Dominion Energy, Inc. — 2023 Q1 Form 10-Q Summary
Business context and reporting period
Dominion Energy filed a combined Form 10-Q with its wholly owned subsidiary, Virginia Electric and Power Company, for the three months ended March 31, 2023. Operations include regulated electric utilities in Virginia and South Carolina, regulated gas distribution and storage, nonregulated generation and a 50% noncontrolling interest in Cove Point. The financial statements are unaudited and should be read with the 2022 Form 10-K.
Key financial metrics
| Dominion Energy | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $5.252 billion | $4.279 billion | +$973 million |
| Income from operations | $1.445 billion | $976 million | +$469 million |
| Operating margin | 27.5% | 22.8% | Improved |
| Net income attributable to Dominion Energy | $997 million | $711 million | +40% |
| Diluted EPS | $1.17 | $0.83 | +$0.34 |
| Net margin | 19.0% | 16.6% | Improved |
| Cash flow from operations | $2.097 billion | $1.125 billion | +$972 million |
| Capital expenditures and property additions | $2.220 billion | $1.622 billion | +$598 million |
| Cash, restricted cash and equivalents at March 31 | $1.956 billion | $594 million | +$1.362 billion |
At March 31, 2023, total assets were $105.325 billion, total liabilities were $76.969 billion and shareholders’ equity was $28.356 billion. Current liabilities included $4.352 billion of securities due within one year and $3.546 billion of short-term debt. Long-term debt totaled $40.158 billion, including $900 million of supplemental credit facility borrowings. Dominion Energy had $3.157 billion of commercial paper and $154 million of letters of credit outstanding, with $2.689 billion of available capacity under its $6.0 billion joint revolving credit facility.
Net cash provided by operating activities exceeded capital expenditures by approximately $123 million before other investing activity. Financing cash flow was $1.820 billion, supported by $2.5 billion of 364-day term-loan borrowings, $450 million of supplemental facility borrowings and $1.5 billion of long-term debt issuance, partly offset by $2.197 billion of long-term debt repayments and $557 million of common dividends.
Virginia Power reported operating revenue of $2.384 billion versus $2.167 billion, net income of $353 million versus $357 million, and operating cash flow of $1.948 billion versus $685 million. Its March 31, 2023 balance sheet included $16.123 billion of long-term debt, $1.010 billion of short-term debt and only $22 million of cash, restricted cash and equivalents.
Material changes versus the prior comparable period
- Dominion Energy earnings increased primarily because of higher nuclear decommissioning trust investment gains, favorable economic hedging results, lower storm restoration costs and the absence of the $87 million deferred-tax charge related to Hope’s held-for-sale classification in 2022.
- Operating revenue rose 23%, driven by higher commodity-related revenue, Millstone market-price and hedging effects, Virginia rider recovery, gas rate-case impacts and customer growth. Weather reduced electric and gas customer sales.
- Other income increased by $238 million, reflecting investment gains in 2023 compared with investment losses in 2022. Interest and related charges increased by $412 million, primarily because of derivative mark-to-market changes, higher interest rates and greater borrowings.
- Dominion Energy recorded a $91 million pre-tax impairment charge, or $68 million after tax, to reduce a corporate office building to an estimated fair value of $35 million. The property was classified as held for sale.
- Contracted Assets earnings increased by $55 million, while Dominion Energy Virginia, Gas Distribution and Dominion Energy South Carolina contributions declined by $132 million, $16 million and $18 million, respectively.
- Virginia Power net income declined slightly despite higher revenue, principally because weather reduced customer sales; lower storm restoration costs substantially offset that pressure.
Guidance, outlook, commentary and unusual items
- Management reported no material change to Dominion Energy’s 2023 outlook as presented in the 2022 Form 10-K. The filing does not provide a new consolidated earnings guidance figure.
- Dominion Energy’s business review, announced in November 2022, remained ongoing and was expected to conclude in the third quarter of 2023. Potential divestitures or other recommendations could materially affect future results, financial condition or cash flows.
- Virginia legislation enacted in April 2023 shifts approximately $350 million of annual rider revenue requirements into base rates beginning July 2023, changes biennial rate reviews and revenue-sharing provisions, eliminates use of CCROs and permits potential securitization of certain deferred fuel costs. Management expects the rider changes to reduce 2023 net income, but the ultimate impact was not yet estimated.
- Virginia Power’s 2023 Biennial Review will use a 9.70% authorized ROE. The company also proposed securitization of up to an estimated $1.3 billion of deferred fuel costs; the matter was pending.
- Virginia Power received approval for eight utility-scale solar projects totaling approximately 474 MW and 16 MW of energy storage, with estimated aggregate costs of approximately $1.2 billion and expected in-service dates in 2024–2025.
- Dominion Energy entered into an agreement to acquire the 83 MW Foxhound solar development project, expected to cost approximately $205 million and begin operations in 2024. The filing states an impairment charge may be required upon closing.
- Key risks include weather, commodity and interest-rate volatility, financing and credit ratings, regulatory and rate decisions, environmental compliance, nuclear operations, cybersecurity, construction and permitting risks, CVOW Commercial Project execution and litigation related to the SCANA combination.
- Environmental rulemaking involving ozone, wastewater, PFAS and mercury and air toxics could require material additional controls. The filing states that potential impacts cannot yet be estimated clearly.
- Dominion Energy had maximum subsidiary guarantee exposure of $4.438 billion, including $2.710 billion for commodity transactions, $245 million for nuclear obligations and $214 million for solar projects. Cove Point guarantees included $1.9 billion of cumulative maximum exposure for two guarantees, with two additional guarantees having no maximum limit.
- Standard & Poor’s affirmed Dominion Energy’s ratings in April 2023 but revised the outlook from stable to negative. Management could not predict the effect on borrowing costs, liquidity or collateral requirements.
Most important facts for investors to verify
- Reconcile the $997 million of quarterly net income to recurring operating performance, particularly the $252 million of net investment gains, economic hedging results and the $68 million after-tax office-building impairment.
- Assess leverage, upcoming maturities and refinancing needs, including $4.352 billion of securities due within one year, the $2.5 billion term loan maturing in January 2024 and variable-rate exposure.
- Monitor the impact of Virginia’s April 2023 legislation, rider consolidation, the 2023 Biennial Review and any deferred-fuel securitization decision.
- Evaluate funding requirements and cost recovery for CVOW, grid transformation, renewable generation and other planned capital projects.
- Review regulatory, environmental and litigation contingencies for potential liabilities not yet estimable, including SCANA-related matters, nuclear obligations and emissions or wastewater requirements.
- Confirm the outcome of Dominion Energy’s strategic business review and any resulting asset sales, equity financing or changes to capital allocation.