Dominion Energy, Inc. — 2022 Second-Quarter Form 10-Q Summary
Business context and reporting period
This combined, unaudited Form 10-Q covers Dominion Energy, Inc. and its wholly owned subsidiary Virginia Electric and Power Company for the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. Dominion operates regulated electric and gas utilities, nonregulated generation, gas distribution businesses, and an equity-method interest in Cove Point. Virginia Power files under the reduced disclosure format.
Key financial metrics
| Dominion Energy consolidated metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparable change |
|---|---|---|---|
| Operating revenue | $3.596 billion | $7.875 billion | Up 18% and 14%, respectively |
| Income from operations | $(318) million | $658 million | Down $681 million and $583 million |
| Net income attributable to Dominion Energy | $(453) million | $258 million | Down $738 million and $1.035 billion |
| Diluted EPS | $(0.58) | $0.25 | Down $0.91 and $1.31 |
| Operating margin | (8.8%) | 8.4% | Calculated from reported revenue and operating income |
| Net margin | (12.6%) | 3.3% | Calculated from reported revenue and net income |
| Net cash provided by operating activities | Not separately provided for the quarter | $1.361 billion | Down $879 million |
| Capital expenditures and property additions | Not separately provided for the quarter | $3.219 billion | Up $555 million |
Revenue growth primarily reflected higher fuel-cost recoveries, Virginia Power rider revenues, customer usage, market-based-rate activity, solar generation, and gas utility capital-cost riders. Fuel and purchased-gas costs largely offset corresponding revenue changes under regulatory recovery mechanisms.
At June 30, 2022, Dominion reported total assets of $103.678 billion, cash and cash equivalents of $272 million, and shareholders’ equity of $28.297 billion. Current liabilities included $2.545 billion of securities due within one year, $3.080 billion of short-term debt, and $1.606 billion of mandatorily redeemable preferred stock. Long-term debt totaled $38.259 billion, including $35.575 billion of long-term debt and $1.386 billion of junior subordinated notes. Dominion also had $450 million outstanding under a supplemental credit facility.
Dominion’s $6.0 billion joint revolving credit facility had $3.082 billion of available capacity at quarter-end, after $2.701 billion of commercial paper and $217 million of letters of credit. Cash, restricted cash and equivalents totaled $407 million for cash-flow purposes. The company paid $1.096 billion of common dividends during the first six months.
Material changes versus the prior comparable period
- Second-quarter net income moved from $285 million of income to a $453 million loss, while first-half net income fell from $1.293 billion to $258 million.
- The second quarter included a $649 million pre-tax loss, or $513 million after tax, on the completed sale of the Kewaunee nuclear facility, primarily reflecting the difference between the decommissioning trust and asset-retirement obligations.
- Dominion recorded a $191 million charge, or $142 million after tax, related to a proposed Virginia fuel-expense settlement and a $180 million charge, or $134 million after tax, for RGGI compliance costs deemed recovered through base rates.
- Nuclear decommissioning trust investment results deteriorated sharply. Dominion recorded net investment losses of approximately $981 million in the first half of 2022 versus net investment gains of approximately $675 million in the first half of 2021.
- Operating cash flow declined because of lower deferred-fuel recoveries, customer refund payments, increased margin deposits, and working-capital changes. Investing outflows increased primarily because of a $2.0 billion short-term deposit and higher construction spending.
- Financing cash flow increased through additional long-term debt, credit-facility borrowings, and $1.6 billion of proceeds from settlement of the 2019 Equity Units’ stock-purchase contracts.
- Virginia Power’s second-quarter net income declined to $47 million from $414 million; first-half net income declined to $404 million from $788 million.
Guidance, outlook, commentary, risks and unusual items
Management stated that 2022 net income per share is expected to decrease from 2021, primarily because of the Kewaunee sale loss and the Virginia RGGI and fuel-settlement charges, in addition to items identified in the 2021 Form 10-K. The filing does not provide a specific 2022 EPS range.
- Dominion expected to issue approximately $3.2 billion to $4.4 billion of long-term debt during 2022, including amounts issued through June 30, and anticipated raising $300 million to $500 million through common-stock issuance. No common-stock repurchases were planned other than employee tax-withholding share tenders.
- All outstanding Series A Preferred Stock was classified as mandatorily redeemable at June 30 and was expected to be redeemed in September 2022. Dominion funded a $2.0 billion short-term deposit to secure the redemption obligation.
- Dominion agreed to sell Hope Gas for $690 million of cash consideration, subject to regulatory and other approvals. The company expected an after-tax loss of approximately $65 million upon closing, after a pre-tax gain and goodwill write-off.
- The Q-Pipe Group sale was completed in December 2021, and Kewaunee’s sale closed in June 2022. Dominion also formed Dominion Privatization and expected a further contribution of Virginia operations, subject to approvals.
- The CVOW Commercial Project remains exposed to construction, permitting, foreign-currency, supply-chain, cost-recovery, performance, and customer-rate risks. Virginia Power entered into approximately €3.2 billion of foreign-currency hedges for project-related contracts.
- Material risks include regulatory rate decisions, fuel and commodity prices, interest rates, investment-market volatility, nuclear operations and decommissioning, environmental compliance, severe weather, cybersecurity, counterparty risk, litigation, financing access, and the timing and outcome of asset sales.
- Dominion disclosed $4.080 billion of maximum exposure under subsidiary guarantees, a $1.9 billion cumulative maximum exposure under two Cove Point guarantees, and potential additional collateral requirements of $213 million if specified credit-related derivative provisions were fully triggered.
- Regulatory assets totaled $10.234 billion and regulatory liabilities totaled $11.045 billion at June 30, 2022. Dominion stated that $4.2 billion of regulatory assets did not earn a return during the applicable recovery period.
Most important facts for an investor to verify
- Whether the substantial 2022 earnings decline is largely nonrecurring or signals continuing pressure from fuel costs, regulatory recovery, investment losses, outages, and financing costs.
- The final amount, timing, and financing impact of the September 2022 Series A Preferred Stock redemption.
- Regulatory approval and closing of the Hope sale, including the expected after-tax loss and treatment of goodwill and deferred taxes.
- Final resolution of the Virginia fuel-expense settlement and RGGI-related recovery and refund mechanisms.
- Execution, cost, foreign-currency exposure, performance requirements, and rate recovery for the CVOW Commercial Project and other renewable investments.
- Capital spending, debt issuance, available revolver capacity, collateral requirements, credit ratings, and the company’s ability to fund dividends while maintaining liquidity.
- Potential environmental, nuclear, litigation, guarantee, and regulatory liabilities that the filing states may not yet be reasonably estimable.