands) | | | 2,702 | | | | 2,667 | | | | 1 | | | | 2,693 | | | | 2,657 | | | | 1 | |
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy Virginia’s net income contribution:
| | Third Quarter 2021 vs. 2020 Increase (Decrease) | | | | | | | | Year-To-Date 2021 vs. 2020 Increase (Decrease) | | | | | | |
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| | Amount | | | | EPS | | | | Amount | | | | EPS | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | |
| Regulated electric sales: | | | | | | | | | | | | | | | | |
| Weather | | $ | (19 | ) | | $ | (0.02 | ) | | $ | 46 | | | $ | 0.05 | |
| Other | | | 22 | | | | 0.03 | | | | (18 | ) | | | (0.02 | ) |
| Rider equity return | | | 16 | | | | 0.02 | | | | 26 | | | | 0.03 | |
| Electric capacity | | | (8 | ) | | | (0.01 | ) | | | (21 | ) | | | (0.03 | ) |
| Planned outage costs | | | 1 | | | | — | | | | (13 | ) | | | (0.02 | ) |
| Depreciation and amortization | | | (12 | ) | | | (0.01 | ) | | | (23 | ) | | | (0.03 | ) |
| Renewable energy investment tax credits | | | (5 | ) | | | (0.01 | ) | | | (1 | ) | | | — | |
| Other | | | (9 | ) | | | (0.02 | ) | | | (11 | ) | | | (0.01 | ) |
| Share accretion | | | — | | | | 0.02 | | | | — | | | | 0.07 | |
| Change in net income contribution | | $ | (14 | ) | | $ | — | | | $ | (15 | ) | | $ | 0.04 | |
Gas Distribution
Presented below are selected operating statistics related to Gas Distribution’s operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | % Change | | | | 2021 | | | | 2020 | | | | % Change | | |
| Gas distribution throughput (bcf): | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales | | | 14 | | | | 14 | | | | — | % | | | 124 | | | | 118 | | | | 5 | % |
| Transportation | | | 216 | | | | 188 | | | | 15 | | | | 705 | | | | 628 | | | | 12 | |
| Heating degree days (gas distribution service area): | | | | | | | | | | | | | | | | | | | | | | | | |
| North Carolina | | | 6 | | | | 31 | | | | (81 | ) | | | 1,979 | | | | 1,679 | | | | 18 | |
| Ohio and West Virginia | | | 40 | | | | 90 | | | | (56 | ) | | | 3,489 | | | | 3,336 | | | | 5 | |
| Utah, Wyoming and Idaho | | | 49 | | | | 54 | | | | (9 | ) | | | 2,982 | | | | 2,933 | | | | 2 | |
| Average gas distribution customer accounts (thousands): | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales | | | 1,936 | | | | 1,896 | | | | 2 | | | | 1,929 | | | | 1,887 | | | | 2 | |
| Transportation | | | 1,126 | | | | 1,125 | | | | — | | | | 1,133 | | | | 1,123 | | | | 1 | |
Presented below, on an after-tax basis, are the key factors impacting Gas Distribution’s net income contribution:
| | Third Quarter 2021 vs. 2020 Increase (Decrease) | | | | | | | | Year-To-Date 2021 vs. 2020 Increase (Decrease) | | | | | | |
|---|
| | Amount | | | | EPS | | | | Amount | | | | EPS | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | |
| Regulated gas sales: | | | | | | | | | | | | | | | | |
| Weather | | $ | (1 | ) | | $ | — | | | $ | 2 | | | $ | — | |
| Other | | | 8 | | | | 0.01 | | | | 15 | | | | 0.02 | |
| Rider equity return | | | 8 | | | | 0.01 | | | | 29 | | | | 0.03 | |
| Interest expense, net | | | (2 | ) | | | — | | | | 14 | | | | 0.02 | |
| Other | | | (8 | ) | | | (0.02 | ) | | | (20 | ) | | | (0.02 | ) |
| Share accretion | | | — | | | | — | | | | — | | | | 0.02 | |
| Change in net income contribution | | $ | 5 | | | $ | — | | | $ | 40 | | | $ | 0.07 | |
Dominion Energy South Carolina
Presented below are selected operating statistics related to Dominion Energy South Carolina’s operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | % Change | | | | 2021 | | | | 2020 | | | | % Change | | |
| Electricity delivered (million MWh) | | | 6.6 | | | | 6.6 | | | | — | % | | | 17.3 | | | | 16.9 | | | | 2 | % |
| Electricity supplied (million MWh) | | | 6.8 | | | | 6.9 | | | | (1 | ) | | | 18.1 | | | | 17.6 | | | | 3 | |
| Degree days (electric distribution service areas): | | | | | | | | | | | | | | | | | | | | | | | | |
| Cooling | | | 448 | | | | 597 | | | | (25 | ) | | | 620 | | | | 773 | | | | (20 | ) |
| Heating | | | — | | | | — | | | | — | | | | 839 | | | | 610 | | | | 38 | |
| Average electric distribution customer accounts (thousands) | | | 769 | | | | 756 | | | | 2 | | | | 765 | | | | 748 | | | | 2 | |
| Gas distribution throughput (bcf): | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales | | | 16 | | | | 14 | | | | 14 | | | | 51 | | | | 47 | | | | 9 | |
| Average gas distribution customer accounts (thousands) | | | 414 | | | | 401 | | | | 3 | | | | 411 | | | | 397 | | | | 4 | |
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy South Carolina’s net income contribution:
| | Third Quarter 2021 vs. 2020 Increase (Decrease) | | | | | | | | Year-To-Date 2021 vs. 2020 Increase (Decrease) | | | | | | |
|---|
| | Amount | | | | EPS | | | | Amount | | | | EPS | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | |
| Regulated electric sales: | | | | | | | | | | | | | | | | |
| Weather | | $ | (13 | ) | | $ | (0.02 | ) | | $ | 2 | | | $ | — | |
| Other | | | 19 | | | | 0.02 | | | | 31 | | | | 0.04 | |
| Capital cost rider | | | (2 | ) | | | — | | | | (5 | ) | | | (0.01 | ) |
| Regulated gas sales | | | 1 | | | | — | | | | 6 | | | | 0.01 | |
| Interest expense, net | | | 1 | | | | — | | | | 7 | | | | 0.01 | |
| Other | | | (12 | ) | | | (0.01 | ) | | | (30 | ) | | | (0.03 | ) |
| Share accretion | | | — | | | | 0.01 | | | | — | | | | 0.01 | |
| Change in net income contribution | | $ | (6 | ) | | $ | — | | | $ | 11 | | | $ | 0.03 | |
Contracted Assets
Presented below are selected operating statistics related to Contracted Asset’s operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | % Change | | | | 2021 | | | | 2020 | | | | % Change | | |
| Electricity supplied (million MWh) | | | 5.7 | | | | 5.7 | | | | — | % | | | 16.4 | | | | 15.5 | | | | 6 | % |
Presented below, on an after-tax basis, are the key factors impacting Contracted Asset’s net income contribution:
| | Third Quarter 2021 vs. 2020 Increase (Decrease) | | | | | | | | Year-To-Date 2021 vs. 2020 Increase (Decrease) | | | | | | |
|---|
| | Amount | | | | EPS | | | | Amount | | | | EPS | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | |
| Margin(1) | | $ | (2 | ) | | $ | — | | | $ | 19 | | | $ | 0.02 | |
| Planned outage costs | | | 3 | | | | — | | | | 28 | | | | 0.03 | |
| Renewable energy investment tax credits | | | — | | | | — | | | | 23 | | | | 0.03 | |
| Absence of contract associated with Fowler Ridge | | | 3 | | | | — | | | | 14 | | | | 0.02 | |
| Other | | | 3 | | | | 0.02 | | | | (6 | ) | | | (0.01 | ) |
| Share accretion | | | — | | | | — | | | | — | | | | 0.02 | |
| Change in net income contribution | | $ | 7 | | | $ | 0.02 | | | $ | 78 | | | $ | 0.11 | |
| (1) | Includes earnings associated with a 50% noncontrolling interest in Cove Point. |
|---|
Corporate and Other
Presented below are the Corporate and Other segment’s after-tax results:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | $ Change | | | | 2021 | | | | 2020 | | | | $ Change | | |
| (millions, except EPS) | | | | | | | | | | | | | | | | | | | | | | | | |
| Specific items attributable to operating segments | | $ | (303 | ) | | $ | (556 | ) | | $ | 253 | | | $ | (617 | ) | | $ | (1,334 | ) | | $ | 717 | |
| Specific items attributable to Corporate and Other segment | | | 39 | | | | (4 | ) | | | 43 | | | | 125 | | | | (2,083 | ) | | | 2,208 | |
| Total specific items | | | (264 | ) | | | (560 | ) | | | 296 | | | | (492 | ) | | | (3,417 | ) | | | 2,925 | |
| Other corporate operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | | (100 | ) | | | (95 | ) | | | (5 | ) | | | (317 | ) | | | (272 | ) | | | (45 | ) |
| Other | | | 80 | | | | 65 | | | | 15 | | | | 167 | | | | 131 | | | | 36 | |
| Total other corporate operations | | | (20 | ) | | | (30 | ) | | | 10 | | | | (150 | ) | | | (141 | ) | | | (9 | ) |
| Total net expense | | $ | (284 | ) | | $ | (590 | ) | | $ | 306 | | | $ | (642 | ) | | $ | (3,558 | ) | | $ | 2,916 | |
| EPS impact | | $ | (0.37 | ) | | $ | (0.73 | ) | | $ | 0.36 | | | $ | (0.86 | ) | | $ | (4.34 | ) | | $ | 3.48 | |
Total Specific Items
Corporate and Other includes specific items attributable to Dominion Energy’s primary operating segments that are not included in profit measures evaluated by executive management in assessing the segments' performance or in allocating resources. See Note 21 to the Consolidated Financial Statements in this report for discussion of these items in more detail. Corporate and Other also includes items attributable to the Corporate and Other segment. For the three months ended September 30, 2021, this primarily included $65 million net income of discontinued operations, primarily associated with the Q-Pipe Group, $17 million of after-tax charges associated with the early redemption of certain debt securities and an $11 million after-tax loss for derivative mark-to-market changes. For the nine months ended September 30, 2021, this primarily included $119 million net income of discontinued operations, primarily associated with the Q-Pipe Group, a $105 million after-tax benefit for derivative mark-to-market changes, $61 million of after-tax charges for workplace realignment, primarily related to a corporate office lease termination, $31 million of after-tax charges for merger and integration-related costs associated with the SCANA Combination and $17 million of after-tax charges associated with the early redemption of certain debt securities.
For the three months ended September 30, 2020, this primarily included $30 million of after-tax charges for social justice commitments, $11 million of after-tax charges for merger and integration-related costs associated with the SCANA Combination and $10 million of after-tax charges related to the effects of COVID-19, partially offset by $47 million after-tax income for derivative mark-to-market changes. For the nine months ended September 30, 2020, this primarily included $1.9 billion net loss of discontinued operations, including the results of operations of the entities included in the GT&S Transaction and Q-Pipe Group as well as charges associated with the cancellation of the Atlantic Coast Pipeline Project, $70 million of after-tax charges for merger and integration-related costs associated with the SCANA Combination, $30 million of after-tax charges for social justice commitments, $23 million of after-tax charges related to the effects of COVID-19 and $23 million of after-tax charges associated with the early redemption of certain debt securities.
Virginia Power
Results of Operations
Presented below is a summary of Virginia Power’s consolidated results:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | $ Change | | | | 2021 | | | | 2020 | | | | $ Change | | |
| (millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 556 | | | $ | 475 | | | $ | 81 | | | $ | 1,344 | | | $ | 685 | | | $ | 659 | |
Overview
Third Quarter 2021 vs. 2020
Net income increased 17%, primarily due to a decrease in charges associated with the 2021 Triennial Review.
Year-To-Date 2021 vs. 2020
Net income increased 96%, primarily due to the absence of charges related to the planned early retirements of certain electric generation facilities and a decrease in charges associated with the 2021 Triennial Review.
Analysis of Consolidated Operations
Presented below are selected amounts related to Virginia Power’s results of operations:
| | Third Quarter | | | | | | | | | | | | Year-To-Date | | | | | | | | | | |
|---|
| | 2021 | | | | 2020 | | | | $ Change | | | | 2021 | | | | 2020 | | | | $ Change | | |
| (millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 1,976 | | | $ | 2,248 | | | $ | (272 | ) | | $ | 5,547 | | | $ | 5,983 | | | $ | (436 | ) |
| Electric fuel and other energy-related purchases | | | 515 | | | | 424 | | | | 91 | | | | 1,270 | | | | 1,282 | | | | (12 | ) |
| Purchased (excess) electric capacity | | | 15 | | | | 3 | | | | 12 | | | | 16 | | | | (14 | ) | | | 30 | |
| Other operations and maintenance | | | 470 | | | | 525 | | | | (55 | ) | | | 1,382 | | | | 1,319 | | | | 63 | |
| Depreciation and amortization | | | 343 | | | | 324 | | | | 19 | | | | 990 | | | | 942 | | | | 48 | |
| Other taxes | | | 86 | | | | 85 | | | | 1 | | | | 262 | | | | 257 | | | | 5 | |
| Impairment of assets and other charges (benefits) | | | (230 | ) | | | 200 | | | | (430 | ) | | | (269 | ) | | | 1,008 | | | | (1,277 | ) |
| Other income | | | 21 | | | | 34 | | | | (13 | ) | | | 93 | | | | 34 | | | | 59 | |
| Interest and related charges | | | 136 | | | | 135 | | | | 1 | | | | 400 | | | | 398 | | | | 2 | |
| Income tax expense | | | 106 | | | | 111 | | | | (5 | ) | | | 245 | | | | 140 | | | | 105 | |
An analysis of Virginia Power’s results of operations follows:
Third Quarter 2021 vs. 2020
Operating revenue decreased 12%, primarily reflecting:
| • | A $350 million decrease for refunds to be provided to retail electric customers in Virginia associated with the proposed settlement of the 2021 Triennial Review; |
|---|
| • | A $26 million decrease in sales to retail customers, primarily due to a decrease in cooling degree days; |
|---|
| • | A $19 million decrease associated with settlements of economic hedges of certain regulated electric sales; |
|---|
| • | A $19 million decrease from riders; and |
|---|
| • | A $12 million decrease in PJM off-system sales. |
|---|
These decreases were partially offset by:
| • | A $92 million increase in the fuel cost component included in utility rates as a result of a net increase in commodity costs associated with sales to electric utility retail customers; |
|---|
| • | A $32 million increase in sales to electric utility retail customers associated with economic and other usage factors; |
|---|
| • | A $16 million increase in sales to electric utility retail customers associated with growth; and |
|---|
| • | An $11 million increase in sales to customers from non-jurisdictional solar generation facilities. |
|---|
Electric fuel and other energy-related purchases increased 21%, primarily due to higher commodity costs for electric utilities ($92 million), which are offset in operating revenue and do not impact net income, partially offset by a decrease in PJM off-system sales ($12 million).
Purchased electric capacity increased $12 million, primarily due to an increase in expense related to the annual PJM capacity performance market effective June 2021.
Other operations and maintenance decreased 10%, primarily reflecting:
| • | A $35 million decrease in certain expenses which are primarily recovered through state- and FERC-regulated rates and do not impact net income; and |
|---|
| • | A $22 million decrease in storm damage and service restoration costs; partially offset by |
|---|
| • | A $12 million increase in outside services. |
|---|
Impairment of assets and other charges (benefits) decreased $430 million, due to a benefit from the establishment of a regulatory asset associated with the early retirements of certain coal- and oil-fired generating units associated with the proposed settlement of the 2021 Triennial Review ($549 million), partially offset by increased charges for CCRO benefits provided to retail electric customers in Virginia associated with the 2021 Triennial Review ($118 million).
Other income decreased 38%, primarily due to a decrease in net investment gains on nuclear decommissioning trust funds.
Income tax expense decreased 5%, primarily due to increased investment tax credits ($20 million) partially offset by higher pre-tax income ($14 million).
Year-To-Date 2021 vs. 2020
Operating revenue decreased 7%, primarily reflecting:
| • | A $350 million decrease for refunds to be provided to retail electric customers in Virginia associated with the proposed settlement of the 2021 Triennial Review; |
|---|
| • | A $151 million decrease from an unbilled revenue reduction; |
|---|
| • | A $47 million decrease in PJM off-system sales; |
|---|
| • | A $45 million decrease in sales to electric utility retail customers associated with economic and other usage factors; and |
|---|
| • | A $24 million decrease associated with settlements of economic hedges of certain regulated electric sales. |
|---|
These decreases were partially offset by:
| • | A $62 million increase in sales to retail customers from an increase in heating degree days during the heating season ($68 million) partially offset by a decrease in cooling degree days during the cooling season ($6 million); |
|---|
| • | A $40 million increase in sales to electric utility retail customers associated with growth; |
|---|
| • | A $30 million increase from riders; |
|---|
| • | A $23 million increase in the fuel cost component included in utility rates as a result of a net increase in commodity costs associated with sales to electric utility retail customers; and |
|---|
| • | A $19 million increase in sales to customers from non-jurisdictional solar generation facilities. |
|---|
Electric fuel and other energy-related purchases decreased 1%, primarily due to a decrease in PJM off-system sales ($47 million), partially offset by higher commodity costs for electric utilities ($23 million), which are offset in operating revenue and do not impact net income.
Purchased electric capacity increased $30 million, primarily due to an increase in expense related to the annual PJM capacity performance market effective June 2020 ($17 million) and an increase in expense related to the annual PJM capacity performance market effective June 2021 ($13 million).
Other operations and maintenance increased 5%, primarily reflecting:
| • | A $40 million increase in storm damage and service restoration costs; |
|---|
| • | A $34 million increase in outside services; |
|---|
| • | A $21 million increase in salaries, wages and benefits; |
|---|
| • | A $18 million increase in planned outage costs; and |
|---|
| • | A $12 million increase in certain expenses which are primarily recovered through state- and FERC-regulated rates and do not impact net income; partially offset by |
|---|
| • | The absence of a $20 million charge associated with credit risk on customer accounts related to COVID-19; and |
|---|
| • | A $10 million reduction in bad debt expense due to the forgiveness of Virginia retail electric customer accounts in arrears pursuant to Virginia’s 2021 budget process. |
|---|
Impairment of assets and other charges (benefits) decreased $1.3 billion, primarily reflecting:
| • | The absence of charges associated with the planned early retirements of certain electric generation facilities ($747 million); |
|---|
| • | A benefit from the establishment of a regulatory asset associated with the early retirements of certain coal- and oil-fired generating units associated with the proposed settlement of the 2021 Triennial Review ($549 million); |
|---|
| • | The absence of charges for dismantling costs associated with certain electric generation facilities ($30 million); and |
|---|
| • | A decrease in charges for CCRO benefits provided to retail electric customers in Virginia associated with the 2021 Triennial Review ($12 million); partially offset by |
|---|
| • | A charge for the forgiveness of Virginia retail electric customer accounts in arrears pursuant to Virginia’s 2021 budget process ($77 million). |
|---|
Other income increased $59 million, primarily due to an increase in net investment gains on nuclear decommissioning trust funds ($40 million) and an increase in AFUDC associated with rate-regulated projects ($19 million).
Income tax expense increased 75%, primarily due to higher pre-tax income ($171 million) partially offset by increased investment tax credits ($47 million) and the benefit of a state legislative change ($16 million).
Liquidity and Capital Resources
Dominion Energy depends on both internal and external sources of liquidity to provide working capital and as a bridge to long-term debt financings. Short-term cash requirements not met by cash provided by operations are generally satisfied with proceeds from short-term borrowings. Long-term cash needs are met through issuances of debt and/or equity securities.
At September 30, 2021, Dominion Energy had $2.4 billion of unused capacity under its joint revolving credit facility.
A summary of Dominion Energy’s cash flows is presented below:
| | 2021 | | | | 2020 | | |
|---|
| (millions) | | | | | | | | |
| Cash, restricted cash and equivalents at January 1 | | $ | 247 | | | $ | 269 | |
| Cash flows provided by (used in): | | | | | | | | |
| Operating activities(1) | | | 3,535 | | | | 4,810 | |
| Investing activities(2) | | | (6,607 | ) | | | (4,860 | ) |
| Financing activities(3) | | | 3,092 | | | | 339 | |
| Net increase in cash, restricted cash and equivalents | | | 20 | | | | 289 | |
| Cash, restricted cash and equivalents at September 30 | | $ | 267 | | | $ | 558 | |
| (1) | Includes $172 million and $1.6 billion related to discontinued operations for 2021 and 2020, respectively. |
|---|
| (2) | Includes $(997) million and $(525) million related to discontinued operations for 2021 and 2020, respectively. |
|---|
| (3) | Includes $(174) million related to discontinued operations for 2020 and no amounts for 2021. |
|---|
Operating Cash Flows
Net cash provided by Dominion Energy’s operating activities decreased $1.3 billion, including approximately $1.4 billion from discontinued operations. Net cash provided by continuing operations increased primarily due to distributions from Cove Point, the absence of a contract termination payment in connection with the sale of Fowler Ridge, decreases in severance payments primarily related to a voluntary retirement program and other changes in working capital items, partially offset by lower deferred fuel cost recoveries and increased margin deposits.
Dominion Energy believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and maintain or grow the dividend on common shares.
Dominion Energy’s operations are subject to risks and uncertainties that may negatively impact the timing or amounts of operating cash flows, which are discussed in Part I. Item 1A. Risk Factors in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II. Item 1A. Risk Factors in this report.
Credit Risk
Dominion Energy’s exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary of Dominion Energy’s credit exposure as of September 30, 2021 for these activities. Gross credit exposure for each counterparty is calculated prior to the application of collateral and represents outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights.
| | Gross Credit Exposure | | | | Credit Collateral | | | | Net Credit Exposure | | |
|---|
| (millions) | | | | | | | | | | | | |
| Investment grade(1) | | $ | 83 | | | $ | — | | | $ | 83 | |
| Non-investment grade(2) | | | 2 | | | | 5 | | | | 1 | |
| No external ratings: | | | | | | | | | | | | |
| Internally rated—investment grade(3) | | | 80 | | | | 2 | | | | 78 | |
| Internally rated—non-investment grade(4) | | | 15 | | | | 26 | | | | 15 | |
| Total(5) | | $ | 180 | | | $ | 33 | | | $ | 177 | |
| (1) | Designations as investment grade are based upon minimum credit ratings assigned by Moody’s Investors Service and Standard & Poor’s. The five largest counterparty exposures, combined, for this category represented approximately 43% of the total net credit exposure. |
|---|
| (2) | The five largest counterparty exposures, combined, for this category represented less than 1% of the total net credit exposure. |
|---|
| (3) | The five largest counterparty exposures, combined, for this category represented approximately 41% of the total net credit exposure. |
|---|
| (4) | The five largest counterparty exposures, combined, for this category represented approximately 5% of the total net credit exposure. |
|---|
(5) Excludes the Millstone 2019 power purchase agreements.
Investing Cash Flows
Net cash used in Dominion Energy’s investing activities increased $1.7 billion, primarily due to the repayment of the Q-Pipe Transaction deposit and an increase in contributions to equity method affiliates including Atlantic Coast Pipeline, partially offset by a decrease in plant construction and other property additions and the absence of the acquisitions of Pivotal LNG, Inc. and an additional interest in Atlantic Coast Pipeline.
Financing Cash Flows and Liquidity
Dominion Energy relies on capital markets as significant sources of funding for capital requirements not satisfied by cash provided by its operations. As discussed further in Credit Ratings and Debt Covenants in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020, the ability to borrow funds or issue securities and the return demanded by investors are affected by credit ratings. In addition, the raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.
Dominion Energy currently meets the definition of a well-known seasoned issuer under SEC rules governing the registration, communication and offering processes under the Securities Act of 1933, as amended. The rules provide for a streamlined shelf registration process to provide registrants with timely access to capital. This allows Dominion Energy to use automatic shelf registration statements to register any offering of securities, other than those for exchange offers or business combination transactions.
Net cash provided by Dominion Energy's financing activities increased $2.8 billion primarily due to the absence of common stock repurchases and lower common stock dividend payments, partially offset by lower net issuances of debt.
Dominion Energy has an effective shelf registration statement with the SEC for the sale of up to $3.0 billion of variable denomination floating rate demand notes, called Dominion Energy Reliability InvestmentSM. The registration limits the principal amount that may be outstanding at any one time to $1.0 billion. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Dominion Energy Reliability Investment Committee, or its designee, on a weekly basis. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Dominion Energy or at the investor’s option at any time. At September 30, 2021, Dominion Energy’s Consolidated Balance Sheets include $391 million with respect to such notes presented within short-term debt. The proceeds are used for general corporate purposes and to repay debt.
See Note 16 to the Consolidated Financial Statements for further information regarding Dominion Energy’s credit facilities, liquidity and significant financing transactions, including a $900 million Sustainability Revolving Credit Agreement entered into in June 2021, a $1.3 billion term loan credit agreement entered into in July 2021, the issuance of $1.0 billion of 2.25% senior notes in August 2021 and the redemption of the remaining principal outstanding of $800 million of its July 2016 hybrids in August 2021.
In November 2021, Dominion Energy received commitments from lenders for its subsidiary holding its noncontrolling interest in Cove Point to issue approximately $2.5 billion in long-term debt secured by its noncontrolling interest in Cove Point. The proceeds are expected to be utilized to repay portions of Dominion Energy’s long-term debt.
Credit Ratings
Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold securities. In the Credit Ratings section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020, there is a discussion on the use of capital markets by Dominion Energy as well as the impact of credit ratings on the accessibility and costs of using these markets. As of September 30, 2021, there have been no changes in Dominion Energy’s credit ratings.
Debt Covenants
In the Debt Covenants section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020, there is a discussion on the various covenants present in the enabling agreements underlying Dominion Energy’s debt. As of September 30, 2021, there have been no material changes to debt covenants, nor any events of default under Dominion Energy’s debt covenants.
Subsidiary Dividend Restrictions
As of September 30, 2021, there have been no material changes to the subsidiary dividend restrictions disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020.
Future Cash Payments for Contractual Obligations and Planned Capital Expenditures
As of September 30, 2021, there have been no material changes outside the ordinary course of business to Dominion Energy’s contractual obligations nor any material changes to planned capital expenditures as disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Off-Balance Sheet Arrangements
As of September 30, 2021, there have been no material changes to the off-balance sheet arrangements disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020, with the exception of the matter disclosed in the Use of Off-Balance Sheet Arrangements section in MD&A in the Companies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
Future Issues and Other Matters
The following discussion of future issues and other information includes current developments of previously disclosed matters and new issues arising during the period covered by, and subsequent to, the dates of Dominion Energy’s Consolidated Financial Statements that may impact future results of operations, financial condition and/or cash flows. This section should be read in conjunction with Item 1. Business and Future Issues and Other Matters in MD&A in the Companies’ Annual Report on Form 10-K for the year ended
December 31, 2020, Future Issues and Other Matters in MD&A in the Companies’ Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 and Note 17 to the Consolidated Financial Statements in this report.
Environmental Matters
Dominion Energy is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations. See Note 23 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and Note 17 to the Consolidated Financial Statements in this report for additional information on various environmental matters.
Legal Matters
See Notes 13 and 23 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and Notes 13 and 17 to the Consolidated Financial Statements and Item 1. Legal Proceedings in this report for additional information on various legal matters.
Regulatory Matters
See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 and Note 13 to the Consolidated Financial Statements in this report for additional information on various regulatory matters.
CVOW Commercial Project
In September 2019, Virginia Power filed applications with PJM for the CVOW Commercial Project and for certain approvals and rider recovery from the Virginia Commission in November 2021. The total cost of the project is estimated to be approximately $10 billion, excluding financing costs. Virginia Power’s estimate for the 2.6 GW project’s projected levelized cost of energy is approximately $80-90/MWh. Following a competitive procurement process, Virginia Power has entered into or is in the final stages of negotiating fixed price contracts for the major offshore construction and equipment components. The contracts include services denominated in currencies other than the U.S. dollar for approximately €2.9 billion and 3.9 billion kr., which have been included within the cost estimate above based on a spot price from the third quarter of 2021. In addition, certain of the fixed price contracts, approximately €0.7 billion, contain commodity indexing provisions linked to steel. As a result, any changes in applicable exchange rates or commodity indices could result in a change to the ultimate cost of the project. Virginia Power is evaluating hedging strategies, subject to approval by the Virginia Commission, to mitigate such risk. In addition, the offshore construction scope is expected to include an approximately 20-month lease contract with an affiliated entity, pending approval by the Virginia Commission, for the use of a Jones Act compliant offshore wind installation vessel currently under development. Virginia Power has completed the conceptual design phase for the project’s onshore electric transmission facilities and selected a recommended route with consideration given for resiliency and minimizing environmental impacts. Any changes to the onshore route necessitated during the receipt of various permitting approvals could result in upward pressure on the estimated cost of the project. Upon receiving approvals from the Virginia Commission and other permitting entities, Virginia Power anticipates commencing major construction activities in 2023 and the project is expected to be placed in service by the end of 2026. Virginia Power expects to incur approximately 80% of the project costs from 2023 through 2025. Through September 30, 2021, Virginia Power had incurred approximately $170 million of project costs. Virginia Power anticipates funding the project consistent with its approved debt to equity capitalization structure. The project is vital for Virginia Power to meet the renewable energy portfolio standard established in the VCEA and is consistent with the criteria within the VCEA for the construction of an offshore wind facility deemed to be in the public interest as well as the guidelines facilitating cost recovery. See additional discussion of the VCEA provisions concerning renewable generation projects in Note 13 to the Companies’ Annual Report on Form 10-K for year ended December 31, 2020.
Southeast Energy Exchange Market
In February 2021, DESC and the other members of the Southeast Energy Exchange Market submitted the Southeast Energy Exchange Market Agreement to FERC for authorization. This agreement sets forth the framework and rules for establishing and maintaining a new electronic trading platform designed to enhance the existing bilateral market in the Southeast utilizing zero-charge transmission service. That transmission service, in turn, will be voluntarily provided by participating transmission service providers, including DESC. In October 2021, the Southeast Energy Exchange Market Agreement became effective by operation of law as a result of a split FERC vote. The members expect the Southeast Energy Exchange Market platform to be operational in 2022.
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