Dominion Energy, Inc. Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Dominion Energy, Inc. and its wholly owned subsidiary Virginia Electric and Power Company for the three and nine months ended September 30, 2021. Dominion operates regulated electric and gas utilities, contracted generation and renewable assets, and a retained noncontrolling interest in Cove Point. The filing reflects the November 2020 sale of substantially all gas transmission and storage operations to Berkshire Hathaway Energy; related activities are presented as discontinued operations.
Key financial metrics
| Dominion Energy, Inc. | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Operating revenue | $3,176 million | $3,607 million | $10,084 million | $10,651 million |
| Income from operations | $841 million | $27 million | $2,082 million | $1,199 million |
| Net income attributable to Dominion | $654 million | $356 million | $1,947 million | $(1,083) million |
| Diluted EPS | $0.79 | $0.41 | $2.35 | $(1.38) |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $3,535 million | $4,810 million |
- Operating margin was approximately 26.5% in Q3 2021 versus 0.7% in Q3 2020, and approximately 20.6% for the first nine months versus 11.3%.
- Net margin was approximately 20.6% in Q3 2021 versus 9.9% in Q3 2020, and approximately 19.3% for the first nine months versus negative 10.2%.
- At September 30, 2021, cash and cash equivalents were $180 million, or $267 million including restricted cash and equivalents. Total assets were $99.8 billion and total liabilities were $72.6 billion.
- Dominion reported $3.885 billion of short-term debt, $34.775 billion of long-term debt including junior subordinated notes and supplemental borrowings, and $2.845 billion of securities due within one year. The $6.0 billion joint revolving credit facility had $2.407 billion of available capacity after commercial paper and letters of credit.
- Capital expenditures and other property additions were $4.142 billion for the first nine months. Investing cash outflows were $6.607 billion, while financing activities provided $3.092 billion.
Virginia Electric and Power Company
- Q3 operating revenue was $1.976 billion versus $2.248 billion; net income was $556 million versus $475 million.
- Nine-month operating revenue was $5.547 billion versus $5.983 billion; net income was $1.344 billion versus $685 million.
- Virginia Power generated $2.240 billion of operating cash flow and used $2.709 billion in investing activities during the first nine months.
- At September 30, 2021, Virginia Power had $896 million of short-term debt, $12.957 billion of long-term debt and $38 million of cash and cash equivalents.
Material changes versus the prior comparable period
- Dominion’s Q3 net income increased $298 million and nine-month net income improved $3.030 billion, primarily because 2020 included major impairment and project-cancellation charges.
- Major absent or reduced 2020 charges included the Atlantic Coast Pipeline cancellation, early retirement of Virginia generation facilities, nonregulated solar impairments and the Fowler Ridge contract termination.
- 2021 included significant unusual items, including a $350 million pre-tax provision for Virginia customer refunds, a $318 million charge for CCRO benefits, a $549 million benefit from establishing a regulatory asset for early plant retirement costs, and a $151 million unbilled-revenue reduction at Virginia Power.
- Dominion’s Q3 revenue declined 12%, principally because of Virginia customer refunds, lower Millstone market and hedging results, lower cooling demand and lower rider revenue. Higher fuel costs largely offset in regulated revenue and generally did not affect earnings.
- Operating cash flow declined $1.275 billion year over year, primarily because discontinued operations contributed less cash. Dominion also repaid the $1.3 billion Q-Pipe transaction deposit after terminating the proposed sale to Berkshire Hathaway Energy.
- Dominion entered into a $900 million sustainability revolving credit facility, borrowed $900 million under it, issued $1.0 billion of 2.25% senior notes due 2031 and redeemed $800 million of July 2016 hybrid securities.
Guidance, outlook, commentary and unusual items
- The filing does not provide a clear consolidated earnings guidance range.
- Dominion expects the sale of the Q-Pipe Group to Southwest Gas to close by the end of 2021, subject to regulatory approvals. Based on September 30 balances, management expected an approximate $685 million pre-tax, or $500 million after-tax, gain, excluding closing adjustments.
- Dominion expected sales of certain nonregulated solar interests to generate an approximate $30 million after-tax gain and the sale of Four Brothers and Three Cedars to produce an approximate $170 million after-tax loss, primarily from derecognition of noncontrolling interests.
- The Coastal Virginia Offshore Wind Commercial Project is estimated at approximately $10 billion excluding financing costs, with 2.6 GW of capacity, expected major construction beginning in 2023 and commercial operation targeted by the end of 2026. Approximately $170 million had been incurred through September 30, 2021.
- Virginia Power and regulators filed a proposed 2021 Triennial Review settlement providing $330 million of customer refunds, a $50 million ongoing base-rate reduction and a 9.35% authorized ROE. The matter was pending at the filing date.
- Virginia Power proposed approximately $3.9 billion, excluding financing costs, for a nuclear life-extension program for Surry and North Anna. Approval was pending.
- Kewaunee’s proposed sale remained subject to Wisconsin Commission and NRC approval. If classified as held for sale at September 30, 2021, the filing indicated an estimated loss of approximately $710 million pre-tax, or $565 million after-tax.
Principal risks and contingencies
- Regulatory approval, construction, permitting, supplier performance, weather, marine conditions, foreign-currency exposure and steel-price indexing could increase the cost or delay the CVOW Commercial Project. The filing states that delays to construction in 2024 or later and in-service operation in 2028 or later could affect cost recovery.
- Dominion faces environmental compliance risks involving greenhouse gases, coal ash, wastewater, cooling-water intake structures and remediation obligations. The ultimate financial impact of several matters cannot be estimated clearly.
- Legal and regulatory proceedings related to the former SCANA nuclear project, ratepayer matters, shareholder litigation, tax assessments and contractor claims remain relevant. Dominion had $196 million of reserves for certain probable SCANA-related losses at September 30, 2021.
- Dominion reported $3.851 billion of subsidiary guarantee exposure, including $1.892 billion for commodity transactions, $242 million for nuclear obligations and $463 million for solar projects.
- Commodity, interest-rate, investment, counterparty and collateral risks remain material. A hypothetical 10% decrease in interest rates would have reduced the fair value of Dominion’s interest-rate derivatives by $143 million at September 30, 2021.
- At September 30, 2021, a credit-rating-triggered collateral requirement could have required Dominion to post an additional $102 million; $90 million had already been posted for relevant derivative positions.
Investor verification checklist
- Verify the final outcome and accounting effects of the Virginia 2021 Triennial Review settlement, including refunds, CCRO utilization, the authorized ROE and base-rate changes.
- Confirm closing status, proceeds, debt assumption and realized gains or losses for the Q-Pipe, solar, Four Brothers and Three Cedars divestitures.
- Assess funding requirements, regulatory cost recovery and schedule risks for the approximately $10 billion CVOW Commercial Project and the proposed nuclear life-extension program.
- Reconcile reported earnings with unusual items, discontinued operations, derivative mark-to-market changes, nuclear trust gains and regulatory assets and liabilities.
- Monitor liquidity, debt maturities, variable-rate borrowings, credit ratings, collateral requirements and access to the joint revolving credit facility.
- Review developments in SCANA-related litigation, environmental proceedings, nuclear decommissioning and Kewaunee sale approvals.