Dominion Energy, Inc. 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023, with quarterly information for the fourth quarter. The combined filing covers Dominion Energy, Inc. and wholly owned Virginia Electric and Power Company. Dominion Energy operates regulated electric utilities, Dominion Energy South Carolina, Contracted Energy and corporate activities, serving approximately 7 million customers across 15 states.
Business context and strategic developments
- Dominion Energy owned or operated approximately 29.5 GW of electric generation capacity, 10,600 miles of electric transmission lines, 79,300 miles of electric distribution lines and 94,800 miles of gas distribution mains at year-end.
- The company continued its comprehensive business review and agreed to sell East Ohio, PSNC and Questar Gas/Wexpro to Enbridge for aggregate cash consideration of approximately $9.5 billion plus assumed debt of approximately $4.6 billion. The transactions were expected to close in 2024, subject to regulatory and other conditions.
- Dominion Energy completed the sale of its remaining 50% interest in Cove Point to Berkshire Hathaway Energy for approximately $3.3 billion in cash, recognizing a $626 million pretax gain and a $348 million after-tax gain.
- Approximately 90% of expected earnings from primary operating segments are expected to come from state-regulated, primarily electric utility businesses.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $14.393 billion | $13.938 billion | +3% |
| Income from operations | $3.414 billion | $1.433 billion | +138% |
| Net income attributable to Dominion Energy | $1.994 billion | $1.321 billion | +51% |
| Diluted EPS | $2.29 | $1.49 | +$0.80 |
| Net income from continuing operations | $2.157 billion | $427 million | + $1.730 billion |
| Net loss from discontinued operations | $(163) million | $894 million income | Unfavorable $1.057 billion |
| Net cash provided by operating activities | $6.572 billion | $3.700 billion | +$2.872 billion |
| Capital expenditures and property additions | $10.211 billion | $7.591 billion | +$2.620 billion |
| Cash, restricted cash and equivalents | $301 million | $341 million | $(40) million |
Operating margin, calculated from reported operating income and revenue, was approximately 23.7% in 2023 versus approximately 10.3% in 2022. The improvement largely reflects the absence of major 2022 impairment and regulatory charges, higher Millstone-related market revenue and higher nuclear trust investment gains. These benefits were partly offset by higher depreciation, interest expense and taxes.
Debt, liquidity and capital structure
- Total Dominion Energy long-term debt was $33.248 billion at December 31, 2023, compared with $34.584 billion at year-end 2022. Current securities due within one year were $6.589 billion, and short-term debt was $3.956 billion.
- Dominion Energy had a $6.0 billion joint revolving credit facility, with $3.547 billion of commercial paper, $16 million of letters of credit and $2.437 billion of available capacity at year-end.
- Dominion Energy’s calculated debt-to-total-capital ratio was 61.6%, below the 67.5% maximum permitted under applicable credit agreements. No covenant defaults were reported.
- Operating cash flow increased substantially, primarily from deferred fuel and purchased-gas cost recoveries, lower customer refund payments, working-capital changes and lower income-tax payments. Cash flow remained below capital investment needs, with investing activities using $7.207 billion.
- The company declared a 2024 annual common dividend rate of $2.67 per share, unchanged from 2023. Management stated that it did not plan common-stock repurchases in 2024 other than employee tax-withholding transactions.
- Credit ratings were BBB+ or equivalent from Fitch and Moody’s and BBB or equivalent from S&P; S&P’s outlook was negative while Fitch and Moody’s were stable.
Segment performance and material changes
| Segment net income attributable to Dominion Energy | 2023 | 2022 | Change |
|---|---|---|---|
| Dominion Energy Virginia | $1.684 billion | $1.905 billion | $(221) million |
| Dominion Energy South Carolina | $377 million | $505 million | $(128) million |
| Contracted Energy | $99 million | $188 million | $(89) million |
| Corporate and Other | $(166) million | $(1.277) billion | +$1.111 billion |
- Dominion Energy Virginia: Net income declined 12%, primarily due to milder weather, the effect of Virginia legislation that moved approximately $350 million of annual rider revenue requirements into base rates, higher interest expense and depreciation, and lower renewable-energy tax credits. These factors were partly offset by higher rider equity returns, lower storm costs and the absence of 2022 RGGI and fuel-settlement charges.
- Dominion Energy South Carolina: Net income declined 25%, reflecting unfavorable weather, customer-elected rate impacts, lower gains on property sales, higher depreciation and interest expense, and lower electric deliveries.
- Contracted Energy: Net income declined 47%, primarily because Millstone experienced two planned refueling outages and higher unplanned outage impacts. Electricity supplied declined 17% to 14.8 million MWh.
- Corporate and Other: Results improved mainly because 2022 included a $685 million after-tax impairment of nonregulated solar assets and a $513 million after-tax loss on the Kewaunee sale. 2023 nevertheless included an $825 million charge for deferred taxes associated with businesses classified as held for sale and a $286 million after-tax goodwill impairment associated with the East Ohio and Questar Gas transactions.
Fourth-quarter items
- Fourth-quarter 2023 included a $323 million after-tax impairment of goodwill associated with the East Ohio and Questar Gas transactions.
- Fourth-quarter 2023 also included a $51 million after-tax impairment related to nonregulated solar development assets, including Birdseye and the Madison project.
- Fourth-quarter results benefited from investment gains in nuclear decommissioning trusts and derivative-related gains, but quarterly results remain highly sensitive to weather, market prices and outage timing.
- The filing does not present a separate fourth-quarter revenue or earnings comparison in the provided text beyond the unaudited quarterly table.
Outlook, guidance and major projects
- Management expected 2024 net income per share to increase versus 2023, driven by the absence of charges associated with the Enbridge transactions, more normal weather, lower Millstone outage impacts, debt reduction using sale proceeds, fuel-cost securitization and growth in electric utility projects.
- Offsets include the expected loss of earnings from gas businesses sold to Enbridge, the absence of Cove Point earnings and the 2023 Cove Point gain, and the full-year effect of Virginia rider consolidation into base rates.
- Planned 2024 capital expenditures totaled approximately $11.8 billion: $9.4 billion for Dominion Energy Virginia, $1.3 billion for Dominion Energy South Carolina, $0.5 billion for Contracted Energy and $0.7 billion for Corporate and Other.
- The Coastal Virginia Offshore Wind Commercial Project is a 2.6 GW project with estimated total costs of approximately $9.8 billion excluding financing costs in the latest filing. Dominion Energy had incurred approximately $2.9 billion through year-end 2023 and expected commercial operation by the end of 2026.
- In February 2024, Virginia Power agreed to sell Stonepeak a 50% noncontrolling interest in the offshore wind project. The transaction was expected to provide approximately $3 billion of proceeds, subject to approvals and closing conditions.
- In February 2024, Virginia Power completed a $1.3 billion securitization of deferred fuel costs. Dominion Energy also anticipated approximately $4 billion of long-term debt issuance in 2024, excluding opportunistic financings and the fuel securitization.
- Dominion Energy continues to target net-zero Scope 1, Scope 2 and specified Scope 3 emissions by 2050, with investment in solar, offshore wind, nuclear license extensions, storage, grid modernization and renewable natural gas.
Principal risks, contingencies and unusual items
- Regulatory recovery risk is significant. Future earnings depend on state and FERC approval of rates, riders and recovery of construction, fuel, environmental and retirement costs. Virginia’s new biennial review process may result in customer credits or rate reductions if earnings exceed specified thresholds.
- The offshore wind project faces construction, permitting, supply-chain, vessel availability, foreign-currency, steel-price, marine-environment and performance risks. Cost recovery is limited under the Virginia Commission’s cost-sharing mechanism, particularly above $11.3 billion and $13.7 billion thresholds.
- Environmental compliance costs may increase from greenhouse-gas, coal-ash, wastewater, PFAS, ozone, air-quality and pipeline-safety regulation. Dominion Energy incurred $269 million of environmental protection and monitoring expense in 2023 and expected approximately $265 million in 2024.
- Nuclear operations create exposure to outages, regulation, decommissioning, spent-fuel disposal, insurance assessments and potential changes in NRC requirements. Dominion Energy’s nuclear decommissioning trusts totaled $6.946 billion at year-end, compared with nuclear decommissioning AROs of approximately $1.9 billion.
- Interest-rate and refinancing risk increased with significant 2024 maturities, including $4.75 billion of term loans and $450 million under the sustainability revolving credit agreement, in addition to other debt maturities.
- Cybersecurity, severe weather, hurricanes, supply-chain disruption, labor constraints, counterparty defaults and wholesale-market volatility could materially affect operations, liquidity and cash flow. Management reported no cybersecurity incident during the prior three years that materially affected the business or financial condition.
- Dominion Energy changed its investment-tax-credit accounting from the flow-through method to the deferral method, retrospectively applied to prior periods. The auditors issued unqualified opinions and identified rate-regulated accounting as the critical audit matter.
Investor verification points
- Verify closing status, regulatory approvals, final purchase-price adjustments and tax consequences for the East Ohio, PSNC and Questar Gas/Wexpro sales.
- Verify whether the Stonepeak offshore-wind transaction closes, the amount of proceeds received, final ownership and the effect on project funding and consolidated debt.
- Reconcile 2024 earnings growth expectations to the loss of disposed gas operations, rider consolidation, Millstone outage timing, weather and interest expense.
- Monitor CVOW construction costs, capacity-factor performance, cost-sharing exposure and remaining foreign-currency and commodity-indexed commitments.
- Review debt maturities, refinancing plans, credit-rating changes, covenant headroom and the application of sale proceeds to term-loan repayment.
- Assess regulatory treatment of fuel securitization, Virginia biennial-review credits, rider recovery and large regulatory assets, including $9.665 billion of Dominion Energy regulatory assets at year-end.
- Separate recurring utility earnings from volatile trust-investment gains, derivative mark-to-market changes, discontinued operations, impairments and other unusual items.