Dominion Energy, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Combined quarterly filing for Dominion Energy, Inc. and its wholly owned subsidiary Virginia Electric and Power Company, doing business as Virginia Power. The filing covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. Dominion operates regulated electric and gas utilities, nonregulated generation, renewable projects and a 50% noncontrolling interest in Cove Point.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Operating revenue | $4.386 billion | $3.176 billion | $12.261 billion | $10.084 billion |
| Net income attributable to Dominion Energy | $778 million | $654 million | $1.036 billion | $1.947 billion |
| Diluted EPS | $0.91 | $0.79 | $1.17 | $2.35 |
| Income from operations | $1.072 billion | $841 million | $1.730 billion | $2.082 billion |
| Operating margin | 24.4% | 26.5% | 14.1% | 20.6% |
| Net income margin | 17.7% | 20.6% | 8.5% | 19.3% |
| Cash flow from operations | — | — | $2.671 billion | $3.535 billion |
| Capital expenditures and other property additions | — | — | $5.251 billion | $4.142 billion |
At September 30, 2022, total assets were $103.535 billion, cash and cash equivalents were $163 million, and cash, restricted cash and equivalents used in the cash-flow statement were $340 million. Current liabilities were $12.172 billion. Long-term debt was $38.162 billion, including $450 million of supplemental credit facility borrowings; short-term debt was $2.943 billion and securities due within one year were $2.889 billion.
Dominion had a $6.0 billion joint revolving credit facility, with $3.149 billion of capacity available after commercial paper and letters of credit. The company also had $450 million outstanding under its $900 million sustainability revolving credit facility.
Material changes versus the prior comparable period
- Third-quarter net income increased 19% and diluted EPS increased $0.12, primarily from improved unrealized economic hedging results and lower interest-related charges.
- Nine-month net income declined 47% and diluted EPS declined $1.18. The principal adverse items were the $649 million pre-tax loss on the sale of Kewaunee, lower nuclear decommissioning trust investment results, Virginia Power regulatory and fuel-related charges, and RGGI compliance charges.
- Revenue increased 38% in the quarter and 22% year to date, largely from higher fuel and commodity-related revenue and increased recovery through utility riders. These increases were substantially offset in operating expenses by higher fuel and purchased gas costs.
- Operating cash flow declined $864 million year to date, primarily because of lower deferred fuel cost recoveries, customer refund payments and working-capital changes.
- Capital expenditures increased $1.109 billion year to date to $5.251 billion, contributing to negative free cash flow before financing.
- Dominion completed the sale of Hope in August 2022 and recorded an after-tax loss of $89 million. It also completed the sale of Kewaunee in June 2022, recording a $513 million after-tax loss.
- Dominion redeemed all outstanding Series A Preferred Stock for approximately $1.6 billion in September 2022 and issued 19.4 million common shares for approximately $1.6 billion to settle the related stock purchase contracts.
- Virginia Power’s nine-month net income decreased 27% to $975 million. Its third-quarter net income increased 3% to $571 million.
Guidance, outlook, commentary and risks
- As of September 30, 2022, management reported no material changes to the 2022 outlook previously disclosed in the June 30, 2022 Form 10-Q.
- Dominion expected to issue approximately $3.2 billion to $4.4 billion of long-term debt during 2022, including amounts issued through September 30, 2022, and expected to raise $300 million to $500 million through common-stock issuance.
- In November 2022, after the reporting period, Dominion announced a business review covering strategic alternatives, business mix, capital allocation and regulatory options. The filing states that implementation of resulting recommendations could materially affect future results, financial condition or cash flows.
- The Coastal Virginia Offshore Wind project remains subject to construction-cost, performance, foreign-currency, permitting, regulatory and cost-recovery risks. The project’s estimated total construction cost was subject to cost-sharing bands between $10.3 billion and $13.7 billion under a proposed settlement pending at the filing date.
- Key continuing risks include fuel and commodity-price volatility, interest rates, nuclear operations and decommissioning, environmental compliance, storm damage, regulatory recovery, litigation, cybersecurity, counterparty credit exposure, capital-market access and execution of major renewable projects.
- Dominion reported $4.328 billion of maximum exposure under subsidiary guarantees, including $2.514 billion for commodity transactions. Cove Point guarantees had cumulative maximum exposure of $1.9 billion for two guarantees, while two additional guarantees had no stated maximum limit.
- Potential additional collateral required upon triggering credit-related provisions was $189 million for Dominion and $58 million for Virginia Power at September 30, 2022.
- The filing states that disclosure controls and procedures were effective and that there were no material changes to internal control over financial reporting during the quarter.
Most important facts an investor should verify
- Reconcile reported earnings with recurring utility earnings, given the significant Kewaunee, Hope, nuclear trust, RGGI, fuel-settlement and regulatory items.
- Review debt maturities, refinancing requirements, variable-rate exposure, credit ratings and available revolving-credit capacity.
- Assess whether operating cash flow can support capital spending, dividends and debt reduction without continued reliance on external financing.
- Track regulatory treatment and customer recovery of deferred fuel costs, ash-pond remediation, nuclear life-extension costs and other regulatory assets.
- Review the final regulatory treatment, cost-sharing provisions and construction progress for the Coastal Virginia Offshore Wind project.
- Monitor the post-period business review and any resulting asset sales, restructuring, capital-allocation changes or revisions to the company’s utility strategy.
- Evaluate nuclear decommissioning trust values, pension exposure, environmental obligations, guarantees and unresolved litigation contingencies.