DOMINION ENERGY, INC quarterly report, Q3 FY2023

Dominion Energy, Inc. 2023 Q3 Form 10-Q Summary

Business context and reporting period

This combined Form 10-Q covers Dominion Energy, Inc. and its wholly owned subsidiary Virginia Electric and Power Company for the quarter and nine months ended September 30, 2023. Dominion operates regulated electric utilities in Virginia and South Carolina, contracted and nonregulated energy businesses, and, until disposition, regulated gas distribution operations. The filing reflects a major portfolio review: regulated gas distribution businesses East Ohio, PSNC and Questar Gas/Wexpro were classified as held for sale and discontinued operations, and Dominion completed the sale of its remaining 50% interest in Cove Point in September 2023.

Financial performance and key metrics

Metric	Q3 2023	Q3 2022	9M 2023	9M 2022
Operating revenue	$3.810 billion	$3.963 billion	$10.859 billion	$10.135 billion
Income from operations	$1.035 billion	$995 million	$2.716 billion	$1.176 billion
Net income from continuing operations	$717 million	$626 million	$1.864 billion	$261 million
Net income attributable to Dominion	$163 million	$778 million	$1.759 billion	$1.036 billion
Diluted EPS	$0.17	$0.91	$2.03	$1.17
Operating margin	27.2%	25.1%	25.0%	11.6%

Q3 revenue declined 4%, while nine-month revenue increased 7%. Revenue changes were substantially affected by fuel-cost pass-throughs, hedging results and Virginia rider legislation.
Q3 operating income increased 4%; nine-month operating income more than doubled, primarily because 2022 included significant Virginia fuel and RGGI charges and the Kewaunee sale loss.
Q3 continuing-operations net income rose 15%, but consolidated net income fell 79% because discontinued operations recorded a $554 million loss, including substantial deferred tax charges related to pending sales.
Dominion generated $5.186 billion of operating cash flow in the first nine months, versus $2.671 billion in the prior-year period. Capital additions were $7.166 billion, producing negative operating cash flow less capital expenditures of approximately $1.980 billion before financing and asset-sale proceeds.
Investing cash flow was negative $4.091 billion, including $7.166 billion of construction and property additions and $3.293 billion of proceeds from the Cove Point sale.
Financing cash flow was negative $1.189 billion, reflecting $5.673 billion of long-term debt repayments and repurchases, $2.660 billion of new long-term debt, term-loan activity and $1.674 billion of common dividends.
At September 30, Dominion reported $247 million of cash, restricted cash and equivalents, $32.145 billion of long-term debt, $3.785 billion of short-term debt, $4.147 billion of securities due within one year and $900 million of supplemental credit-facility borrowings. Its $6.0 billion joint revolving facility had $2.622 billion available.
Total assets were $105.943 billion and shareholders’ equity was $28.028 billion at September 30, compared with $104.243 billion and $27.881 billion, respectively, at December 31, 2022.
Virginia Power generated $4.040 billion of operating cash flow and used $5.088 billion in investing activities during the first nine months. Its net income was $473 million in Q3 and $1.158 billion year to date.

Material changes versus the prior comparable period

Dominion recognized $1.3 billion of income tax expense in discontinued operations during the first nine months, including $939 million of deferred taxes established when East Ohio, PSNC and Questar Gas/Wexpro met held-for-sale criteria. These taxes are expected to reverse when the transactions close.
The Cove Point disposition generated $3.3 billion of cash proceeds and a $626 million pretax gain, or $348 million after tax, but eliminates future equity earnings from the investment.
The three pending Enbridge transactions have aggregate stated enterprise values of approximately $14.0 billion, including approximately $9.5 billion of cash purchase price and $4.5 billion of assumed debt. Each transaction is expected to close in 2024, subject to regulatory and other conditions, and none is conditioned on the others.
Virginia legislation shifted at least $350 million of annual rider revenue requirement into base rates, eliminated the ability to use certain customer credit reinvestment offsets and changed rate-review and earnings-sharing rules. Management identified the legislation as reducing 2023 earnings.
Virginia Power filed for securitization of approximately $1.3 billion of deferred fuel costs; the Virginia Commission approved the financing order in November 2023 for bonds with terms of up to approximately seven years.
Virginia Power’s third-quarter landfill-closure estimates increased asset-retirement obligations by $510 million, with $444 million recorded as regulatory assets and $66 million as other deferred assets.
Standard & Poor’s affirmed Dominion’s credit ratings in April 2023 but changed the outlook from stable to negative.

Guidance, outlook, risks and unusual items

The filing states that, apart from the Virginia legislative effects and the Cove Point sale, there were no material changes to Dominion’s 2023 outlook as described in its 2022 Form 10-K. The filing does not provide a clear consolidated 2023 EPS guidance range.
Dominion expected to complete its broader business review by the end of 2023 or early 2024 and was evaluating a potential noncontrolling equity partner for the Coastal Virginia Offshore Wind project.
The 2.6 GW CVOW Commercial Project is expected to cost approximately $10 billion, excluding financing costs, and enter service by the end of 2026. The filing identifies execution, permitting, cost, financing and customer-recovery risks.
The offshore wind installation vessel lease project has estimated funding of $625 million, with $383 million funded as of September 30, 2023. Certain termination or sale outcomes could require Dominion to make substantial payments.
Dominion reported $4.517 billion of maximum exposure under subsidiary guarantees, excluding the offshore wind vessel guarantee, and $1.9 billion of cumulative maximum exposure under two Cove Point-related guarantees.
Key risks include failure or delay in completing the Enbridge transactions, regulatory changes and rate recovery, interest-rate and commodity-price volatility, nuclear operations and decommissioning, environmental compliance, weather and storm damage, cybersecurity, construction of CVOW, credit ratings and access to capital.
At September 30, a hypothetical 10% increase in commodity prices would have reduced the fair value of Dominion’s commodity derivatives by $77 million. A hypothetical 10% increase in interest rates would reduce earnings on variable-rate debt by approximately $44 million, while a 10% increase in exchange rates would reduce the fair value of foreign-currency swaps by approximately $239 million.
Subsequent events include a $2.25 billion Dominion 364-day term-loan facility entered in October 2023, an initial $1.0 billion borrowing, repayment of certain other borrowings, and additional Virginia Power equity issuances to Dominion to support its targeted 52.10% common-equity capitalization ratio.

Most important facts for an investor to verify

Closing timing, regulatory approvals, purchase-price adjustments and tax consequences of the East Ohio, PSNC and Questar Gas/Wexpro sales.
Use of sale proceeds, remaining debt maturities and refinancing requirements, particularly the January 2024 Dominion term loan and other variable-rate borrowings.
Whether the $1.3 billion Virginia fuel-cost securitization reduces near-term cash-flow pressure and how its customer-rate effects are implemented.
Updated cost estimates, financing structure, regulatory recovery and potential equity-partner arrangements for the approximately $10 billion CVOW project.
The recurring earnings profile excluding discontinued operations, deferred tax reversals, Cove Point gains, derivative mark-to-market effects, investment-trust gains and other identified specific items.
Future effects of Virginia’s revised rate-review and earnings-sharing framework, including potential customer credits and authorized return on equity.
Environmental, nuclear, legal and guarantee exposures that the filing states cannot yet be quantified or that could materially affect cash flows.