filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
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—Dominion Energy and Virginia Power
Accounting Matters—Dominion Energy
Results of Operations—Dominion Energy and Virginia Power
Segment Results of Operations—Dominion Energy
Outlook—Dominion Energy
Liquidity and Capital Resources—Dominion Energy
Future Issues and Other Matters—Dominion Energy
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 “path,” “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;
Extreme weather events and other natural disasters, including, but not limited to, hurricanes, high winds, severe storms, earthquakes, flooding, wildfires, climate changes and changes in water temperatures and availability that can cause outages and property damage to facilities;
The impact of extraordinary external events, such as the pandemic health event resulting from COVID-19, and their collateral consequences, including extended disruption of economic activity in the Companies’ markets and global supply chains;
Federal, state and local legislative and regulatory developments, including changes in or interpretations of federal and state tax laws and regulations;
The direct and indirect impacts of implementing recommendations resulting from the business review concluded in March 2024;
Risks of operating businesses in regulated industries that are subject to changing regulatory structures;
Changes to regulated electric rates collected by the Companies and regulated gas distribution, transportation and storage rates collected by Dominion Energy;
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;
Risks associated with Virginia Power’s membership and participation in PJM, including risks related to obligations created by the default of other participants;
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;
Changes in future levels of domestic and international natural gas production, supply or consumption;
Timing and receipt of regulatory approvals necessary for planned construction or growth projects and compliance with conditions associated with such regulatory approvals;
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;
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;
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;
Cost of environmental strategy and compliance, including those costs related to climate change;
Changes in implementation and enforcement practices of regulators relating to environmental standards and litigation exposure for remedial activities;
Difficulty in anticipating mitigation requirements associated with environmental and other regulatory approvals or related appeals;
Unplanned outages at facilities in which the Companies have an ownership interest;
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;
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;
Changes in operating, maintenance and construction costs;
Domestic terrorism and other threats to the Companies’ physical and intangible assets, as well as threats to cybersecurity;
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;
Competition in the development, construction and ownership of certain electric transmission facilities in the Companies’ service territory in connection with Order 1000;
Changes in technology, particularly with respect to new, developing or alternative sources of generation and smart grid technologies;
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;
Receipt of approvals for, and timing of, closing dates for acquisitions and divestitures;
Impacts of acquisitions, divestitures, transfers of assets to joint ventures and retirements of assets based on asset portfolio reviews;
The expected timing and likelihood of the completion of either or both of the PSNC and Questar Gas Transactions, including the ability to obtain the requisite regulatory approvals and the terms and conditions of such approvals;
The expected timing and likelihood of the completion of the proposed sale of a 50% noncontrolling interest in the CVOW Commercial Project to Stonepeak, including the ability to obtain the requisite regulatory approvals and the terms and conditions of such approvals;
Adverse outcomes in litigation matters or regulatory proceedings;
Counterparty credit and performance risk;
Fluctuations in the value of investments held in nuclear decommissioning trusts by the Companies and in benefit plan trusts by Dominion Energy;
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;
Fluctuations in interest rates;
The effectiveness to which existing economic hedging instruments mitigate fluctuations in currency exchange rates of the Euro and Danish Krone associated with certain fixed price contracts for the major offshore construction and equipment components of the CVOW Commercial Project;
Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital;
Global capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms;
Political and economic conditions, including inflation and deflation;
Employee workforce factors including collective bargaining agreements and labor negotiations with union employees; and
Changes in financial or regulatory accounting principles or policies imposed by governing bodies.
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, 2023.
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
As of March 31, 2024, 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, 2023. 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 impairment testing, held for sale classification and employee benefit plans.
Results of Operations—Dominion Energy
Presented below is a summary of Dominion Energy’s consolidated results:
| 2024 | 2023 | $ Change | ||||||||||
| (millions, except EPS) | ||||||||||||
| First Quarter | ||||||||||||
| Net income attributable to Dominion Energy | $ | 674 | $ | 981 | $ | (307 | ) | |||||
| Diluted EPS | 0.78 | 1.15 | (0.37 | ) |
Overview
First Quarter 2024 vs. 2023
Net income attributable to Dominion Energy decreased 31%, primarily due to the closing of the East Ohio Transaction, increased unrealized losses on economic hedging activities and the impact of 2023 Virginia legislation, partially offset by an increase in net investment earnings on nuclear decommissioning trust funds.
Analysis of Consolidated Operations
Presented below are selected amounts related to Dominion Energy’s results of operations:
| First Quarter | ||||||||||||
| 2024 | 2023 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Operating revenue | $ | 3,632 | $ | 3,883 | $ | (251 | ) | |||||
| Electric fuel and other energy-related purchases | 959 | 1,022 | (63 | ) | ||||||||
| Purchased electric capacity | 12 | 8 | 4 | |||||||||
| Purchased gas | 120 | 123 | (3 | ) | ||||||||
| Other operations and maintenance | 856 | 742 | 114 | |||||||||
| Depreciation and amortization | 621 | 622 | (1 | ) | ||||||||
| Other taxes | 202 | 191 | 11 | |||||||||
| Impairment of assets and other charges | 30 | 98 | (68 | ) | ||||||||
| Losses (gains) on sales of assets | (1 | ) | (2 | ) | 1 | |||||||
| Other income (expense) | 435 | 276 | 159 | |||||||||
| Interest and related charges | 574 | 479 | 95 | |||||||||
| Income tax expense | 134 | 176 | (42 | ) | ||||||||
| Net income from discontinued operations including noncontrolling interests | 114 | 281 | (167 | ) |
An analysis of Dominion Energy’s results of operations follows:
First Quarter 2024 vs. 2023
Operating revenue decreased 6%, primarily reflecting:
A $383 million net decrease associated with market prices affecting Millstone, including economic hedging impacts of net realized and unrealized losses on freestanding derivatives ($351 million);
A $102 million decrease from the combination of certain riders into base rates at Virginia Power as a result of 2023 Virginia legislation; and
A $44 million net decrease in fuel-related revenue as a result of a decrease in commodity costs associated with sales to electric utility retail customers.
These decreases were partially offset by:
A $177 million increase to recover the costs and an authorized return, as applicable, associated with Virginia Power non-fuel riders;
A $43 million increase in sales to electric utility retail customers, primarily due to an increase in heating degree days during the heating season;
A $27 million increase in sales to electric utility retail customers associated with growth; and
A $26 million net increase from electric utility customers who elect to pay market based or other negotiated rates, including settlements of economic hedges at Virginia Power.
Electric fuel and other energy-related purchases decreased 6%, primarily due to lower commodity costs for electric utilities ($50 million) and a decrease in the use of purchased renewable energy credits at Virginia Power ($12 million), which are offset in operating revenue and do not impact net income.
Other operations and maintenance increased 15%, primarily due to an increase in certain Virginia Power expenditures which are primarily recovered through state- and FERC-regulated rates and do not impact net income ($25 million), an increase in storm damage and restoration costs in Virginia Power’s service territory ($21 million), an increase from the combination of certain riders into base rates as a result of 2023 Virginia legislation ($20 million), an increase in costs associated with the business review completed in March 2024 ($15 million) and an increase in outage costs at Virginia Power ($15 million).
Depreciation and amortization remained substantially consistent as the absence of amortization of a regulatory asset established in the settlement of the 2021 Triennial Review ($61 million) and a decrease in amortization associated with Virginia Power non-fuel
riders ($35 million) were substantially offset by an increase in RGGI-related amortization ($92 million), which is offset in operating revenue and does not impact net income.
Impairment of assets and other charges decreased 69%, primarily due to the absence of the impairment of a corporate office building ($91 million) and a benefit from the establishment of a regulatory asset associated with previously incurred storm damage and restoration costs in connection with the settlement of the 2023 Biennial Review ($17 million), partially offset by a charge in connection with a settlement of an agreement ($47 million).
Other income increased 58%, primarily due to an increase in net investment gains on nuclear decommissioning trust funds.
Interest and related charges increased 20%, primarily due to net debt issuances in 2023 ($64 million), higher interest rates on variable rate debt and cash flow interest rate swaps ($14 million), higher interest rates on commercial paper and long-term debt ($13 million), charges incurred due to early debt repayments associated with the business review completed in March 2024 ($12 million) and premiums paid in 2024 compared to premiums received in 2023 on interest rate derivatives ($10 million), partially offset by lower unrealized losses in 2024 compared to 2023 associated with freestanding derivatives ($15 million).
Income tax expense decreased 24%, primarily due to lower pre-tax income.
Net income from discontinued operations including noncontrolling interests decreased 59%, primarily due to a loss on the closing of the East Ohio Transaction ($108 million), an impairment associated with the Questar Gas Transaction ($78 million), the absence of equity method earnings from the sale of Dominion Energy’s noncontrolling interest in Cove Point ($57 million), charges for employee benefit items related to the East Ohio Transaction ($33 million) and the absence of earnings from operations following the closing of the East Ohio Transaction ($26 million), partially offset by the absence of depreciation expense associated with the East Ohio, PSNC and Questar Gas Transactions upon meeting the classification as held for sale ($78 million), lower tax expense associated with the PSNC and Questar Gas Transactions ($25 million), the absence of interest expense on variable rate debt secured by Dominion Energy’s interest in Cove Point ($25 million) and the absence of unrealized losses on interest rate derivatives for economic hedging of debt secured by Dominion Energy’s interest in Cove Point ($19 million).
Results of Operations—Virginia Power
Presented below is a summary of Virginia Power’s consolidated results:
| First Quarter | ||||||||||||
| 2024 | 2023 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Net income | $ | 465 | $ | 355 | $ | 110 |
Overview
First Quarter 2024 vs. 2023
Net income increased 31%, primarily due to the absence of amortization associated with the 2021 Triennial Review, an increase in net investment earnings on nuclear decommissioning trust funds and an increase in sales to electric utility customers from weather and other customer-related factors, partially offset by a net decrease from riders primarily from 2023 Virginia legislation.
Analysis of Consolidated Operations
Presented below are selected amounts related to Virginia Power’s results of operations:
| First Quarter | ||||||||||||
| 2024 | 2023 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Operating revenue | $ | 2,489 | $ | 2,384 | $ | 105 | ||||||
| Electric fuel and other energy-related purchases | 701 | 799 | (98 | ) | ||||||||
| Purchased electric capacity | 13 | 8 | 5 | |||||||||
| Other operations and maintenance | 531 | 441 | 90 | |||||||||
| Depreciation and amortization | 448 | 447 | 1 | |||||||||
| Other taxes | 93 | 85 | 8 | |||||||||
| Impairment of assets and other charges (benefits) | (17 | ) | 7 | (24 | ) | |||||||
| Other income (expense) | 63 | 36 | 27 | |||||||||
| Interest and related charges | 190 | 181 | 9 | |||||||||
| Income tax expense | 128 | 97 | 31 |
An analysis of Virginia Power’s results of operations follows:
First Quarter 2024 vs. 2023
Operating revenue increased 4%, primarily reflecting:
A $177 million increase to recover the costs and an authorized return, as applicable, associated with non-fuel riders;
A $30 million increase in sales to electric utility retail customers from an increase in heating degree days during the heating season;
A $28 million increase from electric utility customers who elect to pay market based or other negotiated rates, including settlements of economic hedges;
A $21 million increase in sales to electric utility retail customers associated with growth; and
A $10 million increase in sales to electric utility retail customers associated with economic and other usage factors.
These increases were partially offset by:
A $102 million decrease from the combination of certain riders into base rates as a result of 2023 Virginia legislation; and
A $69 million net decrease in fuel-related revenue as a result of a decrease in commodity costs associated with sales to electric utility retail customers.
Electric fuel and other energy-related purchases decreased 12%, primarily due to lower commodity costs for electric utilities ($75 million) and a decrease in the use of purchased renewable energy credits ($12 million), which are offset in operating revenue and do not impact net income.
Other operations and maintenance increased 20%, primarily due to an increase in certain expenditures which are primarily recovered through state- and FERC-regulated rates and do not impact net income ($25 million), an increase in storm damage and restoration costs ($21 million), an increase from the combination of certain riders into base rates as a result of 2023 Virginia legislation ($20 million) and an increase in outage costs ($15 million).
Depreciation and amortization remained substantially consistent as the absence of amortization of a regulatory asset established in the settlement of the 2021 Triennial Review ($61 million) and a decrease in amortization associated with non-fuel riders ($35 million) were substantially offset by an increase in RGGI-related amortization ($92 million), which is offset in operating revenue and does not impact net income.
Impairment of assets and other charges decreased $24 million, primarily due to a benefit from the establishment of a regulatory asset associated with previously incurred storm damage and restoration costs in connection with the settlement of the 2023 Biennial Review.
Other income increased 75%, primarily due to an increase in net investment gains on nuclear decommissioning trust funds.
Interest and related charges increased 5%, primarily due to an increase in long-term debt borrowings ($44 million), partially offset by a decrease in principal on commercial paper and intercompany borrowings with Dominion Energy ($34 million).
Income tax expense increased 32%, primarily due to higher pre-tax income.
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 attributable to Dominion Energy:
| Net Income Attributable to Dominion Energy | EPS**(1)** | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | |||||||||||||||||||
| (millions, except EPS) | ||||||||||||||||||||||||
| First Quarter | ||||||||||||||||||||||||
| Dominion Energy Virginia | $ | 424 | $ | 386 | $ | 38 | $ | 0.51 | $ | 0.46 | $ | 0.05 | ||||||||||||
| Dominion Energy South Carolina | 80 | 91 | (11 | ) | 0.10 | 0.11 | (0.01 | ) | ||||||||||||||||
| Contracted Energy | 122 | 111 | 11 | 0.14 | 0.13 | 0.01 | ||||||||||||||||||
| Corporate and Other | 48 | 393 | (345 | ) | 0.03 | 0.45 | (0.42 | ) | ||||||||||||||||
| Consolidated | $ | 674 | $ | 981 | $ | (307 | ) | $ | 0.78 | $ | 1.15 | $ | (0.37 | ) |
(1)
Consolidated results are presented on a diluted EPS basis. The dilutive impacts, primarily consisting of potential shares which had not yet been issued, are included within the results of the Corporate and Other segment. EPS contributions for Dominion Energy’s operating segments are presented utilizing basic average shares outstanding for the period.
Dominion Energy Virginia
Presented below are selected operating statistics related to Dominion Energy Virginia’s operations:
| First Quarter | |||||||||||||
| 2024 | 2023 | % Change | |||||||||||
| Electricity delivered (million MWh) | 23.4 | 21.7 | 8 | % | |||||||||
| Electricity supplied (million MWh): | |||||||||||||
| Utility | 23.4 | 21.8 | 7 | ||||||||||
| Non-Jurisdictional | 0.3 | 0.3 | — | ||||||||||
| Degree days (electric distribution and utility service area): | |||||||||||||
| Cooling | 4 | 3 | 33 | ||||||||||
| Heating | 1,659 | 1,471 | 13 | ||||||||||
| Average electric distribution customer accounts (thousands) | 2,771 | 2,742 | 1 |
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy Virginia’s net income contribution:
| First Quarter 2024 vs. 2023 Increase (Decrease) | ||||||||
| Amount | EPS | |||||||
| (millions, except EPS) | ||||||||
| Weather | $ | 22 | $ | 0.03 | ||||
| Customer usage and other factors | 23 | 0.03 | ||||||
| Customer-elected rate impacts | 21 | 0.03 | ||||||
| Impact of 2023 Virginia legislation | (79 | ) | (0.09 | ) | ||||
| Rider equity return | 53 | 0.06 | ||||||
| Storm damage and restoration costs | (15 | ) | (0.02 | ) | ||||
| Planned outage costs | (7 | ) | (0.01 | ) | ||||
| Depreciation and amortization | (3 | ) | — | |||||
| Interest expense, net | 7 | 0.01 | ||||||
| Other | 16 | 0.01 | ||||||
| Share dilution | — | — | ||||||
| Change in net income contribution | $ | 38 | $ | 0.05 |
Dominion Energy South Carolina
Presented below are selected operating statistics related to Dominion Energy South Carolina’s operations:
| First Quarter | |||||||||||||
| 2024 | 2023 | % Change | |||||||||||
| Electricity delivered (million MWh) | 5.0 | 5.0 | — | % | |||||||||
| Electricity supplied (million MWh) | 5.3 | 5.2 | 2 | ||||||||||
| Degree days (electric distribution service areas): | |||||||||||||
| Cooling | — | 1 | (100 | ) | |||||||||
| Heating | 620 | 459 | 35 | ||||||||||
| Gas distribution throughput (bcf): | |||||||||||||
| Sales | 19 | 17 | 12 | ||||||||||
| Average distribution customer accounts (thousands): | |||||||||||||
| Electric | 797 | 783 | 2 | ||||||||||
| Gas | 454 | 437 | 4 |
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy South Carolina’s net income contribution:
| First Quarter 2024 vs. 2023 Increase (Decrease) | ||||||||
| Amount | EPS | |||||||
| (millions, except EPS) | ||||||||
| Weather | $ | 10 | $ | 0.01 | ||||
| Customer usage and other factors | 12 | 0.01 | ||||||
| Customer-elected rate impacts | (2 | ) | — | |||||
| Natural Gas Rate Stabilization Act impacts | 1 | — | ||||||
| Capital cost rider | (1 | ) | — | |||||
| Depreciation and amortization | (5 | ) | (0.01 | ) | ||||
| Interest expense, net | (7 | ) | (0.01 | ) | ||||
| Other | (19 | ) | (0.01 | ) | ||||
| Share dilution | — | — | ||||||
| Change in net income contribution | $ | (11 | ) | $ | (0.01 | ) |
Contracted Energy
Presented below are selected operating statistics related to Contracted Energy’s operations:
| First Quarter | |||||||||||||
| 2024 | 2023 | % Change | |||||||||||
| Electricity supplied (million MWh) | 4.4 | 4.6 | (4 | %) |
Presented below, on an after-tax basis, are the key factors impacting Contracted Energy’s net income contribution:
| First Quarter 2024 vs. 2023 Increase (Decrease) | ||||||||
| Amount | EPS | |||||||
| (millions, except EPS) | ||||||||
| Margin | $ | 1 | $ | — | ||||
| Planned Millstone outages(1) | 2 | — | ||||||
| Unplanned Millstone outages(1) | (6 | ) | (0.01 | ) | ||||
| Depreciation and amortization | 7 | 0.01 | ||||||
| Other | 7 | 0.01 | ||||||
| Share dilution | — | — | ||||||
| Change in net income contribution | $ | 11 | $ | 0.01 |
(1)
Includes earnings impact from outage costs and lower energy margins.
Corporate and Other
Presented below are the Corporate and Other segment’s after-tax results:
| First Quarter | ||||||||||||
| 2024 | 2023 | $ Change | ||||||||||
| (millions, except EPS) | ||||||||||||
| Specific items attributable to operating segments | $ | 124 | $ | 304 | $ | (180 | ) | |||||
| Specific items attributable to Corporate and Other segment | 67 | 162 | (95 | ) | ||||||||
| Net income from specific items | 191 | 466 | (275 | ) | ||||||||
| Corporate and other operations: | ||||||||||||
| Interest expense, net | (180 | ) | (120 | ) | (60 | ) | ||||||
| Equity method investments | — | 2 | (2 | ) | ||||||||
| Pension and other postretirement benefit plans | 62 | 66 | (4 | ) | ||||||||
| Corporate service company costs | (27 | ) | (31 | ) | 4 | |||||||
| Other | 2 | 10 | (8 | ) | ||||||||
| Net expense from corporate and other operations | (143 | ) | (73 | ) | (70 | ) | ||||||
| Total net income | $ | 48 | $ | 393 | $ | (345 | ) | |||||
| EPS impact | $ | 0.03 | $ | 0.45 | $ | (0.42 | ) |
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 March 31, 2024, this primarily included $114 million net income from discontinued operations, primarily associated with operations included in the East Ohio, PSNC and Questar Gas Transactions, including the loss on sale associated with the East Ohio Transaction, as well as an impairment charge associated with the Questar Gas Transaction, and a $34 million after-tax loss for derivative mark-to-market changes.
For the three months ended March 31, 2023, this primarily included $281 million net income from discontinued operations, primarily associated with operations included in the East Ohio, PSNC and Questar Gas Transactions and Dominion Energy’s noncontrolling interest in Cove Point, a $68 million after-tax charge associated with the impairment of a corporate office building and a $45 million after-tax loss for derivative mark-to-market changes.
Outlook
As of March 31, 2024, there have been no material changes to Dominion Energy’s 2024 outlook as described in Item 7. MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023.
Liquidity and Capital Resources
Dominion Energy depends on both cash generated from operations and external sources of liquidity to provide working capital and as a bridge to long-term financings. Dominion Energy’s material cash requirements include capital and investment expenditures, repaying short-term and long-term debt obligations and paying dividends on its common and preferred stock.
Analysis of Cash Flows
Presented below are selected amounts related to Dominion Energy’s cash flows:
| 2024 | 2023 | |||||||
| (millions) | ||||||||
| Cash, restricted cash and equivalents at January 1 | $ | 301 | $ | 341 | ||||
| Cash flows provided by (used in): | ||||||||
| Operating activities(1) | 1,982 | 2,097 | ||||||
| Investing activities | 1,385 | (2,302 | ) | |||||
| Financing activities | (3,332 | ) | 1,820 | |||||
| Net increase in cash, restricted cash and equivalents | 35 | 1,615 | ||||||
| Cash, restricted cash and equivalents at March 31 | $ | 336 | $ | 1,956 |
(1)
Includes cash outflows of $17 million for energy efficiency programs in Virginia for both the three months ended March 31, 2024 and 2023 and $5 million and $4 million for DSM programs in South Carolina for the three months ended March 31, 2024 and 2023, respectively.
Operating Cash Flows
Net cash provided by Dominion Energy’s operating activities decreased $115 million, inclusive of a $487 million increase from discontinued operations. Net cash provided by continuing operations decreased $602 million primarily due to higher net prepayments and deposits ($283 million) and a decrease from changes in working capital ($373 million).
Investing Cash Flows
Net cash from Dominion Energy’s investing activities increased $3.7 billion, primarily due to net proceeds from the East Ohio Transaction ($4.3 billion) and an increase in distributions from equity method affiliates ($126 million), partially offset by an increase in plant construction and other property additions ($549 million) and higher acquisitions of solar development projects ($150 million).
Financing Cash Flows
Net cash from Dominion Energy’s financing activities decreased $5.2 billion, primarily due to a $6.3 billion decrease due to net repayments on 364-day term loan facilities in 2024 versus net issuances in 2023, net repayments of short-term debt ($453 million) and the absence of supplemental credit facility borrowings in 2023 ($450 million), partially offset by a $2.0 billion increase due to net issuances of long-term debt in 2024 versus net repayments in 2023.
Credit Facilities and Short-Term Debt
As discussed in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023, Dominion Energy generally uses proceeds from short-term borrowings, including commercial paper, to satisfy short-term cash requirements not met through cash from operations. The levels of borrowing may vary significantly during the course of the year, depending on the timing and amount of cash requirements not satisfied by cash from operations. There have been no significant changes to Dominion Energy’s use of credit facilities and/or short-term debt during the three months ended March 31, 2024.
Joint Revolving Credit Facility
Dominion Energy maintains a $6.0 billion joint revolving credit facility which provides for a discount in the pricing of certain annual fees and amounts borrowed by Dominion Energy under the facility if Dominion Energy achieves certain annual renewable electric generation and diversity and inclusion objectives.
| Facility Limit | Outstanding Commercial Paper(1) | Outstanding Letters of Credit | Facility Capacity Available | |||||||||||||
| (millions) | ||||||||||||||||
| At March 31, 2024 | ||||||||||||||||
| Joint revolving credit facility(2) | $ | 6,000 | $ | 3,164 | $ | 34 | $ | 2,802 |
(1)
The weighted-average interest rate of the outstanding commercial paper supported by Dominion Energy’s credit facility was 5.67% at March 31, 2024.
(2)
This credit facility matures in June 2026, with the potential to be extended by the borrowers to June 2028, 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.
Dominion Energy Reliability Investment**SM Program
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 March 31, 2024, Dominion Energy’s Consolidated Balance Sheets include $462 million presented within short-term debt, with a weighted-average interest rate of 5.50%. The proceeds are used for general corporate purposes and to repay debt.
Other Facilities
In addition to the primary sources of short-term liquidity discussed above, from time to time Dominion Energy enters into separate supplementary credit facilities or term loans as discussed in Note 16 to the Consolidated Financial Statements in this report.
In March 2024, Dominion Energy repaid the full $2.5 billion outstanding under its $2.5 billion 364-day term loan facility entered into in January 2023 as amended in January 2024, using after-tax proceeds received in connection with the East Ohio Transaction. The debt was scheduled to mature in July 2024.
In March 2024, Dominion Energy repaid $1.8 billion of its $2.25 billion 364-day term loan facility entered into in October 2023, using after-tax proceeds received in connection with the East Ohio Transaction. Subsequently in March 2024, Dominion Energy requested
and received a $500 million increase to the amount of the facility and concurrently borrowed $500 million with the proceeds used for general corporate purposes. The debt is scheduled to mature in October 2024. The agreement contains certain mandatory early repayment provisions, including that any after-tax proceeds in connection with the PSNC and Questar Gas Transactions be applied to any outstanding borrowings under this facility. At March 31, 2024, Dominion Energy’s Consolidated Balance Sheet includes $976 million with respect to such facility presented within securities due within one year. The maximum allowed total debt to total capital ratio under this facility is consistent with such allowed ratio under Dominion Energy’s joint revolving credit facility.
Long-Term Debt
Sustainability Revolving Credit Facility
Dominion Energy maintains a $900 million Sustainability Revolving Credit Facility which matures in June 2024 and bears interest at a variable rate. The facility offers a reduced interest rate margin with respect to borrowed amounts allocated to certain environmental sustainability or social investment initiatives. At March 31, 2024, Dominion Energy had $450 million outstanding under this supplemental credit facility, borrowed to support environmental sustainability and social investment initiatives.
Issuances and Borrowings of Long-Term Debt
During the three months ended March 31, 2024, Dominion Energy issued or borrowed the following long-term debt. Unless otherwise noted, the proceeds for senior notes were used for the repayment of existing indebtedness and for general corporate purposes. See Note 18 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 for additional information, including use of proceeds and repayment provisions, on the securitization bonds issued in February 2024.
| Month | Type | Public / Private | Entity | Principal | Rate | Stated Maturity | |||||||||||
| January | Senior notes | Public | Virginia Power | $ | 500 | 5.000 | % | 2034 | |||||||||
| January | Senior notes | Public | Virginia Power | 500 | 5.350 | % | 2054 | ||||||||||
| February | Senior secured deferred fuel cost bonds | Public | VPFS | 439 | 5.088 | % | 2029 | ||||||||||
| February | Senior secured deferred fuel cost bonds | Public | VPFS | 843 | 4.877 | % | 2033 | ||||||||||
| Total issuances and borrowings | $ | 2,282 |
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.
Dominion Energy anticipates, excluding potential opportunistic financings and the securitization bonds, issuing between approximately $3.0 billion and $4.3 billion of long-term debt during 2024, inclusive of $1 billion issued at Virginia Power as shown above and an expected issuance at PSNC of up to $300 million prior to closing of the PSNC Transaction. Dominion Energy expects to issue long-term debt to satisfy cash needs for capital expenditures and maturing long-term debt to the extent such amounts are not satisfied from cash available from operations following the payment of dividends, after-tax proceeds from the completion of the PSNC and Questar Gas Transactions remaining after the repayment of the 364-day term loan facility, after-tax proceeds from the completion of the proposed sale of a 50% noncontrolling interest in the CVOW Commercial Project and any borrowings made from unused capacity of Dominion Energy’s credit facilities discussed above. The raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.
Repayments, Repurchases and Redemptions of Long-Term Debt
Dominion Energy may from time to time reduce its outstanding debt and level of interest expense through redemption of debt securities prior to maturity or repurchases of debt securities in the open market, in privately negotiated transactions, through tender offers or otherwise.
The following long-term debt was repaid, repurchased or redeemed during the three months ended March 31, 2024:
| Month | Type | Entity | Principal (1) | Rate | Stated Maturity | |||||||||
| (millions) | ||||||||||||||
| Debt scheduled to mature in 2024 | Multiple | $ | 663 | various | ||||||||||
| Early redemptions | ||||||||||||||
| February | Secured senior notes | Eagle Solar | $ | 279 | 4.820 | % | 2042 | |||||||
| Total repayments, repurchases and redemptions | $ | 942 |
(1)
Total amount redeemed prior to maturity includes remaining principal plus accrued interest.
See Note 18 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 for additional information regarding scheduled maturities of Dominion Energy’s long-term debt, including related average interest rates.
Remarketing of Long-Term Debt
In 2024, Dominion Energy expects to remarket approximately $270 million of its tax-exempt bonds.
Credit Ratings
Dominion Energy’s credit ratings affect its liquidity, cost of borrowing under credit facilities and collateral posting requirements under commodity contracts, as well as the rates at which it is able to offer its debt securities. The credit ratings for Dominion Energy are affected by its financial profile, mix of regulated and nonregulated businesses and respective cash flows, changes in methodologies used by the rating agencies and event risk, if applicable, such as major acquisitions or dispositions. Credit ratings and outlooks as of April 25, 2024 are as follows:
| Fitch | Moody’s | Standard & Poor’s | ||||
| Dominion Energy | ||||||
| Issuer | BBB+ | Baa2 | BBB+ | |||
| Senior unsecured debt securities | BBB+ | Baa2 | BBB | |||
| Junior subordinated notes | BBB | Baa3 | BBB | |||
| Enhanced junior subordinated notes | BBB- | Baa3 | BBB- | |||
| Preferred stock | BBB- | Ba1 | BBB- | |||
| Commercial paper | F2 | P-2 | A-2 | |||
| Outlook | Stable | Stable | Negative |
A credit rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the applicable rating organization.
Financial Covenants
As part of borrowing funds and issuing both short-term and long-term debt or preferred securities, Dominion Energy must enter into enabling agreements. These agreements contain customary covenants that, in the event of default, could result in the acceleration of principal and interest payments; restrictions on distributions related to capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments; and in some cases, the termination of credit commitments unless a waiver of such requirements is agreed to by the lenders/security holders. These provisions are customary, with each agreement specifying which covenants apply. These provisions are not necessarily unique to Dominion Energy.
Dominion Energy is required to pay annual commitment fees to maintain its joint revolving credit facility. In addition, the credit agreement contains various terms and conditions that could affect Dominion Energy’s ability to borrow under the facility. They include a maximum debt to total capital ratio, which is also included in Dominion Energy’s Sustainability Revolving Credit Agreement entered into in 2021 and the 364-day term loan facility entered into in October 2023, and cross-default provisions.
As of March 31, 2024, the calculated total debt to total capital ratio, pursuant to the terms of the agreements, was as follows:
| Company | Maximum Allowed Ratio | Actual Ratio(1) | ||||||
| Dominion Energy | 67.5 | % | 58.3 | % |
(1)
Indebtedness as defined by the agreements excludes certain junior subordinated notes and securitization bonds reflected as long-term debt as well as AOCI reflected as equity in the Consolidated Balance Sheets.
If Dominion Energy or any of its material subsidiaries fails to make payment on various debt obligations in excess of $100 million, the lenders could require the defaulting company, if it is a borrower under Dominion Energy’s joint revolving credit facility, to accelerate its repayment of any outstanding borrowings and the lenders could terminate their commitments, if any, to lend funds to that company under the credit facility. In addition, if the defaulting company is Virginia Power, Dominion Energy’s obligations to repay any outstanding borrowing under the credit facility could also be accelerated and the lenders’ commitments to Dominion Energy could terminate.
Dominion Energy monitors compliance with these covenants on a regular basis in order to ensure that events of default will not occur. As of March 31, 2024, there have been no events of default under Dominion Energy’s covenants.
Common Stock, Preferred Stock and Other Equity Securities
Issuances of Equity Securities
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. In August 2023, Dominion Energy began purchasing its common stock on the open market for these direct stock purchase plans and, in March 2024, began issuing new shares of common stock. During the three months ended March 31, 2024, Dominion Energy issued less than 1 million of such shares and received proceeds of $31 million.
Dominion Energy expects to issue equity through programs such as Dominion Energy Direct® and employee savings plans of approximately $200 million annually from 2024 through 2029. In addition, Dominion Energy expects to issue equity, excluding potential opportunistic offerings, through an at-the-market program, including any related forward-sale agreements, of approximately $400 million to $600 million annually from 2024 through 2029. The raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.
Repurchases of Equity Securities
In November 2020, the Board of Directors authorized the repurchase of up to $1.0 billion of Dominion Energy’s common stock. This repurchase program does not include a specific timetable or price or volume targets and may be modified, suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions or otherwise at the discretion of management subject to prevailing market conditions, applicable securities laws and other factors. At March 31, 2024, Dominion Energy had $920 million of available capacity under this authorization.
Dominion Energy does not plan to repurchase shares of common stock in 2024, except for shares tendered by employees to satisfy tax withholding obligations on vested restricted stock, which does not impact the available capacity under its stock repurchase authorization.
Capital Expenditures
See Note 26 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 for Dominion Energy’s historical capital expenditures by segment. In March 2024, in connection with the completion of the business review, Dominion Energy announced a $43 billion capital expenditure plan for 2025 through 2029, including the impact of a 50% noncontrolling equity partner funding 50% of the CVOW Commercial Project costs, representing significant investments in decarbonization and reliability. Dominion Energy’s total planned capital expenditures for each segment for 2024 through 2029 are presented in the table below:
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | Total**(3)** | ||||||||||||||||||||||
| (billions) | ||||||||||||||||||||||||||||
| Dominion Energy Virginia(1) | $ | 9.4 | $ | 9.0 | $ | 7.4 | $ | 7.4 | $ | 6.7 | $ | 7.0 | $ | 46.9 | ||||||||||||||
| Dominion Energy South Carolina | 1.3 | 1.1 | 1.0 | 1.2 | 1.3 | 1.3 | 7.2 | |||||||||||||||||||||
| Contracted Energy | 0.5 | 0.3 | 0.2 | 0.3 | 0.2 | 0.2 | 1.7 | |||||||||||||||||||||
| Corporate and Other segment(2) | 0.7 | 0.1 | 0.1 | 0.2 | 0.1 | 0.1 | 1.3 | |||||||||||||||||||||
| Total(3) | $ | 11.8 | $ | 10.5 | $ | 8.8 | $ | 9.0 | $ | 8.2 | $ | 8.7 | $ | 57.0 |
(1)
Includes $3.3 billion in 2024, $2.7 billion in 2025, $0.9 billion in 2026 and $0.1 billion in 2027 for 100% of the CVOW Commercial Project.
(2)
Includes $0.6 billion in 2024 related to gas distribution operations sold or expected to be sold to Enbridge.
(3)
Totals may not foot due to rounding.
Dominion Energy’s planned growth expenditures are subject to approval by the Board of Directors as well as potentially by regulatory bodies based on the individual project and are expected to include significant investments in support of its clean energy profile. See Dominion Energy Virginia, Dominion Energy South Carolina and Contracted Energy in Item 1. Business in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 for additional discussion of various significant capital projects currently under development. The above estimates are based on capital expenditures plans reviewed and endorsed by Dominion Energy’s Board of Directors in early 2024, and subsequently in February 2024 in connection with conclusion of the business review, and are subject to continuing review and adjustment. Actual capital expenditures may vary from these estimates. Dominion Energy may also choose to postpone or cancel certain planned capital expenditures in order to mitigate the need for future debt financings and equity issuances.
Dividends
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. In December 2023, Dominion Energy’s Board of Directors established an annual dividend rate for 2024 of $2.67 per share of common stock, consistent with the 2023 rate. Dividends are subject to declaration by the Board of Directors.
See Note 16 to the Consolidated Financial Statements in this report for additional information regarding Dominion Energy’s outstanding preferred stock and associated dividend rates.
Subsidiary Dividend Restrictions
Certain of Dominion Energy’s subsidiaries may, from time to time, be subject to certain restrictions imposed by regulators or financing arrangements on their ability to pay dividends, or to advance or repay funds, to Dominion Energy. At March 31, 2024, these restrictions did not have a significant impact on Dominion Energy’s ability to pay dividends on its common or preferred stock or meet its other cash obligations.
See Note 21 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 for a description of such restrictions and any other restrictions on Dominion Energy’s ability to pay dividends.
Collateral and Credit Risk
Collateral requirements are impacted by commodity prices, hedging levels, Dominion Energy’s credit ratings and the credit quality of its counterparties. In connection with commodity hedging activities, Dominion Energy is required to provide collateral to counterparties under some circumstances. Under certain collateral arrangements, Dominion Energy may satisfy these requirements by electing to either deposit cash, post letters of credit or, in some cases, utilize other forms of security. From time to time, Dominion Energy may vary the form of collateral provided to counterparties after weighing the costs and benefits of various factors associated with the different forms of collateral. These factors include short-term borrowing and short-term investment rates, the spread over these short-term rates at which Dominion Energy can issue commercial paper, balance sheet impacts, the costs and fees of alternative collateral postings with these and other counterparties and overall liquidity management objectives.
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 at March 31, 2024 for these activities. 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 | Credit Collateral | Net Credit Exposure | ||||||||||
| (millions) | ||||||||||||
| Investment grade(1) | $ | 219 | $ | — | $ | 219 | ||||||
| Non-investment grade(2) | 11 | — | 11 | |||||||||
| No external ratings: | ||||||||||||
| Internally rated—investment grade(3) | 16 | — | 16 | |||||||||
| Internally rated—non-investment grade(4) | 28 | — | 28 | |||||||||
| Total(5) | $ | 274 | $ | — | $ | 274 |
(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 59% of the total net credit exposure.
(2)
The five largest counterparty exposures, combined, for this category represented approximately 4% of the total net credit exposure.
(3)
The five largest counterparty exposures, combined, for this category represented approximately 6% of the total net credit exposure.
(4)
The five largest counterparty exposures, combined, for this category represented approximately 8% of the total net credit exposure.
(5)
Excludes long-term purchase power agreements entered to satisfy legislative or state regulatory commission requirements.
Fuel and Other Purchase Commitments
Dominion Energy is party to various contracts for fuel and purchased power commitments related to both its regulated and nonregulated operations. Total estimated costs for such commitments are presented in the table below. These costs represent estimated annual minimum obligations for various purchased power and capacity agreements and actual costs may differ from amounts presented below depending on actual quantities purchased and prices paid.
| 2024 | 2025 | 2026 | 2027 | 2028 | Total | |||||||||||||||||||
| (millions) | ||||||||||||||||||||||||
| Purchased electric capacity for utility operations | $ | 62 | $ | 62 | $ | 64 | $ | 64 | $ | 64 | $ | 316 | ||||||||||||
| Fuel commitments for utility operations | 1,103 | 715 | 370 | 374 | 434 | 2,996 | ||||||||||||||||||
| Fuel commitments for nonregulated operations | 157 | 77 | 67 | 69 | 56 | 426 | ||||||||||||||||||
| Pipeline transportation and storage(1) | 591 | 564 | 528 | 444 | 394 | 2,521 | ||||||||||||||||||
| Total | $ | 1,913 | $ | 1,418 | $ | 1,029 | $ | 951 | $ | 948 | $ | 6,259 |
(1)
Commitments include $346 million for 2024, $352 million for 2025, $327 million for 2026, $247 million for 2027 and $201 million for 2028 related to gas distribution operations sold or expected to be sold to Enbridge.
Other Material Cash Requirements
In addition to the financing arrangements discussed above, Dominion Energy is party to numerous contracts and arrangements obligating it to make cash payments in future years. Dominion Energy expects current liabilities to be paid within the next twelve months. In addition to the items already discussed, the following represent material expected cash requirements recorded on Dominion Energy’s Consolidated Balance Sheets at March 31, 2024. Such obligations include:
Operating and finance lease obligations – See Note 15 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023;
Regulatory liabilities – See Note 12 to the Consolidated Financial Statements in this report;
AROs – See Note 14 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023;
Employee benefit plan obligations – See Note 20 to the Consolidated Financial Statements in this report and Note 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023;
In addition, Dominion Energy is party to contracts and arrangements which may require it to make material cash payments in future years that are not recorded on its Consolidated Balance Sheets. Such obligations include:
Off-balance sheet leasing arrangements – See Note 15 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023; and
Guarantees – See Note 17 to the Consolidated Financial Statements in this report.
Future Issues and Other Matters
See Item 1. Business, Future Issues and Other Matters in MD&A and Notes 13 and 23 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023 and Notes 13 and 17 to the Consolidated Financial Statements in this report for additional information on various environmental, regulatory, legal and other matters that may impact future results of operations, financial condition and/or cash flows.
Business Review
In November 2022, Dominion Energy announced the commencement of a business review of value-maximizing strategic business actions, alternatives to its current business mix and capital allocation and regulatory options which may assist customers to manage costs and provide greater predictability to its long-term, state-regulated utility value proposition. In April 2023, the legislative process in Virginia was substantially completed resulting in new legislation which shifts $350 million of annual revenue requirement for costs recovered through riders into base rates effective July 2023, eliminates the ability of Virginia Power to utilize CCROs and adjusts the parameters for determining an authorized ROE and revenue sharing. In addition, new legislation allows Virginia Power to apply for the securitization of certain deferred fuel costs as well as seek approval for a noncontrolling equity financing partner for the CVOW Commercial Project. In September 2023, Dominion Energy entered agreements to sell East Ohio, PSNC, Questar Gas and Wexpro to
Enbridge and completed the sale of its 50% noncontrolling limited partner interest in Cove Point to BHE under the agreement signed in July 2023 as discussed in Notes 3 and 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In February 2024, Virginia Power completed the securitization of $1.3 billion of deferred fuel costs as discussed in Notes 13 and 18 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In February 2024, Dominion Energy entered into an agreement to sell a 50% noncontrolling equity interest in the CVOW Commercial Project to Stonepeak, as discussed in Note 10 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, representing the final strategic component of the on-going business review. In March 2024, Dominion Energy concluded the business review, including its long-term financial plan which is reflected within Liquidity and Capital Resources in MD&A in this report.
Proposed and/or Recently Issued EPA Rules
In March 2023, the EPA released a proposed rule to further revise the Effluent Limitations Guidelines for the Steam Electric Power Generating Category, which apply primarily to wastewater discharges at coal and oil steam generating stations. The EPA released a prepublication final rule in April 2024. In April 2023, the EPA released a proposal to tighten aspects of the Mercury and Air Toxics Standards Risk and Technology Review, including the reduction of emissions limits for filterable particulate matter, and requiring the use of continuous emissions monitoring systems to demonstrate compliance. The EPA released a prepublication final rule in April 2024. In May 2023, the EPA proposed a package of rules designed to reduce CO2 emissions from certain fossil fuel-fired electric generating units. The proposal sets standards of performance and emission guidelines for CO2 emissions from new gas-fired combustion turbines and modified coal-fired steam generating units. The proposed rulemaking package also proposes emission guidelines, including presumptive emission limits, for existing coal, oil and gas-fired steam generating units and certain gas-fired combustion turbines. The EPA released a prepublication final rule in April 2024 related to coal, oil and gas-fired steam generating units. Also in May 2023, the EPA released a proposed rule to regulate inactive surface impoundments located at retired generating stations that contained CCR and liquids after October 2015, and certain other inactive or previously closed surface impoundments, landfills or other areas that contain accumulations of CCR. The EPA released a prepublication final rule in April 2024. In addition, in March 2024, the EPA published a final rule strengthening the national air quality annual standard for fine particulate matter. Further, Dominion Energy anticipates that the EPA will release additional rulemakings as part of an overall strategy to identify and mitigate PFAS exposure, beyond the national drinking water standards for PFAS issued in April 2024. Until the EPA ultimately takes final action on the proposed rulemakings and publishes all final rules in the federal register, specific state implementation plans are developed for final rules and/or Dominion Energy has sufficient time to review final rules and develop implementation strategies, Dominion Energy is unable to predict whether or to what extent the new rules will ultimately require additional controls or other actions. The expenditures required to implement additional controls or other actions could have a material impact on Dominion Energy’s financial condition and cash flows.
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 current estimate for the 2.6 GW project’s projected levelized cost of energy is approximately $73/MWh, compared to the initial filing submission of $80-90/MWh. Virginia Power commenced major onshore construction activities in November 2023 following the receipt of a record of decision from BOEM in October 2023 for construction of the CVOW Commercial Project. In January 2024, Virginia Power received the final approval from BOEM authorizing offshore construction and necessary permits from the U.S. Army Corps of Engineers for offshore construction. As a result, Virginia Power anticipates commencing major offshore construction activities in the first half of 2024. The project is expected to be placed in service by the end of 2026. Through March 31, 2024, Virginia Power had incurred approximately $3.5 billion of costs. In April 2024, a motion was filed in the U.S. District Court for the DC Circuit requesting a preliminary injunction in connection with a complaint filed related to the administrative process for certain permits and approvals received. While the Companies expect to prevail, any injunction granted could potentially impact the project timeline and/or costs. As discussed in Note 10 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023, the Companies are subject to a cost sharing mechanism in accordance with the Virginia Commission’s order in December 2022 for incremental construction costs which fall between $10.3 billion and $13.7 billion. Also as discussed in Note 10 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2023, Virginia Power entered into an agreement in February 2024 to sell a 50% noncontrolling interest in the CVOW Commercial Project to Stonepeak through the formation of OSWP. The agreement, subject to applicable regulatory approvals, is expected to provide for funding of 50% of the estimated total project costs of the CVOW Commercial Project, subject to certain adjustments. In March 2024, Virginia Power filed applications with the Virginia and North Carolina Commissions and BOEM for such approvals.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The matters discussed in this Item may contain “forward-looking statements” as described in the introductory paragraphs under Part I., Item 2. MD&A in this report. The reader’s attention is directed to those paragraphs for discussion of various risks and uncertainties that may impact the Companies.
Market Risk Sensitive Instruments and Risk Management
The Companies’ financial instruments, commodity contracts and related financial derivative instruments are exposed to potential losses due to adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity securities prices as described below. Commodity price risk is present in the Companies’ electric operations and Dominion Energy’s natural gas procurement and marketing operations due to the exposure to market shifts in prices received and paid for electricity, natural gas and other commodities. The Companies use commodity derivative contracts to manage price risk exposures for these operations. Interest rate risk is generally related to their outstanding debt and future issuances of debt. In addition, the Companies are exposed to investment price risk through various portfolios of equity and debt securities. The Companies’ exposure to foreign currency exchange rate risk is related to certain fixed price contracts associated with the CVOW Commercial Project which it manages through foreign currency exchange rate derivatives. The contracts include services denominated in currencies other than the U.S. dollar for approximately €2.6 billion and 5.1 billion kr. In addition, certain of the fixed price contracts, approximately €0.7 billion, contain commodity indexing provisions linked to steel.
The following sensitivity analysis estimates the potential loss of future earnings or fair value from market risk sensitive instruments over a selected time period due to a 10% change in commodity prices, interest rates or foreign currency exchange rates.
Commodity Price Risk
To manage price risk, the Companies hold commodity-based derivative instruments held for non-trading purposes associated with purchases and sales of electricity, natural gas and other energy-related products.
The derivatives used to manage commodity price risk are executed within established policies and procedures and may include instruments such as futures, forwards, swaps, options and FTRs that are sensitive to changes in the related commodity prices. For sensitivity analysis purposes, the hypothetical change in market prices of commodity-based derivative instruments is determined based on models that consider the market prices of commodities in future periods, the volatility of the market prices in each period, as well as the time value factors of the derivative instruments. Prices and volatility are principally determined based on observable market prices.
A hypothetical 10% increase in commodity prices would have resulted in a decrease of $49 million and $62 million in the fair value of Dominion Energy’s commodity-based derivative instruments as of March 31, 2024 and December 31, 2023, respectively.
A hypothetical 10% increase in commodity prices would have resulted in a decrease of $26 million and $24 million in the fair value of Virginia Power’s commodity-based derivative instruments as of March 31, 2024 and December 31, 2023, respectively.
The impact of a change in energy commodity prices on the Companies’ commodity-based derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net losses from commodity-based financial derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction, such as revenue from physical sales of the commodity.
Interest Rate Risk
The Companies manage their interest rate risk exposure predominantly by maintaining a balance of fixed and variable rate debt. For variable rate debt outstanding for Dominion Energy, a hypothetical 10% increase in market interest rates would result in a $30 million and $56 million decrease in earnings at March 31, 2024 and December 31, 2023, respectively. For variable rate debt outstanding for Virginia Power, a hypothetical 10% increase in market interest rates would result in a less than $1 million and $5 million decrease in earnings at March 31, 2024 or December 31, 2023, respectively.
The Companies also use interest rate derivatives, including forward-starting swaps, interest rate swaps and interest rate lock agreements to manage interest rate risk. As of March 31, 2024, Dominion Energy and Virginia Power had $14.0 billion and $2.3 billion, respectively, in aggregate notional amounts of these interest rate derivatives outstanding. A hypothetical 10% decrease in market interest rates would have resulted in a decrease of $85 million and $101 million, respectively, in the fair value of Dominion Energy and Virginia Power’s interest rate derivatives at March 31, 2024. As of December 31, 2023, Dominion Energy and Virginia Power had $16.3 billion and $3.3 billion, respectively, in aggregate notional amounts of these interest rate derivatives outstanding. A
hypothetical 10% decrease in market interest rates would have resulted in a decrease of $120 million and $151 million, respectively, in the fair value of Dominion Energy and Virginia Power’s interest rate derivatives at December 31, 2023.
The impact of a change in interest rates on the Companies’ interest rate-based financial derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net gains and/or losses from interest rate derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction.
Foreign Currency Exchange Rate Risk
The Companies utilize foreign currency exchange rate swaps to economically hedge the foreign currency exchange risk associated with fixed price contracts related to the CVOW Commercial Project denominated in foreign currencies. As of March 31, 2024 and December 31, 2023, Dominion Energy had €1.9 billion and €2.1 billion, respectively, in aggregate notional amounts of these foreign currency forward purchase agreements outstanding. A hypothetical 10% increase in exchange rates would have resulted in a decrease of $179 million and $202 million in the fair value of Dominion Energy’s foreign currency swaps at March 31, 2024 and December 31, 2023, respectively.
The impact of a change in exchange rates on the Companies’ foreign currency-based financial derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net gains and/or losses from foreign exchange derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction.
Investment Price Risk
The Companies are subject to investment price risk due to securities held as investments in nuclear decommissioning and rabbi trust funds that are managed by third-party investment managers. These trust funds primarily hold marketable securities that are reported in the Companies’ Consolidated Balance Sheets at fair value.
Dominion Energy recognized net investment gains (including investment income) on nuclear decommissioning and rabbi trust investments of $529 million, $252 million and $879 million for the three months ended March 31, 2024 and 2023 and the year ended December 31, 2023, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value. Dominion Energy recorded in AOCI and regulatory liabilities, a net decrease in unrealized gains on debt investments of $55 million for the three months ended March 31, 2024 and a net increase of $117 million and $56 million for the year ended December 31, 2023 and the three months ended March 31, 2023, respectively.
Virginia Power recognized net investment gains (including investment income) on nuclear decommissioning and rabbi trust investments of $276 million, $123 million and $448 million for the three months ended March 31, 2024 and 2023 and the year ended December 31, 2023, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value. Virginia Power recorded in AOCI and regulatory liabilities, a net decrease in unrealized gains on debt investments of $32 million for the three months ended March 31, 2024 and a net increase of $35 million and $66 million for the for the three months ended March 31, 2023 and the year ended December 31, 2023, respectively.
Dominion Energy sponsors pension and other postretirement employee benefit plans that hold investments in trusts to fund employee benefit payments. Virginia Power employees participate in these plans. 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.
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