DOMINION ENERGY, INC annual report, FY2022

Dominion Energy, Inc. 2022 Form 10-K Summary

Business context and reporting period

Dominion Energy, Inc. filed a combined Form 10-K with wholly owned Virginia Electric and Power Company for the fiscal year ended December 31, 2022. The filing covers Dominion Energy’s regulated electric and natural gas utilities, contracted generation and Cove Point investment. Dominion Energy operated in 15 states, served approximately 7 million customers and had approximately 31.0 GW of electric generating capacity, 10,600 miles of transmission lines, 78,500 miles of distribution lines and 93,500 miles of gas distribution mains at year-end.

The principal operating segments were Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina and Contracted Assets. Management stated that approximately 90% of earnings from primary operating segments were expected to come from state-regulated electric and natural gas utility businesses.

Key financial metrics

Metric	2022	2021	Change
Operating revenue	$17.174 billion	$13.964 billion	+23%
Income from operations	$1.596 billion	$3.019 billion	-$1.423 billion
Net income attributable to Dominion Energy	$994 million	$3.288 billion	-$2.294 billion
Diluted EPS	$1.09	$3.98	-$2.89
Net income from continuing operations	$985 million	$2.647 billion	-$1.662 billion
Cash flow from operating activities	$3.700 billion	$4.037 billion	-$337 million
Capital expenditures and other property additions	$7.591 billion	$5.960 billion	+$1.631 billion
Cash, restricted cash and equivalents	$341 million	$408 million	-$67 million

Operating margin was approximately 9.3% in 2022 versus 21.6% in 2021. Net margin attributable to Dominion Energy was approximately 5.8% versus 23.5% in 2021. The filing does not present adjusted EBITDA or a comparable adjusted net-income measure in the provided text.

Segment net income contributions were $2.008 billion for Dominion Energy Virginia, $697 million for Gas Distribution, $505 million for Dominion Energy South Carolina and $335 million for Contracted Assets. Corporate and Other recorded a $2.551 billion net loss, substantially reflecting specific items and corporate costs.

Balance sheet, debt and liquidity

Total assets were $104.243 billion, compared with $99.590 billion at December 31, 2021.
Total liabilities were $76.362 billion, compared with $70.672 billion.
Shareholders’ equity was $27.881 billion, compared with $27.308 billion.
Total long-term debt was $38.914 billion, including $450 million outstanding under the sustainability revolving credit facility. Current securities due within one year were $3.341 billion and short-term debt was $3.423 billion.
Dominion Energy had a $6.0 billion joint revolving credit facility, with $3.076 billion of commercial paper and $202 million of letters of credit outstanding at year-end, leaving $2.722 billion of stated capacity available.
The reported debt-to-total-capital ratio under applicable credit agreements was 59.7%, below the 67.5% maximum.
Credit ratings and outlooks were stable: Dominion Energy’s issuer ratings were BBB+ from Fitch, Baa2 from Moody’s and BBB+ from Standard & Poor’s.
Dominion Energy issued $4.8 billion of long-term debt in 2022 and repaid, repurchased or redeemed $1.069 billion. In January 2023, it entered a $2.5 billion 364-day term loan facility and initially borrowed $1.0 billion.
The 2023 common dividend was set at $2.67 per share, unchanged from 2022. Management stated that no common-stock repurchases were planned in 2023 other than employee tax-withholding share tenders.

Material changes versus the prior comparable period

Revenue increased primarily because of higher fuel and gas commodity costs recovered through customer rates, higher Virginia non-fuel rider revenue, Millstone market pricing and customer growth. These pass-through items increased revenue and related expenses without a comparable effect on net income.
Net income declined sharply because of a $1.5 billion pre-tax impairment of certain nonregulated solar assets, a $649 million loss on the sale of Kewaunee, lower nuclear decommissioning trust investment results, Virginia regulatory charges and other unusual items.
Dominion Energy recorded a $1.1 billion after-tax impairment charge for nonregulated solar generation assets within Contracted Assets. The assets were written down to an estimated aggregate fair value of $665 million.
The company recorded a $513 million after-tax loss on the sale of Kewaunee and an after-tax loss associated with the sale of Hope, despite receiving $690 million of cash consideration for Hope.
Virginia Power recorded charges associated with Virginia fuel-cost recovery, RGGI compliance costs deemed recovered through base rates and dismantling costs for early-retired generation facilities.
Nuclear decommissioning and rabbi trust investments produced net investment losses of $888 million in 2022, compared with net investment gains of $1.1 billion in 2021. Dominion Energy’s nuclear decommissioning trust funds declined to $5.957 billion from $7.950 billion.
Cash flow from operations decreased while capital spending increased significantly, resulting in greater reliance on debt and other financing sources.
Dominion Energy sold Hope in August 2022, sold its remaining interest in Wrangler in March 2022 and formed Dominion Privatization, retaining a 50% equity interest.
The Series A Preferred Stock was redeemed for $1.6 billion in September 2022, while common shares outstanding increased to approximately 835 million from approximately 810 million at year-end 2021.

Guidance, outlook, risks and unusual items

Management expected 2023 net income per share to increase compared with 2022, primarily because the 2022 solar impairment, Kewaunee loss, certain Virginia RGGI charges and Virginia fuel-settlement charge were not expected to recur. Offsetting factors included lower nonregulated solar investment tax credits, higher interest expense, more Millstone outage days and higher depreciation and amortization.

Dominion Energy commenced a comprehensive business review in November 2022 covering strategic alternatives, business mix, capital allocation and regulatory options. The review was expected to be completed in 2023, but management stated that its recommendations could materially affect future results, financial condition, cash flows and capital plans. The company expected 2023 planned capital expenditures to be substantially consistent with the previously disclosed $10.3 billion plan, while anticipating more transmission investment in Virginia and less new nonregulated solar investment.

The Coastal Virginia Offshore Wind Commercial Project is estimated to cost approximately $10 billion, excluding financing costs, with expected in-service by the end of 2026. Approximately $1.1 billion had been incurred through December 31, 2022. The approved cost-sharing mechanism limits recovery of certain overruns, including no specified recovery mechanism for total costs above $13.7 billion.
Virginia Power’s nuclear life-extension program is expected to cost approximately $3.9 billion, excluding financing costs. Surry received 20-year license extensions; North Anna license extensions remained in process.
Dominion Energy continues to target net-zero Scope 1, Scope 2 and specified Scope 3 carbon and methane emissions by 2050, subject to technology, financing, regulatory and third-party execution risks.
Principal risks include regulatory rate decisions, changes to Virginia legislation and cost-recovery mechanisms, project delays and overruns, offshore wind construction and permitting, nuclear operations and decommissioning, environmental compliance, coal ash obligations, weather and storm damage, cybersecurity, commodity and interest-rate volatility, credit ratings, access to capital markets and counterparty performance.
Potential legal and regulatory contingencies include matters related to the former SCANA and V.C. Summer nuclear project, environmental remediation, nuclear spent fuel, guarantees and ongoing regulatory proceedings. For certain matters, the filing states that a reasonable range of loss cannot be estimated.
Dominion Energy’s internal control over financial reporting was assessed as effective, and Deloitte & Touche issued unqualified opinions on the financial statements and internal controls.

Important facts for investors to verify

Completion and financial impact of the comprehensive business review, including any asset sales, capital-plan changes or financing requirements.
Actual cost, schedule, regulatory recovery and operating performance of the Coastal Virginia Offshore Wind project, including the 42% rolling-average capacity-factor reporting requirement.
Virginia legislative and commission decisions affecting base rates, CCROs, RGGI recovery, fuel-cost recovery and rider economics.
2023 operating cash flow, capital expenditures, debt maturities, commercial-paper balances and the company’s ability to fund capital needs while maintaining the dividend.
Recovery or further impairment risk for nonregulated solar assets and the effect of reduced investment tax credits.
Investment performance and funding sufficiency of nuclear decommissioning trusts and pension assets.
Progress on North Anna license renewal, nuclear life-extension spending and other clean-energy projects required under the Virginia Clean Economy Act.
Resolution and remaining exposure from SCANA-related litigation, regulatory matters, environmental obligations, guarantees and Atlantic Coast Pipeline wind-down activities.