DOMINION ENERGY, INC quarterly report, Q3 FY2019

Dominion Energy, Inc. 2019 Q3 Form 10-Q Summary

Business context and reporting period

Combined quarterly filing for Dominion Energy, Inc., Virginia Electric and Power Company and Dominion Energy Gas Holdings, LLC, covering the three and nine months ended September 30, 2019. Dominion operates regulated electric generation, transmission and distribution, natural gas transmission, storage and distribution, LNG infrastructure, merchant generation and renewable energy businesses. The SCANA Combination closed in January 2019 and materially expanded the Southeast Energy segment.

Key financial metrics

Metric	Q3 2019	Q3 2018	9M 2019	9M 2018
Operating revenue	$4.269 billion	$3.451 billion	$12.097 billion	$10.005 billion
Net income attributable to Dominion	$975 million	$854 million	$349 million	$1.806 billion
Diluted EPS	$1.17	$1.30	$0.39	$2.77
Income from operations	$1.314 billion	$1.150 billion	$1.293 billion	$2.767 billion
Net cash from operating activities	Not provided for quarter	Not provided for quarter	$3.709 billion	$3.711 billion

Q3 operating margin was approximately 30.8%, compared with 33.3% in Q3 2018. Q3 net margin was approximately 22.8%, compared with 24.7%. Year-to-date operating margin was approximately 10.7%, compared with 27.7%, primarily reflecting significant SCANA-related and other unusual charges.

September 30 cash and cash equivalents were $378 million; cash, restricted cash and equivalents used in the cash flow statement were $440 million.
September 30 total assets were $102.4 billion and total equity was $30.0 billion.
Debt included $4.824 billion of securities due within one year, $2.420 billion of short-term debt, $29.838 billion of long-term debt and $3.797 billion of junior subordinated notes.
Dominion had a $6.0 billion joint revolving credit facility, with $3.525 billion of capacity available after commercial paper and letters of credit.
Capital expenditures and other property additions were $3.407 billion for the first nine months, compared with $3.111 billion in the prior-year period.
Common dividends paid during the first nine months were $2.224 billion.

Material changes versus the prior comparable period

Q3 net income increased 14% and revenue increased 24%, primarily from SCANA operations, higher renewable investment tax credits, lower electric capacity expense and warmer cooling-season weather.
Year-to-date net income fell $1.457 billion and diluted EPS declined $2.38, despite a 21% revenue increase. The decline was driven by the $1.0 billion pretax charge for refunds of prior NND Project collections, SCANA litigation and regulatory charges, early asset retirements, the voluntary retirement program and other unusual items.
SCANA contributed approximately $979 million of Q3 revenue and $97 million of attributable net income. For the nine months, SCANA increased revenue by approximately $2.1 billion but decreased attributable net income by approximately $1.1 billion, principally because of the customer-refund charge and related items.
Operating expenses increased substantially, including year-to-date other operations and maintenance expense of $3.295 billion versus $2.438 billion and impairment and other charges of $1.232 billion versus $147 million.
Dominion acquired the public interest in Dominion Energy Midstream in January 2019 and issued 22.5 million common shares. It also issued 95.6 million shares for the SCANA Combination and $1.6 billion of 2019 Equity Units.
Dominion adopted the new lease standard in 2019, recording $504 million of operating lease right-of-use assets and liabilities at adoption.

Guidance, outlook, commentary, risks and unusual items

The filing does not provide a clear consolidated earnings or revenue guidance figure. Management states that operations are expected to provide stable cash flow to fund planned capital expenditures and support the dividend, but results remain exposed to regulatory, construction, market and operating uncertainties.

Atlantic Coast Pipeline: Construction was delayed by legal and permitting challenges. Completion is expected by the end of 2021 with full in-service in early 2022. Estimated project cost is $7.3 billion to $7.8 billion, excluding financing costs, and remains subject to upward pressure. The Supreme Court agreed to hear the Appalachian Trail case, with a ruling expected by June 2020.
SCANA/NND Project: Dominion must provide approximately $2.0 billion of customer refunds and restitution over 20 years. Additional litigation, tax assessments, regulatory proceedings and contractor claims remain outstanding. The filing identifies $386 million of reserves and $173 million of insurance receivables for matters where probable losses could be estimated.
Environmental and regulatory exposure: Coal ash closure obligations, carbon regulation, water and air rules, remediation, nuclear decommissioning and spent-fuel matters could require material additional spending, although rate recovery may mitigate impacts for regulated utilities.
Other notable items: Dominion recorded a $423 million voluntary retirement program charge, Virginia Power recorded major charges for generation and automated-metering retirements, and Virginia Power paid $135 million to terminate a non-utility-generator contract.
Planned transactions: Dominion agreed to sell a 25% noncontrolling interest in Cove Point to Brookfield for approximately $2.1 billion, expected to close in December 2019. Dominion also expected to contribute nonregulated retail energy marketing operations to Wrangler and receive approximately $250 million initially.
Capital and market risks: The company is exposed to interest rates, commodity prices, investment values, counterparty credit, weather, cybersecurity, regulatory approvals, construction delays and credit-market conditions. No material changes to previously disclosed risk factors or debt covenants were reported.

Most important facts for investors to verify

Reconcile reported year-to-date EPS of $0.39 to recurring operating performance after excluding SCANA refunds, litigation, retirement, asset-retirement and other unusual charges.
Assess the sustainability of the dividend and leverage following the SCANA acquisition, additional debt, equity units and large near-term debt maturities.
Monitor Atlantic Coast Pipeline court decisions, revised cost estimates, construction timing and potential impairment or AFUDC consequences.
Review the ultimate cost and regulatory treatment of NND Project refunds, litigation, tax assessments and related contingencies.
Evaluate whether coal ash, environmental, nuclear and carbon-regulation costs will be recoverable through customer rates.
Confirm the timing and proceeds of the Cove Point and Wrangler transactions and how their gains, ownership changes and cash proceeds affect leverage and earnings.
Review quarterly filings for changes in regulatory assets and liabilities, which totaled $8.635 billion and $11.473 billion, respectively, at September 30, 2019.