Business Context and Reporting Period
Dominion Energy, Inc. filed a combined unaudited Form 10-Q with its wholly owned subsidiary, Virginia Electric and Power Company, for the quarter and six months ended June 30, 2023. Dominion operates regulated electric and gas utilities, nonregulated generation and renewable development businesses, and equity-method investments, including Cove Point. The filing was signed August 4, 2023.
Key Financial Metrics
| Dominion Energy | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|
| Operating revenue | $3.794 billion | $3.596 billion | $9.046 billion | $7.875 billion |
| Operating income (loss) | $722 million | $(318) million | $2.167 billion | $658 million |
| Net income attributable to Dominion | $599 million | $(453) million | $1.596 billion | $258 million |
| Diluted EPS | $0.69 | $(0.58) | $1.86 | $0.25 |
| Operating margin | 19.0% | (8.8)% | 24.0% | 8.4% |
| Net margin | 15.8% | (12.6)% | 17.6% | 3.3% |
- Net cash provided by operating activities was $3.194 billion for the six months ended June 30, 2023, compared with $1.361 billion in the prior-year period.
- Capital additions, including nuclear fuel, were $4.850 billion, up from $3.219 billion.
- Net cash used in investing activities was $5.014 billion; financing activities provided $1.794 billion.
- Cash, restricted cash and equivalents totaled $315 million at June 30, 2023, compared with $341 million at December 31, 2022.
- Current liabilities were $13.986 billion, including $4.575 billion of short-term debt and $4.349 billion of securities due within one year. Long-term debt was $39.223 billion, including junior subordinated notes and other long-term obligations.
- Dominion had a $6.0 billion joint revolving credit facility, with $1.812 billion of capacity available at quarter-end. Commercial paper outstanding was $4.172 billion and letters of credit outstanding were $16 million.
- Common dividends paid during the first six months were $1.115 billion, or $1.335 per common share.
Virginia Electric and Power Company
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|
| Operating revenue | $2.251 billion | $2.175 billion | $4.635 billion | $4.342 billion |
| Net income | $332 million | $47 million | $685 million | $404 million |
| Net cash from operations | Not separately presented for the quarter | Not separately presented for the quarter | $2.453 billion | $689 million |
| Long-term debt | Not applicable to quarterly income comparison | $16.119 billion at June 30, 2023 | $14.981 billion at December 31, 2022 |
Material Changes Versus the Prior Comparable Period
- Dominion’s Q2 net income improved by $1.052 billion and year-to-date net income improved by $1.338 billion. The comparison benefited substantially from the absence of 2022 charges, including the $649 million Kewaunee sale loss, the $191 million Virginia fuel settlement charge and the $180 million RGGI compliance charge.
- Net investment gains on nuclear decommissioning trust funds replaced significant 2022 losses. Dominion recognized net investment gains of approximately $562 million in the first six months of 2023, compared with net investment losses of approximately $981 million in the first six months of 2022.
- Operating revenue increased 6% in Q2 and 15% year to date, driven primarily by higher fuel-related revenue and market-price and hedging effects. These increases were partly offset by lower electric sales caused by unfavorable weather and lower Millstone generation due to planned and unplanned outages.
- Interest expense increased to $430 million in Q2 and $1.016 billion year to date, reflecting higher rates, increased borrowings and derivative-related effects.
- Operating cash flow increased largely because of higher deferred fuel and purchased-gas cost recoveries, lower margin deposits and fewer customer refund payments.
- Capital spending rose materially, reflecting higher plant construction and other property additions.
- Dominion Energy Virginia’s second-quarter net income declined $49 million to $391 million, primarily due to weather, customer-elected rate impacts and higher interest expense. Gas Distribution net income declined $22 million, and Dominion Energy South Carolina net income declined $56 million. Contracted Assets increased year-to-date net income by $46 million but declined $9 million in Q2.
Guidance, Outlook, Commentary and Risks
- Management stated that there were no material changes to Dominion’s 2023 outlook as disclosed in the 2022 Form 10-K. The filing does not provide a clear consolidated numerical earnings guidance range.
- Dominion expects the April 2023 Virginia legislation to reduce 2023 net income for certain riders moved into base rates effective July 2023. The legislation also changes rate reviews, authorized return and earnings-sharing mechanisms, establishes a 52.10% common-equity capitalization target for Virginia Power and permits securitization of certain deferred fuel costs.
- Virginia Power filed to securitize an estimated $1.3 billion under-recovered fuel balance. The matter was pending at the filing date.
- In July 2023, Dominion agreed to sell its 50% noncontrolling interest in Cove Point to Berkshire Hathaway Energy for $3.3 billion in cash. The transaction is expected to close by year-end 2023, subject to regulatory and customary conditions. Dominion expects an approximate $650 million pretax gain, or $415 million after tax, and must repay the Cove Point-related $2.3 billion term loan at closing.
- Dominion entered two additional $600 million 364-day term loan facilities in July 2023 and borrowed $750 million initially in aggregate. The agreements require certain after-tax Cove Point sale proceeds to repay these borrowings.
- Key risks include regulatory and rate-recovery decisions, fuel-cost securitization, financing and credit-rating pressure, commodity and interest-rate volatility, nuclear operations and decommissioning, environmental rules, extreme weather, cybersecurity, project execution and the cost and recoverability of the Coastal Virginia Offshore Wind project.
- The offshore wind installation vessel arrangement had approximately $367 million of funded project costs at June 30, 2023. Under specified defaults or an insufficient sale price, Dominion could be required to fund some or all of these amounts.
- Dominion reported maximum subsidiary guarantee exposure of $4.589 billion, excluding the offshore wind vessel guarantee, and Cove Point guarantees with cumulative maximum exposure of $1.9 billion for two of the guarantees.
- Standard & Poor’s affirmed Dominion’s credit ratings but revised its outlook from stable to negative in April 2023. Management reported no material covenant changes or defaults.
- Management stated that disclosure controls were effective. Virginia Power transitioned to a new customer engagement and billing system during the second quarter.
Important Facts for Investors to Verify
- Whether the Cove Point sale closes on schedule, the final gain is realized, and proceeds are applied as required to debt repayment.
- The Virginia Commission’s decisions on the 2023 Biennial Review, fuel-cost securitization, rider filings and Virginia Power’s requested equity issuance.
- The sustainability of reported earnings after removing decommissioning-trust gains, derivative mark-to-market effects and the absence of major 2022 charges.
- Dominion’s refinancing needs, short-term debt levels, available revolver capacity and the impact of the negative S&P outlook on borrowing costs and collateral requirements.
- Actual capital spending, project execution and customer cost recovery for CVOW, grid transformation, transmission, renewable generation and environmental compliance.
- Potential liabilities from environmental proceedings, nuclear obligations, SCANA-related litigation, guarantees and the offshore wind vessel arrangement.
- The effect of weather, Millstone outages, commodity prices, interest rates and nuclear trust investment performance on future cash flow and earnings.
