Business Context and Reporting Period
Dominion Energy, Inc. filed a combined unaudited Form 10-Q with Virginia Electric and Power Company for the quarter ended March 31, 2021. Dominion Energy operates regulated electric and gas utilities, nonregulated generation and contracted assets, and retained a noncontrolling interest in Cove Point after completing the gas transmission and storage transaction with Berkshire Hathaway Energy in November 2020.
The filing also presents separate reduced-disclosure financial information for Virginia Power, which is wholly owned by Dominion Energy.
Key Financial Metrics
| Dominion Energy, Inc. ($ millions, except per-share amounts) | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $3,870 | $3,938 | $(68) |
| Income from operations | $878 | $368 | $510 |
| Net income attributable to Dominion Energy | $1,008 | $(270) | $1,278 |
| Diluted EPS | $1.23 | $(0.34) | $1.57 |
| Net income from continuing operations | $980 | $(466) | $1,446 |
| Net income from discontinued operations | $28 | $196 | $(168) |
| Cash flow from operating activities | $1,452 | $1,633 | $(181) |
| Capital expenditures and property additions | $1,328 | $1,462 | $(134) |
| Cash, restricted cash and equivalents at period end | $562 | $1,267 | $(705) |
| Total debt, including current portions and junior subordinated notes | Approximately $36.1 billion | Not clearly provided on the same basis | Not clearly provided |
Operating margin was approximately 22.7% in Q1 2021 versus 9.3% in Q1 2020. Net margin attributable to Dominion Energy was approximately 26.0% versus negative 6.9%, although both periods include significant unusual items, investment-market effects and discontinued operations.
- Cash and cash equivalents on the balance sheet were $477 million at March 31, 2021, compared with $172 million at December 31, 2020. Total current assets were $6.7 billion and total current liabilities were $11.8 billion.
- Dominion Energy had $2.8 billion of short-term debt, $2.6 billion of securities due within one year and $33.2 billion of long-term debt and related obligations at March 31, 2021.
- The joint revolving credit facility had a $6.0 billion limit, $2.5 billion of commercial paper outstanding, $99 million of letters of credit outstanding and $3.4 billion of available capacity.
- Common dividend payments were $508 million in Q1 2021, compared with $788 million in Q1 2020. No common shares were repurchased under the authorized repurchase program during the quarter.
- Dominion Energy's total assets were $96.7 billion and total equity was $27.0 billion at March 31, 2021.
Virginia Electric and Power Company
| Virginia Power ($ millions) | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $1,830 | $1,930 | $(100) |
| Income from operations | $548 | $(133) | $681 |
| Net income | $374 | $(280) | $654 |
| Cash flow from operating activities | $784 | $1,149 | $(365) |
| Total debt, including current portions | Approximately $13.2 billion | Not clearly provided on the same basis | Not clearly provided |
Virginia Power's operating margin was approximately 30.0% in Q1 2021 versus negative 6.9% in Q1 2020. Cash, restricted cash and equivalents were $56 million at March 31, 2021, and its commercial paper and letters of credit outstanding under the joint facility were $420 million and $12 million, respectively.
Material Changes Versus the Prior Comparable Period
- Net income improved primarily because Q1 2020 included approximately $750 million of charges related to planned early retirement of certain Virginia generation facilities. Q1 2021 also benefited from higher nuclear decommissioning trust investment results and favorable mark-to-market changes on freestanding interest-rate derivatives.
- Operating revenue declined 2%, primarily because of a $151 million unbilled-revenue reduction at Virginia Power, unfavorable Millstone pricing, lower PJM off-system sales and the contribution of certain nonregulated gas retail contracts to Wrangler. These effects were partly offset by colder weather, higher riders and higher gas utility capital-cost recovery.
- Other income increased by $821 million, reflecting a move from net investment losses in Q1 2020 to net investment gains in Q1 2021 and higher equity-method earnings, including Cove Point.
- Interest expense declined by $379 million, primarily because of favorable derivative valuation changes and the absence of prior-year early-debt-redemption charges.
- Operating cash flow decreased 11% despite higher earnings, reflecting the timing of discontinued-operations cash flows and other working-capital effects. Investing cash use increased to $2.3 billion, including $977 million of contributions to equity-method affiliates, principally Atlantic Coast Pipeline.
- Dominion Energy's average common shares outstanding declined to 805.9 million from 838.2 million, supporting the increase in EPS.
Guidance, Outlook, Management Commentary, Risks and Unusual Items
- The filing does not provide a clear new full-year earnings guidance range.
- Dominion Energy expects the Q-Pipe Transaction, the proposed sale of remaining regulated Rocky Mountain gas transmission and storage assets to Berkshire Hathaway Energy, to close in 2021, subject to antitrust clearance and other conditions. Based on March 31 balances, management expected an approximately $450 million pretax gain, or approximately $320 million after tax, excluding closing adjustments. If the transaction does not close by December 30, 2021, Dominion Energy generally must repay the $1.3 billion deposit or issue equivalent common shares at its option.
- Virginia Power filed its 2021 Triennial Review without requesting a base-rate increase. It reported a 10.85% combined ROE for the test period and requested a prospective ROE of 10.8%; the authorized ROE used for the review was 9.2%, subject to the statutory earnings band and Commission determinations.
- Virginia Power recorded a $130 million pretax benefit from reducing its CCRO-related reserve, a $76 million pretax charge for required forgiveness of certain overdue customer balances, and a $71 million pretax charge for terminating a proposed Richmond corporate-office lease.
- Dominion Energy recorded a $60 million pretax charge related to litigation acquired in the SCANA combination and a $51 million pretax storm-damage and restoration charge. These items, together with investment gains, materially affected reported earnings.
- Dominion Energy contributed $965 million to Atlantic Coast Pipeline during the quarter and expects additional wind-down losses, although management did not expect the remaining attributable amounts to be material.
- Regulatory assets totaled $9.4 billion for Dominion Energy, including $4.1 billion on which the company did not expect to earn a return during the recovery period. Regulatory assets at Virginia Power totaled $3.5 billion.
- Key risks include regulatory and rate-case outcomes, Q-Pipe closing risk, environmental compliance and carbon regulation, nuclear operations and decommissioning, litigation related to the abandoned V.C. Summer project, weather, commodity prices, interest rates, investment-market volatility, credit ratings, cybersecurity and access to capital markets.
- Management stated that disclosure controls were effective and that there had been no material changes to previously disclosed risk factors. Dominion Energy completed integration of SCANA systems and processes into its internal-control framework during the quarter.
Most Important Facts for Investors to Verify
- Whether the Q-Pipe Transaction obtained required antitrust and regulatory approvals and closed on the expected timetable, including the treatment of the $1.3 billion deposit and expected gain.
- The sustainability of reported earnings excluding nuclear trust investment gains, derivative mark-to-market gains, reserve adjustments and other unusual items.
- The outcome of Virginia Power's 2021 Triennial Review, including the authorized ROE, any customer credits or CCRO treatment and the effect on future rates.
- Liquidity and refinancing needs given short-term debt, securities due within one year and dependence on capital markets despite $3.4 billion of revolving-facility capacity.
- Additional cash requirements and liabilities associated with Atlantic Coast Pipeline, SCANA-related litigation, environmental compliance and the abandoned V.C. Summer project.
- Cost and schedule updates for Coastal Virginia Offshore Wind, planned solar projects, CCR closure and other regulated capital programs.
- Future volatility in nuclear decommissioning trust investments and interest-rate derivatives, which materially affected Q1 2021 earnings and comprehensive income.