Dominion Energy, Inc. Form 10-Q Summary
Business context and reporting period
Dominion Energy, Inc. filed a combined Form 10-Q with Virginia Electric and Power Company for the quarter and six months ended June 30, 2021. Dominion operates regulated electric and gas utilities, contracted electric generation and a noncontrolling interest in Cove Point. Virginia Power is Dominion’s wholly owned regulated electric subsidiary.
The filing reflects the November 2020 sale of substantially all gas transmission and storage operations to Berkshire Hathaway Energy. The remaining Q-Pipe Group continued to be classified as held for sale and discontinued operations at June 30, 2021.
Key financial metrics
| Dominion Energy consolidated | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $3.038 billion | $3.106 billion | $6.908 billion | $7.044 billion |
| Income from operations | $363 million | $804 million | $1.241 billion | $1.172 billion |
| Net income from continuing operations attributable to Dominion | $259 million | $863 million | $1.239 billion | $397 million |
| Net income attributable to Dominion | $285 million | $(1.169) billion | $1.293 billion | $(1.439) billion |
| Diluted EPS | $0.33 | $(1.52) | $1.56 | $(1.83) |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $2.240 billion | $3.136 billion |
| Capital expenditures and property additions | Not separately provided | Not separately provided | $2.664 billion | $2.915 billion |
The consolidated operating margin was approximately 12% in the second quarter and 18% for the first six months. Continuing-operations net income margin attributable to Dominion was approximately 9% in the quarter and 18% year to date; these are derived percentages and are affected by regulatory, investment and derivative items.
At June 30, 2021, Dominion had $240 million of balance-sheet cash, $304 million of cash, restricted cash and equivalents for cash-flow purposes, total assets of $98.0 billion and total equity of $26.9 billion. Debt included $3.028 billion of short-term debt, $31.288 billion of long-term debt, $2.162 billion of junior subordinated notes and $250 million of supplemental credit facility borrowings. Dominion had $3.265 billion of available capacity under its $6.0 billion joint revolving credit facility, after commercial paper and letters of credit.
Virginia Power reported Q2 revenue of $1.741 billion, net income of $414 million and six-month revenue of $3.571 billion, compared with $1.805 billion and $3.735 billion, respectively, in the prior-year periods. Six-month net income was $788 million versus $210 million. Virginia Power generated $1.284 billion of operating cash flow and used $1.702 billion in investing activities during the first six months.
Material changes versus the prior comparable period
- Dominion’s Q2 net income improved by $1.454 billion and six-month net income by $2.732 billion, primarily because 2020 included substantial discontinued-operation losses related to cancellation of the Atlantic Coast Pipeline and Supply Header Project.
- Revenue declined 2% in both the quarter and year to date. Q2 revenue was pressured by unfavorable Millstone pricing and hedging, lower electric customer sales, lower Virginia Power riders and reduced PJM off-system sales.
- Q2 operating income fell $441 million because of higher impairment and other charges, lower investment gains and higher interest expense, despite lower fuel purchases and higher equity-method earnings.
- Six-month impairment and other charges decreased to $416 million from $812 million, reflecting the absence of the 2020 Virginia generation-retirement charge and a $130 million benefit from reducing the CCRO reserve. These benefits were partly offset by South Carolina rate-case charges, SCANA-related litigation charges, customer-balance forgiveness, office-lease termination and software-asset write-offs.
- Dominion’s six-month operating cash flow decreased $896 million, including a $560 million reduction from discontinued operations. Investing cash use increased primarily because of higher contributions to equity-method affiliates, including Atlantic Coast Pipeline.
- Virginia Power’s Q2 earnings declined 16%, mainly because of lower electric retail sales and lower nuclear trust investment gains. Its six-month earnings increased substantially because 2020 included charges for planned early retirement of generating facilities.
Guidance, outlook, commentary, risks and unusual items
- No explicit consolidated earnings guidance was provided in the filing text.
- Dominion terminated the planned Q-Pipe sale to Berkshire Hathaway Energy in July 2021 because of uncertainty regarding Hart-Scott-Rodino approval. It repaid the $1.3 billion deposit using a new approximately $1.3 billion term loan, maturing in December 2021 with an extension option to June 2022. Dominion intends to pursue an alternative sale, targeted by year-end 2021, and would use net proceeds to repay the term loan.
- Dominion agreed to sell its remaining controlling interest in certain nonregulated solar projects for approximately $450 million, subject to approvals, and expected to recognize an approximately $25 million pretax gain at closing.
- The proposed Kewaunee sale remained unclassified as held for sale because required regulatory approvals were uncertain. If classified at June 30, 2021, Dominion estimated a loss of approximately $725 million pretax, or $570 million after tax.
- Dominion recorded a $44 million pretax charge related to revised recovery estimates for Kewaunee spent-nuclear-fuel costs and a $20 million pretax write-off of nonregulated retail software assets.
- South Carolina’s electric rate-case settlement produced $249 million of charges in Q2, including a $237 million regulatory-asset write-off, and established a $62 million base-rate increase with a 9.50% authorized earned ROE, subject to the final order described in the filing.
- Virginia Power proposed significant grid-transformation, transmission, renewable generation, battery storage and coal-ash closure investments. The Coastal Virginia Offshore Wind commercial project remained preliminarily estimated at approximately $8 billion and targeted for completion by the end of 2026; inflation and final transmission routing could affect costs.
- Principal risks include regulatory and rate decisions, environmental and carbon requirements, nuclear operations and decommissioning, commodity and interest-rate volatility, extreme weather, cybersecurity, capital-market access, counterparty risk, litigation and the timing or terms of asset dispositions.
Most important facts for investors to verify
- Reconcile reported earnings with continuing operations, discontinued operations and large special items, particularly the 2020 Atlantic Coast Pipeline charges and 2021 South Carolina rate-case charges.
- Monitor Q-Pipe divestiture timing, the $1.3 billion term loan maturity and the effect of any replacement sale price on leverage and liquidity.
- Assess Dominion’s cash-flow conversion, capital spending, dividend funding and reliance on short-term debt and revolving credit capacity.
- Review potential Kewaunee sale losses, decommissioning trust performance and nuclear-related obligations.
- Track regulatory approvals and cost recovery for offshore wind, solar, battery storage, grid transformation, coal-ash closure and transmission projects.
- Evaluate unresolved SCANA-related litigation, regulatory proceedings, environmental obligations and guarantees, including Dominion’s reported $3.781 billion of subsidiary-guarantee exposure.