Dominion Energy, Inc. 2020 Form 10-K Summary
Business context and reporting period
This combined Form 10-K covers Dominion Energy, Inc. and wholly owned Virginia Electric and Power Company for the fiscal year ended December 31, 2020. Dominion Energy operates regulated electric and natural gas utilities, contracted generation and renewable assets across 16 states, serving more than 7 million customers. At year-end, the portfolio included approximately 30.2 GW of electric generating capacity, 10,500 miles of electric transmission lines, 85,600 miles of electric distribution lines and 94,200 miles of gas distribution mains.
Beginning in September 2020, management reported four primary segments: Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina and Contracted Assets, plus Corporate and Other. The filing is an annual report rather than a quarterly filing, although unaudited fourth-quarter information is provided.
Key financial metrics
| Metric | 2020 | 2019 | Change or observation |
|---|---|---|---|
| Operating revenue | $14.172 billion | $14.401 billion | Down 2% |
| Income from operations | $2.055 billion | $1.544 billion | Operating margin approximately 14.5% versus 10.7% |
| Net income from continuing operations attributable to Dominion Energy | $1.583 billion | $653 million | Continuing-operations margin approximately 11.2% |
| Net income attributable to Dominion Energy | $(401) million | $1.358 billion | Loss driven primarily by discontinued operations |
| Diluted EPS from continuing operations | $1.82 | $0.75 | Improved materially |
| Diluted EPS attributable to Dominion Energy | $(0.57) | $1.62 | Reduced by discontinued-operations losses |
| Cash flow from operating activities | $5.227 billion | $5.204 billion | Essentially stable |
| Capital expenditures and other property additions | $6.020 billion | $4.980 billion | Increased 21% |
| Cash, restricted cash and equivalents | $247 million | $269 million | Year-end balance |
| Total assets | $95.905 billion | $103.823 billion | Declined following dispositions |
| Long-term debt | $33.957 billion | $28.998 billion | Increased $4.959 billion |
Dominion Energy generated $5.227 billion of operating cash flow, used $2.916 billion in investing activities and $2.333 billion in financing activities. The company had $5.273 billion of capacity available under its $6.0 billion joint revolving credit facility, with $627 million of commercial paper and $100 million of letters of credit outstanding. Its actual debt-to-total-capital ratio under the revolving credit agreement was 55.2%, below the 67.5% maximum.
Segment net income contributions were $1.891 billion from Dominion Energy Virginia, $560 million from Gas Distribution, $419 million from Dominion Energy South Carolina and $402 million from Contracted Assets. Corporate and Other reported a $(3.673) billion loss, largely reflecting discontinued operations and other specific items.
Material changes versus the prior comparable period
- Dominion Energy completed the GT&S Transaction with Berkshire Hathaway Energy in November 2020, receiving approximately $2.7 billion of cash and transferring approximately $5.3 billion of related long-term debt. The sold operations were presented as discontinued operations.
- Dominion Energy entered into the Q-Pipe Transaction to sell remaining gas transmission and storage assets for $1.3 billion of cash consideration plus approximately $430 million of assumed debt. Closing was expected in early 2021, subject to regulatory and other conditions.
- The Atlantic Coast Pipeline Project was canceled in July 2020 after permitting delays, legal uncertainty and rising expected capital requirements. Dominion Energy recorded an equity-method loss of approximately $2.3 billion, with the related impact reported in discontinued operations.
- Discontinued operations produced a $(1.984) billion loss attributable to Dominion Energy in 2020, compared with $705 million of income in 2019. This more than offset the improved continuing-operations result.
- Dominion Energy recorded significant 2020 charges, including $559 million after tax for planned early retirement of certain Virginia generation facilities, $496 million after tax for nonregulated solar impairments and a Fowler Ridge contract termination, $191 million after tax for expected Virginia customer credits and arrears forgiveness, and $93 million after tax for acquired SCANA litigation.
- Dominion Energy repurchased 38.9 million common shares for approximately $3.1 billion during 2020. Year-end shares outstanding were approximately 806 million, compared with 838 million at year-end 2019.
- The annual common dividend was reduced from $3.45 per share for 2020 to a 2021 annualized rate of $2.52 per share, a 33% reduction, reflecting the sale of gas transmission and storage operations and a revised payout target.
- Dominion Energy increased capital investment in regulated infrastructure and renewable generation. Planned capital expenditures were approximately $8.1 billion for 2021, $7.4 billion for 2022 and $8.7 billion for 2023.
Guidance, outlook, risks and unusual items
Management expected 2021 net income per share to increase primarily because 2020 charges related to the Atlantic Coast Pipeline cancellation, solar impairments, early generation retirements, Fowler Ridge, Virginia customer credits and arrears forgiveness would not recur. Additional expected benefits included lower SCANA-related costs, growth projects and share-count reduction from 2020 repurchases. Offsetting factors included the loss of operations sold to Berkshire Hathaway Energy, higher Virginia electric capacity expenses and higher operating and maintenance costs.
Dominion Energy targets net-zero emissions by 2050, including carbon and methane emissions from electric generation and natural gas operations. The Virginia Clean Economy Act requires a transition to 100% zero-carbon electric generation by the end of 2045 and supports substantial solar, wind, storage, grid modernization and energy-efficiency investment. The company expects significant regulated capital spending on solar, offshore wind, nuclear license extensions, electric-grid upgrades, gas-system modernization and renewable natural gas.
- Regulatory risk remains material because earnings depend on recovery of costs and authorized returns through state and FERC rate proceedings. Virginia Power recorded a $130 million charge for expected customer benefits through the customer credit reinvestment offset mechanism.
- COVID-19 affected customer usage, collections, operating costs and construction activities. Virginia legislation required forgiveness of certain overdue customer balances, resulting in a $127 million pre-tax charge.
- Environmental and climate requirements may require substantial capital and operating expenditures, accelerate generation retirements or make assets uneconomic. Coal ash closure obligations and related asset retirement obligations were significant.
- Construction and execution risk is elevated for large offshore wind, solar, transmission, grid-modernization and nuclear-license projects. Cost recovery remains subject to regulatory approval and prudency determinations.
- Dominion Energy reported $7.4 billion of goodwill at year-end and no goodwill impairment in 2020, but future impairments remain possible if cash-flow, discount-rate or market assumptions change.
- Nuclear operations expose the company to outage, safety, decommissioning, spent-fuel, insurance and regulatory risks. Dominion Energy held $6.9 billion in nuclear decommissioning trust assets against approximately $1.9 billion of nuclear decommissioning asset-retirement obligations.
- The company disclosed ongoing SCANA-related litigation and governmental matters, including shareholder, ratepayer, securities, regulatory and derivative proceedings. Reserves for SCANA legal proceedings were $208 million at December 31, 2020.
- Dominion Energy had guarantees with aggregate disclosed subsidiary maximum exposure of $3.527 billion, in addition to significant Cove Point guarantees and obligations related to Atlantic Coast Pipeline.
- Two off-balance-sheet construction leasing arrangements were notable: a corporate office project with $61 million funded at year-end and an offshore wind installation vessel project with $187 million funded at year-end. Termination or asset-sale shortfalls could require payments to financing participants.
Most important facts for investors to verify
- Reconcile the $1.583 billion continuing-operations profit with the $(401) million consolidated net loss and evaluate the sustainability of earnings after discontinued operations are removed.
- Confirm completion, proceeds, debt transfer and final accounting for the Q-Pipe Transaction, including the $1.3 billion deposit and expected gain.
- Assess leverage, refinancing needs and credit-rating sensitivity following the increase in long-term debt and the substantial 2021–2023 capital program.
- Review the basis and regulatory treatment of the $130 million CCRO charge, early-retirement costs, coal ash obligations and related regulatory assets.
- Evaluate the 33% dividend reduction against expected post-divestiture cash flows, payout targets and capital requirements.
- Monitor Virginia Clean Economy Act implementation, RGGI costs, renewable project approvals, offshore wind execution and nuclear license-extension outcomes.
- Review remaining SCANA litigation, tax matters, rate cases and the potential for additional settlements or regulatory disallowances.
- Examine Atlantic Coast Pipeline wind-down obligations, the $1.1 billion liability to the project and the status of Dominion Energy’s guarantees.
- Verify the effect of share repurchases, preferred securities and 2019 Equity Units on future diluted share count and earnings per share.
The filing states that Deloitte & Touche LLP issued unqualified opinions on Dominion Energy’s consolidated financial statements and internal control over financial reporting. Virginia Power’s financial statements also received an unqualified audit opinion, while its internal-control report was provided by management without auditor attestation under the applicable exemption.