Dominion Energy, Inc. Form 10-Q Summary
Business Context and Reporting Period
This combined Form 10-Q covers Dominion Energy, Inc., Virginia Electric and Power Company, and Dominion Energy Gas Holdings, LLC for the three months ended March 31, 2020. Dominion Energy operates regulated electric generation, transmission and distribution businesses, regulated gas distribution, gas transmission and storage, LNG infrastructure, and contracted and merchant generation activities. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $4.496 billion | $3.858 billion |
| Income from operations | $631 million | $(482) million |
| Net loss attributable to Dominion Energy | $(270) million | $(680) million |
| Diluted EPS | $(0.34) | $(0.86) |
| Net cash provided by operating activities | $1.633 billion | $1.171 billion |
| Capital additions, including nuclear fuel | $1.462 billion | $1.002 billion |
| Cash, restricted cash and equivalents | $1.267 billion | $627 million |
Calculated consolidated operating margin was approximately 14.0% in Q1 2020 versus negative 12.5% in Q1 2019. Net margin improved to approximately negative 6.0% from negative 17.6%, but remained negative. Dominion Energy had total liabilities of $71.374 billion, including $34.615 billion of long-term debt, $2.190 billion of short-term debt and $2.919 billion of securities due within one year. Total equity was $32.752 billion.
At March 31, 2020, Dominion Energy had $3.843 billion of capacity available under its $6.0 billion joint revolving credit facility. It also had $900 million available under a new 364-day revolving credit agreement, although $225 million was borrowed under that agreement in April. Dominion Energy reported $1.192 billion of cash and cash equivalents on the balance sheet, or $1.267 billion including restricted cash.
Material Changes Versus the Prior Comparable Period
- Revenue increased $638 million, primarily reflecting the absence of the $1.0 billion first-quarter 2019 charge for refunds related to the abandoned V.C. Summer nuclear project, higher Virginia rate-adjustment-clause revenue, lower electric capacity costs, and derivative gains. These benefits were partly offset by lower retail sales, unfavorable Millstone pricing, and the transfer of SEMI to Wrangler.
- Net loss attributable to Dominion Energy improved by $410 million. The comparison benefited from the absence of significant SCANA-related customer refund, regulatory asset, tax, litigation and merger-related charges recorded in 2019.
- Other income declined by $787 million because nuclear decommissioning trust investments produced net losses in 2020 versus net gains in 2019. Dominion Energy reported approximately $876 million of net investment losses in these and rabbi trust investments in Q1 2020.
- Virginia Power reported a $280 million net loss versus $20 million of net income. The primary driver was a $754 million impairment charge, or $561 million after tax, for planned early retirement of certain coal- and oil-fired generating units.
- Dominion Energy Gas reported $169 million of net income attributable to the company versus $190 million. The decline primarily reflected the absence of $54 million of discontinued-operation income following the 2019 restructuring, partly offset by lower interest expense.
- Operating cash flow increased $462 million, while investing cash use increased to $1.641 billion, mainly because of higher capital spending and acquisitions. Financing activities provided $1.006 billion versus a $383 million use in Q1 2019.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide a clear quantitative earnings or EPS guidance range. Management states that operations are expected to provide a stable source of cash flow for capital expenditures and dividends, but results remain subject to significant uncertainties.
- COVID-19 was identified as a new material risk. Potential effects include lower commercial and industrial demand, higher uncollectible customer accounts, construction and supply-chain delays, reduced labor availability, capital-market disruption, and pressure on liquidity and cash flows. Management did not expect a material operating impact at the filing date but stated that ultimate effects could be material.
- Virginia’s Clean Economy Act, enacted in April 2020, establishes a mandatory renewable portfolio standard reaching 100% by 2045, accelerates fossil-generation retirements, and requires significant renewable generation, storage, efficiency and carbon-trading investments. Dominion Energy expects significant related capital expenditures, with recovery dependent on regulatory approval.
- Atlantic Coast Pipeline construction and permitting remain subject to extensive litigation and regulatory uncertainty. Full in-service was expected in early 2022, with estimated project costs of approximately $8 billion excluding financing costs. Further delays, cost increases, suspended AFUDC or impairment charges could materially affect results and liquidity. Dominion Energy’s guarantee exposure increased after acquiring an additional 5% interest; the pipeline had $1.8 billion outstanding under its credit facility at March 31, 2020.
- The April 2020 federal court ruling suspending nationwide permit NWP 12 could delay pipeline and other infrastructure construction. The filing states that the ultimate timing and outcome of related appeals could not be predicted.
- SCANA-related litigation and investigations remain material. Dominion Energy recorded $560 million of reserves for SCANA legal proceedings at March 31, 2020. Settlements include a proposed $520 million fund for certain ratepayer litigation, Dominion Energy’s $320 million portion to be paid in common stock, and a proposed $192.5 million SCANA securities settlement. A proposed SEC resolution would require a $25 million civil penalty and $112.5 million of disgorgement and prejudgment interest, subject to approvals.
- Dominion Energy issued $750 million of senior notes in March 2020 and, after quarter-end, issued $1.5 billion of additional senior notes and borrowed under new term-loan facilities. It also redeemed certain hybrid and SCANA debt securities, recording early-redemption costs in Q1.
- Regulatory assets totaled $10.232 billion and regulatory liabilities totaled $11.230 billion at March 31, 2020. The filing states that $4.8 billion of Dominion Energy regulatory assets were not expected to earn a return during the applicable recovery period.
- Dominion Energy and Virginia Power remain exposed to nuclear decommissioning trust investment volatility, commodity prices, interest rates, environmental compliance, regulatory decisions, counterparty performance, cybersecurity, severe weather and nuclear operating risks.
Most Important Facts for Investors to Verify
- Whether COVID-19 materially changes customer demand, collections, construction schedules, capital spending, credit-market access or dividend capacity.
- The final regulatory and judicial outcomes affecting Atlantic Coast Pipeline, NWP 12 permits and the project’s revised cost and in-service schedule.
- The amount and timing of recoverability of Virginia Power’s early-retirement charges and related regulatory assets under the Virginia Clean Economy Act and existing rate mechanisms.
- The ultimate cash, equity and insurance impact of SCANA-related ratepayer, shareholder, SEC, tax and other legal proceedings.
- Whether nuclear decommissioning trust losses and interest-rate derivative liabilities recur or reverse as market conditions change.
- Debt maturities, covenant compliance, refinancing needs and the effect of post-quarter-end borrowings and note issuances on leverage and liquidity.
- The approval and timing of planned renewable, storage, offshore wind and grid-transformation investments and the associated rate recovery.