Exhibit 99.2
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym |
| Definition |
2021 Triennial Review |
| Virginia Commission review of Virginia Power’s earned return on base rate generation and distribution services for the four successive 12-month test periods beginning January 1, 2017 and ending December 31, 2020 |
ARO |
| Asset retirement obligation |
bcf |
| Billion cubic feet |
CCRO |
| Customer credit reinvestment offset |
Companies |
| Dominion Energy and Virginia Power, collectively |
Contracted Energy |
| Contracted Energy operating segment, formerly known as the Contracted Assets operating segment |
Cove Point |
| Cove Point LNG, LP (formerly known as Dominion Energy Cove Point LNG, LP) |
CVOW Commercial Project |
| A proposed 2.6 GW wind generation facility 27 miles off the coast of Virginia Beach, Virginia in federal waters adjacent to the CVOW Pilot Project and associated interconnection facilities in and around Virginia Beach, Virginia |
CVOW Pilot Project |
| A 12 MW wind generation facility 27 miles off the coast of Virginia Beach, Virginia in federal waters |
DEQPS |
| MountainWest Pipeline Services, Inc. (formerly known as Dominion Energy Questar Pipeline Services, Inc.) |
DESC |
| The legal entity, Dominion Energy South Carolina, Inc., one or more of its consolidated entities or operating segment, or the entirety of Dominion Energy South Carolina, Inc. and its consolidated entities |
Dominion Energy |
| The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than Virginia Power) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries |
Dominion Energy Direct® |
| A dividend reinvestment and open enrollment direct stock purchase plan |
Dominion Energy Questar Pipeline |
| The legal entity, MountainWest Pipeline, LLC (formerly known as Dominion Energy Questar Pipeline, LLC), one or more of its consolidated subsidiaries (including its 50% noncontrolling interest in White River Hub), or the entirety of Dominion Energy Questar Pipeline, LLC and its consolidated subsidiaries |
Dominion Energy South Carolina |
| Dominion Energy South Carolina operating segment |
Dominion Energy Virginia |
| Dominion Energy Virginia operating segment |
Dominion Privatization |
| Dominion Utility Privatization, LLC, a joint venture between Dominion Energy and Patriot |
East Ohio |
| The East Ohio Gas Company, doing business as Dominion Energy Ohio |
East Ohio Transaction |
| The proposed sale by Dominion Energy to Enbridge of all issued and outstanding capital stock in Dominion Energy Questar Corporation and its consolidated subsidiaries, which following a proposed reorganization will include East Ohio and Dominion Energy Gas Distribution, LLC, pursuant to a purchase and sale agreement entered into on September 5, 2023 |
Enbridge |
| The legal entity, Enbridge Inc., one or more of its consolidated subsidiaries (including Enbridge Elephant Holdings, LLC, Enbridge Parrot Holdings, LLC, and Enbridge Quail Holdings, LLC), or the entirety of Enbridge Inc. and its consolidated subsidiaries |
EPA |
| U.S. Environmental Protection Agency |
EPS |
| Earnings per common share |
FERC |
| Federal Energy Regulatory Commission |
Gas Distribution |
| Gas Distribution operating segment |
GHG |
| Greenhouse gas |
GTSA |
| Virginia Grid Transformation and Security Act of 2018 |
GW |
| Gigawatt |
Heating degree days |
| Units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, or 60 degrees Fahrenheit in DESC’s service territory, calculated as the difference between 65 or 60 degrees, as applicable, and the average temperature for that day |
Hope |
| Hope Gas, Inc., doing business as Dominion Energy West Virginia through August 2022 |
ISO |
| Independent system operator |
LNG |
| Liquefied natural gas |
MD&A |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Millstone |
| Millstone nuclear power station |
MW |
| Megawatt |
MWh |
| Megawatt hour |
Order 1000 |
| Order issued by FERC adopting requirements for electric transmission planning, cost allocation and development |
Patriot |
| Patriot Utility Privatizations, LLC, a joint venture between Foundation Infrastructure Partners, LLC and John Hancock Life Insurance Company (U.S.A.) and affiliates |
PFAS |
| Per- and polyfluorinated substances, a group of widely used chemicals that break down very slowly over time in the environment |
PJM |
| PJM Interconnection, LLC |
PSNC |
| Public Service Company of North Carolina, Incorporated, doing business as Dominion Energy North Carolina |
PSNC Transaction |
| The proposed sale by Dominion Energy to Enbridge of all of its membership interests in Fall North Carolina Holdco LLC and its consolidated subsidiaries, which following a proposed reorganization will include PSNC, pursuant to a purchase and sale agreement entered into on September 5, 2023 |
Q-Pipe Group |
| Collectively, Dominion Energy Questar Pipeline, DEQPS and MountainWest Energy Holding Company, LLC (formerly known as QPC Holding Company, LLC and its subsidiary MountainWest Southern Trails Pipeline Company (formerly known as Questar Southern Trails Pipeline Company)) |
Questar Gas |
| Questar Gas Company, doing business as Dominion Energy Utah, Dominion Energy Wyoming and Dominion Energy Idaho |
Questar Gas Transaction |
| The proposed sale by Dominion Energy to Enbridge of all of its membership interests in Fall West Holdco LLC and its consolidated subsidiaries, which following a proposed reorganization will include Questar Gas, Wexpro, Wexpro II Company, Wexpro Development Company, Dominion Energy Wexpro Services Company, Questar InfoComm Inc. and Dominion Gas Projects Company, LLC, pursuant to a purchase and sale agreement entered into on September 5, 2023 |
Regulation Act |
| Legislation effective July 1, 2007, that amended the Virginia Electric Utility Restructuring Act and fuel factor statute, which legislation is also known as the Virginia Electric Utility Regulation Act, as amended in 2015, 2018 and 2023 |
ROE |
| Return on equity |
RTO |
| Regional transmission organization |
SCANA |
| The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries, or the entirety of SCANA Corporation and its consolidated subsidiaries |
SCANA Combination |
| Dominion Energy’s acquisition of SCANA completed on January 1, 2019 pursuant to the terms of the agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA |
SEC |
| U.S. Securities and Exchange Commission |
2
Standard & Poor’s |
| Standard & Poor’s Ratings Services, a division of S&P Global Inc. |
VCEA |
| Virginia Clean Economy Act of March 2020 |
Virginia Commission |
| Virginia State Corporation Commission |
Virginia Power |
| The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segment, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries |
Wexpro |
| The legal entity, Wexpro Company, one or more of its consolidated subsidiaries, or the entirety of Wexpro Company and its consolidated subsidiaries |
White River Hub |
| MountainWest White River Hub, LLC (formerly known as White River Hub, LLC) |
3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A discusses Dominion Energy’s results of operations and general financial condition and Virginia Power’s results of operations. MD&A should be read in conjunction with the Companies’ Consolidated Financial Statements. Virginia Power meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.
Contents of MD&A
MD&A consists of the following information:
Forward-Looking Statements
This report contains statements concerning the Companies’ expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “continue,” “target” or other similar words.
The Companies make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:
4
5
Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part I. Item 1A. Risk Factors in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
The Companies’ forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Companies caution the reader not to place undue reliance on their forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. The Companies undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
Accounting Matters
As of March 31, 2023, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022. The policies disclosed included the accounting for regulated operations, AROs, income taxes, accounting for derivative contracts and financial instruments at fair value, use of estimates in goodwill impairment testing, use of estimates in long-lived asset and equity method investment impairment testing, held for sale classification and employee benefit plans.
Results of Operations—Dominion Energy
Presented below is a summary of Dominion Energy’s consolidated results:
|
| 2023 |
|
| 2022 |
|
| $ Change |
| |||
(millions, except EPS) |
|
|
|
|
|
|
|
|
| |||
First Quarter |
|
|
|
|
|
|
|
|
| |||
Net income attributable to Dominion Energy |
| $ | 997 |
|
| $ | 711 |
|
| $ | 286 |
|
Diluted EPS |
|
| 1.17 |
|
|
| 0.84 |
|
|
| 0.33 |
|
Overview
First Quarter 2023 vs. 2022
Net income attributable to Dominion Energy increased 40%, primarily due to an increase in net investment earnings on nuclear decommissioning trust funds, increased unrealized gains on economic hedging activities, a decrease in storm damage and service restoration costs and the absence of a charge to reflect the recognition of deferred taxes on the outside basis of Hope’s stock upon meeting the classification as held for sale, partially offset by a charge associated with the impairment of a corporate office building and a decrease in sales to electric utility customers attributable to weather.
6
Analysis of Consolidated Operations
Presented below are selected amounts related to Dominion Energy’s results of operations:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
| |||
(millions) |
|
|
|
|
|
|
|
|
| |||
Operating revenue |
| $ | 3,883 |
|
| $ | 3,113 |
|
| $ | 770 |
|
Electric fuel and other energy-related purchases |
|
| 1,022 |
|
|
| 678 |
|
|
| 344 |
|
Purchased electric capacity |
|
| 8 |
|
|
| 13 |
|
|
| (5 | ) |
Purchased gas |
|
| 123 |
|
|
| 145 |
|
|
| (22 | ) |
Other operations and maintenance |
|
| 742 |
|
|
| 890 |
|
|
| (148 | ) |
Depreciation, depletion and amortization |
|
| 618 |
|
|
| 602 |
|
|
| 16 |
|
Other taxes |
|
| 191 |
|
|
| 182 |
|
|
| 9 |
|
Impairment of assets and other charges (benefits) |
|
| 98 |
|
|
| (11 | ) |
|
| 109 |
|
Losses (gains) on sales of assets |
|
| (2 | ) |
|
| (28 | ) |
|
| 26 |
|
Other income (expense) |
|
| 276 |
|
|
| 43 |
|
|
| 233 |
|
Interest and related charges |
|
| 479 |
|
|
| 242 |
|
|
| 237 |
|
Income tax expense |
|
| 164 |
|
|
| 143 |
|
|
| 21 |
|
Net income from discontinued operations |
|
| 281 |
|
|
| 411 |
|
|
| (130 | ) |
An analysis of Dominion Energy’s results of operations follows:
First Quarter 2023 vs. 2022
Operating revenue increased 25%, primarily reflecting:
These increases were partially offset by:
Electric fuel and other energy-related purchases increased 51%, primarily due to higher commodity costs for electric utilities ($316 million) and an increase in the use of purchased renewable energy credits at Virginia Power ($28 million), which are offset in operating revenue and do not impact net income.
Purchased gas decreased 15%, primarily due to a decrease from the sale of Hope.
Other operations and maintenance decreased 17%, primarily due to a decrease in storm damage and restoration costs in Virginia Power’s service territory ($104 million) and a decrease in certain Virginia Power expenditures which are primarily recovered through state- and FERC-regulated rates and do not impact net income ($71 million), partially offset by an increase in outside services ($13 million).
Impairment of assets and other charges increased $109 million, primarily due to the impairment of a corporate office building.
7
Gains on sales of assets decreased 93%, primarily due to the absence of a gain on the contribution of certain privatization operations to Dominion Privatization.
Other income increased $233 million, primarily due to net investment gains in 2023 compared to net investment losses in 2022 on nuclear decommissioning trust funds.
Interest and related charges increased 98%, primarily due to unrealized losses in 2023 compared to unrealized gains in 2022 associated with freestanding derivatives ($131 million), higher interest rates on commercial paper and long-term debt ($45 million), higher interest rates on variable rate debt and cash flow interest rate swaps ($40 million) and increased commercial paper and long-term debt borrowings ($36 million).
Income tax expense increased 15%, primarily due to higher pre-tax income ($125 million), partially offset by the absence of a charge to reflect the recognition of deferred taxes on the outside basis of Hope's stock upon meeting the classification as held for sale ($87 million).
Net income from discontinued operations including noncontrolling interests decreased 32%, primarily due to unrealized losses in 2023 compared to unrealized gains in 2022 on interest rate derivatives for economic hedging of debt secured by Dominion Energy's 50% noncontrolling interest in Cove Point ($95 million), the absence of a gain associated with the Q-Pipe Group for the finalization of the working capital adjustment in the first quarter of 2022 ($20 million) and higher interest rates on variable rate debt secured by Dominion Energy's 50% noncontrolling interest in Cove Point ($19 million), partially offset by an increase following the approved base rate case for Questar Gas ($16 million).
Results of Operations—Virginia Power
Presented below is a summary of Virginia Power’s consolidated results:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
| |||
(millions) |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 353 |
|
| $ | 357 |
|
| $ | (4 | ) |
Overview
First Quarter 2023 vs. 2022
Net income decreased 1%, primarily due to a decrease in sales to electric utility customers attributable to weather, substantially offset by a decrease in storm damage and service restoration costs.
Analysis of Consolidated Operations
Presented below are selected amounts related to Virginia Power’s results of operations:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
| |||
(millions) |
|
|
|
|
|
|
|
|
| |||
Operating revenue |
| $ | 2,384 |
|
| $ | 2,167 |
|
| $ | 217 |
|
Electric fuel and other energy-related purchases |
|
| 799 |
|
|
| 516 |
|
|
| 283 |
|
Purchased electric capacity |
|
| 8 |
|
|
| 11 | �� |
|
| (3 | ) |
Other operations and maintenance |
|
| 441 |
|
|
| 570 |
|
|
| (129 | ) |
Depreciation and amortization |
|
| 447 |
|
|
| 429 |
|
|
| 18 |
|
Other taxes |
|
| 85 |
|
|
| 75 |
|
|
| 10 |
|
Impairment of assets and other charges |
|
| 7 |
|
|
| 4 |
|
|
| 3 |
|
Other income (expense) |
|
| 36 |
|
|
| 4 |
|
|
| 32 |
|
Interest and related charges |
|
| 181 |
|
|
| 148 |
|
|
| 33 |
|
Income tax expense |
|
| 99 |
|
|
| 61 |
|
|
| 38 |
|
8
An analysis of Virginia Power’s results of operations follows:
First Quarter 2023 vs. 2022
Operating revenue increased 10%, primarily reflecting:
These increases were partially offset by:
Electric fuel and other energy-related purchases increased 55%, primarily due to higher commodity costs for electric utilities ($249 million) and an increase in the use of purchased renewable energy credits ($28 million), which are offset in operating revenue and do not impact net income.
Other operations and maintenance decreased 23%, primarily due to a decrease in storm damage and restoration costs ($104 million) and a decrease in certain expenditures which are primarily recovered through state- and FERC-regulated rates and do not impact net income ($71 million), partially offset by an increase in outside services ($16 million).
Other income increased $32 million, primarily due to net investment gains in 2023 compared to net investment losses in 2022 on nuclear decommissioning trust funds.
Interest and related charges increased 22%, primarily due to increased commercial paper, long-term debt and intercompany borrowings with Dominion Energy ($33 million) and higher interest rates on commercial paper, long-term debt and intercompany borrowings with Dominion Energy ($11 million), partially offset by decreased interest expense associated with rider deferrals ($12 million).
Income tax expense increased 62%, primarily due to lower investment tax credits ($27 million) and higher pre-tax income ($10 million).
Segment Results of Operations
Segment results include the impact of intersegment revenues and expenses, which may result in intersegment profit and loss. In September 2023, Dominion Energy revised its operating segments subsequent to entering agreements for the East Ohio, PSNC and Questar Gas Transactions as well as completing the sale of its noncontrolling interest in Cove Point. See Notes 1 and 21 to the Consolidated Financial Statements for more information. The historical information presented herein has been recast to reflect the current segment presentation. Presented below is a summary of contributions by Dominion Energy’s operating segments to net income (loss) attributable to Dominion Energy:
|
| Net Income (Loss) Attributable to |
|
| EPS(1) |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
| ||||||
(millions, except EPS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dominion Energy Virginia |
| $ | 384 |
|
| $ | 516 |
|
| $ | (132 | ) |
| $ | 0.46 |
|
| $ | 0.64 |
|
| $ | (0.18 | ) |
Dominion Energy South Carolina |
|
| 91 |
|
|
| 109 |
|
|
| (18 | ) |
|
| 0.11 |
|
|
| 0.13 |
|
|
| (0.02 | ) |
Contracted Energy |
|
| 113 |
|
|
| 57 |
|
|
| 56 |
|
|
| 0.13 |
|
|
| 0.07 |
|
|
| 0.06 |
|
Corporate and Other |
|
| 409 |
|
|
| 29 |
|
|
| 380 |
|
|
| 0.47 |
|
|
| — |
|
|
| 0.47 |
|
Consolidated |
| $ | 997 |
|
| $ | 711 |
|
| $ | 286 |
|
| $ | 1.17 |
|
| $ | 0.84 |
|
| $ | 0.33 |
|
9
(1) Consolidated results are presented on a diluted EPS basis. The dilutive impacts, primarily consisting of potential shares which had not yet been issued, are included within the results of the Corporate and Other segment. EPS contributions for Dominion Energy’s operating segments are presented utilizing basic average shares outstanding for the period.
Dominion Energy Virginia
Presented below are selected operating statistics related to Dominion Energy Virginia’s operations:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
| |||
Electricity delivered (million MWh) |
|
| 21.7 |
|
|
| 22.3 |
|
|
| (3 | )% |
Electricity supplied (million MWh): |
|
|
|
|
|
|
|
|
| |||
Utility |
|
| 21.8 |
|
|
| 22.3 |
|
|
| (2 | ) |
Non-Jurisdictional |
|
| 0.3 |
|
|
| 0.3 |
|
|
| — |
|
Degree days (electric distribution and utility service area): |
|
|
|
|
|
|
|
|
| |||
Cooling |
|
| 3 |
|
|
| 11 |
|
|
| (73 | ) |
Heating |
|
| 1,471 |
|
|
| 1,895 |
|
|
| (22 | ) |
Average electric distribution customer accounts |
|
| 2,742 |
|
|
| 2,716 |
|
|
| 1 |
|
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy Virginia’s net income contribution:
|
| First Quarter |
| |||||
|
| Amount |
|
| EPS |
| ||
(millions, except EPS) |
|
|
|
|
|
| ||
Weather |
| $ | (67 | ) |
| $ | (0.08 | ) |
Customer usage and other factors |
|
| 33 |
|
|
| 0.04 |
|
Customer-elected rate impacts |
|
| (21 | ) |
|
| (0.03 | ) |
Rider equity return |
|
| 32 |
|
|
| 0.04 |
|
Depreciation and amortization |
|
| (6 | ) |
|
| (0.01 | ) |
Renewable energy investment tax credits |
|
| (57 | ) |
|
| (0.07 | ) |
Interest expense, net |
|
| (13 | ) |
|
| (0.02 | ) |
Other |
|
| (33 | ) |
|
| (0.04 | ) |
Share dilution |
|
| — |
|
|
| (0.01 | ) |
Change in net income contribution |
| $ | (132 | ) |
| $ | (0.18 | ) |
Dominion Energy South Carolina
Presented below are selected operating statistics related to Dominion Energy South Carolina’s operations:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
| |||
Electricity delivered (million MWh) |
|
| 5.0 |
|
|
| 5.2 |
|
|
| (4 | %) |
Electricity supplied (million MWh) |
|
| 5.2 |
|
|
| 5.5 |
|
|
| (5 | ) |
Degree days (electric distribution service areas): |
|
|
|
|
|
|
|
|
| |||
Cooling |
|
| 1 |
|
|
| — |
|
|
| 100 |
|
Heating |
|
| 459 |
|
|
| 750 |
|
|
| (39 | ) |
Gas distribution throughput (bcf): |
|
|
|
|
|
|
|
|
| |||
Sales |
|
| 17 |
|
|
| 20 |
|
|
| (15 | ) |
Average distribution customer accounts (thousands): |
|
|
|
|
|
|
|
|
| |||
Electric |
|
| 783 |
|
|
| 772 |
|
|
| 1 |
|
Gas |
|
| 437 |
|
|
| 422 |
|
|
| 4 |
|
10
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy South Carolina’s net income contribution:
|
| First Quarter |
| |||||
|
| Amount |
|
| EPS |
| ||
(millions, except EPS) |
|
|
|
|
|
| ||
Weather |
| $ | (19 | ) |
| $ | (0.02 | ) |
Customer usage and other factors |
|
| 7 |
|
|
| 0.01 |
|
Customer-elected rate impacts |
|
| (7 | ) |
|
| (0.01 | ) |
Base rate case & Natural Gas Rate Stabilization Act impacts |
|
| 5 |
|
|
| 0.01 |
|
Capital cost rider |
|
| (2 | ) |
|
| — |
|
Depreciation and amortization |
|
| (3 | ) |
|
| — |
|
Interest expense, net |
|
| (6 | ) |
|
| (0.01 | ) |
Other |
|
| 7 |
|
|
| — |
|
Share dilution |
|
| — |
|
|
| — |
|
Change in net income contribution |
| $ | (18 | ) |
| $ | (0.02 | ) |
Contracted Energy
Presented below are selected operating statistics related to Contracted Energy's operations:
|
| First Quarter |
|
| |||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
|
| |||
Electricity supplied (million MWh) |
|
| 4.6 |
|
|
| 4.6 |
|
|
| — |
| % |
Presented below, on an after-tax basis, are the key factors impacting Contracted Energy's net income contribution:
|
| First Quarter |
| |||||
|
| Amount |
|
| EPS |
| ||
(millions, except EPS) |
|
|
|
|
|
| ||
Margin |
| $ | 46 |
|
| $ | 0.06 |
|
Planned outage costs |
|
| 3 |
|
|
| — |
|
Depreciation and amortization |
|
| 5 |
|
|
| 0.01 |
|
Other |
|
| 2 |
|
|
| (0.01 | ) |
Share dilution |
|
| — |
|
|
| — |
|
Change in net income contribution |
| $ | 56 |
|
| $ | 0.06 |
|
Corporate and Other
Presented below are the Corporate and Other segment’s after-tax results:
|
| First Quarter |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
| |||
(millions, except EPS) |
|
|
|
|
|
|
|
|
| |||
Specific items attributable to operating |
| $ | 304 |
|
| $ | (352 | ) |
| $ | 656 |
|
Specific items attributable to Corporate and |
|
| 160 |
|
|
| 372 |
|
|
| (212 | ) |
Total specific items |
|
| 464 |
|
|
| 20 |
|
|
| 444 |
|
Other corporate and other operations: |
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
| (119 | ) |
|
| (80 | ) |
|
| (39 | ) |
Other |
|
| 64 |
|
|
| 89 |
|
|
| (25 | ) |
Total other corporate and other operations |
|
| (55 | ) |
|
| 9 |
|
|
| (64 | ) |
Total net income |
| $ | 409 |
|
| $ | 29 |
|
| $ | 380 |
|
EPS impact |
| $ | 0.47 |
|
| $ | — |
|
| $ | 0.47 |
|
11
Corporate and Other includes specific items attributable to Dominion Energy’s primary operating segments that are not included in profit measures evaluated by executive management in assessing the segments' performance or in allocating resources. See Note 21 to the Consolidated Financial Statements in this report for discussion of these items in more detail. Corporate and Other also includes items attributable to the Corporate and Other segment. For the three months ended March 31, 2023, this primarily included $281 million net income from discontinued operations, primarily associated with operations included in the East Ohio, PSNC and Questar Gas Transactions and Dominion Energy's noncontrolling interest in Cove Point, a $68 million after-tax charge associated with the impairment of a corporate office building and a $45 million after-tax loss for derivative mark-to-market changes.
For the three months ended March 31, 2022, this primarily included $411 million net income from discontinued operations, primarily associated with operations included in the East Ohio, PSNC and Questar Gas Transactions and Dominion Energy's noncontrolling interest in Cove Point, a $87 million charge to reflect the recognition of deferred taxes on the outside basis of Hope’s stock upon meeting the classification as held for sale and a $52 million after-tax benefit for derivative mark-to-market changes.
Outlook
As of March 31, 2023, there have been no material changes to Dominion Energy’s 2023 outlook as described in Item 7. MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022. As discussed in Future Issues and Other Matters, legislation enacted in Virginia in April 2023 is expected to decrease Dominion Energy’s 2023 net income for riders to be combined into base rates effective July 2023.
Liquidity and Capital Resources
Dominion Energy depends on both cash generated from operations and external sources of liquidity to provide working capital and as a bridge to long-term financings. Dominion Energy’s material cash requirements include capital and investment expenditures, repaying short-term and long-term debt obligations and paying dividends on its common and preferred stock. This section should be read in conjunction with Item 7. MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
Analysis of Cash Flows
Presented below are selected amounts related to Dominion Energy’s cash flows:
|
| 2023 |
|
| 2022 |
| ||
(millions) |
|
|
|
|
|
| ||
Cash, restricted cash and equivalents at January 1 |
| $ | 341 |
|
| $ | 408 |
|
Cash flows provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
|
| 2,097 |
|
|
| 1,125 |
|
Investing activities |
|
| (2,302 | ) |
|
| (1,574 | ) |
Financing activities |
|
| 1,820 |
|
|
| 635 |
|
Net increase in cash, restricted cash and equivalents |
|
| 1,615 |
|
|
| 186 |
|
Cash, restricted cash and equivalents at March 31 |
| $ | 1,956 |
|
| $ | 594 |
|
Operating Cash Flows
Net cash provided by Dominion Energy's operating activities increased $972 million, inclusive of a $434 million decrease from discontinued operations. Net cash provided by continuing operations increased $1.4 billion primarily due to higher deferred fuel and purchased gas cost recoveries ($613 million), lower margin deposits ($338 million), a decrease in refund payments to Virginia electric customers associated with the settlement of the 2021 Triennial Review ($179 million), an increase of $232 million primarily as a result of higher operating cash flows from electric utility operations driven by riders, customer usage and other factors and changes in working capital ($44 million).
Investing Cash Flows
Net cash used in Dominion Energy’s investing activities increased $728 million, primarily due to an increase in plant construction and other property additions ($598 million) and the absence of proceeds from the sale of assets and equity method investments in 2022 ($146 million).
Financing Cash Flows
Net cash provided by Dominion Energy's financing activities increased $1.2 billion primarily due to 364-day term loan facility borrowings ($2.5 billion) and supplemental credit facility borrowings ($450 million), partially offset by a $1.7 billion decrease due to net repayments of long-term debt in 2023 versus net issuances in 2022.
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Credit Facilities and Short-Term Debt
As discussed in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022, Dominion Energy generally uses proceeds from short-term borrowings, including commercial paper, to satisfy short-term cash requirements not met through cash from operations. The levels of borrowing may vary significantly during the course of the year, depending on the timing and amount of cash requirements not satisfied by cash from operations. There have been no significant changes to Dominion Energy’s use of credit facilities and/or short-term debt during the three months ended March 31, 2023.
Joint Revolving Credit Facility
Dominion Energy maintains a $6.0 billion joint revolving credit facility which provides for a discount in the pricing of certain annual fees and amounts borrowed by Dominion Energy under the facility if Dominion Energy achieves certain annual renewable electric generation and diversity and inclusion objectives. At March 31, 2023, Dominion Energy had $2.7 billion of unused capacity under its joint revolving credit facility. See Note 16 to the Consolidated Financial Statements in this report for the balances of commercial paper and letters of credit outstanding.
Dominion Energy Reliability InvestmentSM Program
Dominion Energy has an effective shelf registration statement with the SEC for the sale of up to $3.0 billion of variable denomination floating rate demand notes, called Dominion Energy Reliability InvestmentSM. The registration limits the principal amount that may be outstanding at any one time to $1.0 billion. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Dominion Energy Reliability Investment Committee, or its designee, on a weekly basis. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Dominion Energy or at the investor’s option at any time. At March 31, 2023, Dominion Energy’s Consolidated Balance Sheets include $389 million with respect to such notes presented within short-term debt. The proceeds are used for general corporate purposes and to repay debt.
Other Facilities
In addition to the primary sources of short-term liquidity discussed above, from time to time Dominion Energy enters into separate supplementary credit facilities or term loans as discussed in Note 16 to the Consolidated Financial Statements in this report.
In January 2023, Dominion Energy entered into a $2.5 billion 364-day term loan facility which bears interest at a variable rate and will mature in January 2024 with the proceeds to be used to repay existing long-term debt and short-term debt upon maturity and for other general corporate purposes. Concurrently, Dominion Energy borrowed an initial $1.0 billion with the proceeds used to repay long-term debt. In February and March 2023, Dominion Energy borrowed $500 million and $1.0 billion, respectively, with the proceeds used for general corporate purposes and to repay long-term debt.
Long-Term Debt
Sustainability Revolving Credit Agreement
Dominion Energy maintains a $900 million Sustainability Revolving Credit Agreement which matures in 2024 and bears interest at a variable rate. The facility offers a reduced interest rate margin with respect to borrowed amounts allocated to certain environmental sustainability or social investment initiatives. In March 2023, Dominion Energy borrowed $450 million with the proceeds used for general corporate purposes. At March 31, 2023, Dominion Energy had $900 million outstanding under this supplemental credit facility, including $450 million borrowed to support environmental sustainability and social investment initiatives. In April 2023, Dominion Energy repaid $450 million borrowed for general corporate purposes.
Issuances and Borrowings of Long-Term Debt
During the three months ended March 31, 2023, Dominion Energy issued or borrowed the following long-term debt. Unless otherwise noted, the proceeds were used for the repayment of existing indebtedness and for general corporate purposes.
Month | Type | Public / Private | Entity | Principal |
| Rate |
| Stated Maturity | |||||||||
(millions) |
|
| |||||||||||||||
March | Senior notes | Public | Virginia Power | $ | 750 |
|
| 5.000 |
| % | 2033 | ||||||
March | Senior notes | Public | Virginia Power |
| 750 |
|
| 5.450 |
| % | 2053 | ||||||
Total issuances and borrowings | $ | 1,500 |
|
|
13
Dominion Energy currently meets the definition of a well-known seasoned issuer under SEC rules governing the registration, communication and offering processes under the Securities Act of 1933, as amended. The rules provide for a streamlined shelf registration process to provide registrants with timely access to capital. This allows Dominion Energy to use automatic shelf registration statements to register any offering of securities, other than those for exchange offers or business combination transactions.
As the comprehensive business review announced in November 2022 is still in progress, Dominion Energy is uncertain as to the amount of long-term debt it anticipates issuing in 2023. Dominion Energy expects to issue long-term debt to satisfy cash needs for capital expenditures and maturing long-term debt to the extent such amounts are not satisfied from cash available from operations following the payment of dividends and any borrowings made from unused capacity of Dominion Energy’s credit facilities discussed above. The raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.
Repayments, Repurchases and Redemptions of Long-Term Debt
Dominion Energy may from time to time reduce its outstanding debt and level of interest expense through redemption of debt securities prior to maturity or repurchases of debt securities in the open market, in privately negotiated transactions, through tender offers or otherwise.
The following long-term debt was repaid, repurchased or redeemed during the three months ended March 31, 2023:
Month | Type |
| Entity | Principal (1) |
|
| Rate | Stated Maturity | ||||
| (millions) |
| ||||||||||
Debt scheduled to mature in 2023 | Multiple |
| $ | 1,749 |
|
| various | |||||
Early redemptions |
|
|
|
|
|
|
|
|
| |||
None |
|
|
|
|
|
|
|
|
|
|
| |
Total repayments, repurchases and redemptions | $ | 1,749 |
|
See Note 18 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding scheduled maturities of Dominion Energy’s long-term debt, including related average interest rates.
Remarketing of Long-Term Debt
During the three months ended March 31, 2023, Dominion Energy was not required to and did not complete the remarketing of any of its long-term debt. In 2023, Dominion Energy expects to remarket approximately $160 million of its tax-exempt bonds.
Credit Ratings
As discussed in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022, Dominion Energy’s credit ratings affect its liquidity, cost of borrowing under credit facilities and collateral posting requirements under commodity contracts, as well as the rates at which it is able to offer debt securities. The credit ratings for Dominion Energy are affected by its financial profile, mix of regulated and nonregulated businesses and respective cash flows, changes in methodologies used by the ratings agencies and event risk, if applicable, such as major acquisitions or dispositions. A credit rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. As of March 31, 2023, there have been no changes in Dominion Energy’s credit ratings. In April 2023, Standard & Poor’s affirmed its credit ratings but revised its outlook for Dominion Energy from stable to negative. Dominion Energy cannot predict the potential impact the negative outlook at Standard & Poor’s could have on its liquidity, cost of borrowing under credit facilities and collateral posting requirements under commodity contracts, as well as the rates at which it is able to offer debt securities.
Financial Covenants
As discussed in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022, Dominion Energy is subject to various covenants present in the enabling agreements underlying Dominion Energy’s debt. As of March 31, 2023, there have been no material changes to covenants, nor any events of default under Dominion Energy’s covenants.
14
Common Stock, Preferred Stock and Other Equity Securities
In the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022, there is a discussion of Dominion Energy’s existing equity financing programs, including an at-the-market program and Dominion Energy Direct®. During the three months ended March 31, 2023, Dominion Energy issued $43 million of stock through these programs. See Note 16 to the Consolidated Financial Statements in this report for additional information.
As the comprehensive business review announced in November 2022 is still in progress, Dominion Energy is uncertain as to the amount of common stock that it anticipates issuing in 2023, including through its at-the-market program. However, Dominion Energy anticipates raising similar amounts of capital through Dominion Energy Direct® in 2023 compared to 2022 and 2021. The raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.
As of March 31, 2023, there have been no material changes to the Board of Directors authorization to repurchase Dominion Energy stock, or the remaining available capacity under this authorization, disclosed in the Repurchases of Equity Securities section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022. Dominion Energy has not repurchased through March 31 and does not plan to repurchase in the remainder of 2023 any shares of its common stock, except for shares tendered by employees to satisfy tax withholding obligations on vested restricted stock.
Capital Expenditures
As of March 31, 2023, there have been no material changes to Dominion Energy’s expectation for planned capital expenditures as disclosed in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
Dividends
Dominion Energy believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and maintain or grow the dividend on common shares. See Note 16 to the Consolidated Financial Statements in this report for additional information regarding Dominion Energy’s outstanding preferred stock and associated dividend rates.
Subsidiary Dividend Restrictions
As of March 31, 2023, there have been no material changes to the subsidiary dividend restrictions disclosed in the Dividends section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
Collateral and Credit Risk
As of March 31, 2023, there have been no material changes to the collateral requirements disclosed in the Collateral and Credit Risk section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
Dominion Energy’s exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary of Dominion Energy’s credit exposure at March 31, 2023 for these activities. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights.
|
| Gross Credit |
|
| Credit |
|
| Net Credit |
| |||
(millions) |
|
|
|
|
|
|
|
|
| |||
Investment grade(1) |
| $ | 151 |
|
| $ | — |
|
| $ | 151 |
|
Non-investment grade(2) |
|
| 14 |
|
|
| 12 |
|
|
| 2 |
|
No external ratings: |
|
|
|
|
|
|
|
|
| |||
Internally rated—investment grade(3) |
|
| 47 |
|
|
| 6 |
|
|
| 41 |
|
Internally rated—non-investment grade(4) |
|
| 24 |
|
|
| 1 |
|
|
| 23 |
|
Total(5) |
| $ | 236 |
|
| $ | 19 |
|
| $ | 217 |
|
15
Fuel and Other Purchase Commitments
There have been no material changes outside of the ordinary course of business to Dominion Energy’s fuel and other purchase commitments included in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022.
Other Material Cash Requirements
As of March 31, 2023, there have been no material changes outside of the ordinary course of business to Dominion Energy’s other material cash requirements included in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022. Such obligations include:
Future Issues and Other Matters
See Item 1. Business, Future Issues and Other Matters in MD&A and Notes 13 and 23 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2022 and Notes 13 and 17 to the Consolidated Financial Statements in this report for additional information on various environmental, regulatory, legal and other matters that may impact future results of operations, financial condition and/or cash flows.
Business Review
In November 2022, Dominion Energy announced the commencement of a business review of value-maximizing strategic business actions, alternatives to its current business mix and capital allocation and regulatory options which may assist customers to manage costs and provide greater predictability to its long-term, state-regulated utility value proposition. In April 2023, the legislative process in Virginia was substantially completed resulting in new legislation which will shift $350 million of annual revenue requirement for costs currently recovered through riders into base rates effective July 2023, eliminate the ability of Virginia Power to utilize CCROs and adjust the parameters for determining an authorized ROE and revenue sharing. In addition, new legislation allows Virginia Power to apply for the securitization of certain deferred fuel costs as well as seek approval for a noncontrolling equity financing partner for the CVOW Commercial Project. As part of the on-going business review, Dominion Energy may consider divestiture of all or a portion of certain operations. While the ultimate impacts cannot be estimated until the review is completed, which is expected to occur in the third quarter of 2023, implementation of recommendations resulting from the business review could have a material impact on Dominion Energy's future results of operations, financial condition and/or cash flows.
Virginia Legislation
The 2023 General Assembly session in Virginia included several proposals, including those ultimately enacted into law, related to Virginia Power’s retail base rates and other cost recovery mechanisms. In April 2023, legislation was enacted that amended several key provisions of the Regulation Act, as previously amended by the GTSA. The new legislation will shift $350 million of annual revenue requirement for costs currently recovered under riders into base rates effective July 2023, eliminate the ability of Virginia Power to utilize CCROs and adjust the parameters for determining an authorized ROE and revenue sharing. In addition, this legislation reestablishes biennial base rate reviews, sets a target capitalization ratio and permits Virginia Power to apply for the securitization of certain deferred fuel costs. See Note 13 to the Consolidated Financial Statements for additional information. In March 2023, legislation was enacted that permits Virginia Power to seek approval for a noncontrolling equity financing partner for the CVOW Commercial Project. In addition, proposed legislation to amend certain portions of the VCEA remains pending, subject to potential veto by the Governor of Virginia, which would qualify generation produced by Virginia Power’s biomass electric generating stations as renewable energy and would eliminate the mandated retirement by the end of 2028 of such facilities. While Dominion
16
Energy is unable to estimate the ultimate financial statement impacts related to the newly enacted, and remaining proposed legislation, it expects there could be a material impact to its results of operations, financial condition and/or cash flows.
Future Environmental Regulations
In March 2023, the EPA released a proposed rule to further revise the Effluent Limitations Guidelines for the Steam Electric Power Generating Category, which apply primarily to wastewater discharges at coal and oil steam generating stations. Also in March 2023, the EPA released its first proposed rule to establish national drinking water standards for PFAS. Dominion Energy anticipates that the EPA will release additional rulemakings as part of an overall strategy to identify and mitigate PFAS exposure. Additionally, in April 2023, the EPA released a proposal to tighten aspects of the Mercury and Air Toxics Standards, including the reduction of emissions limits for filterable particulate matter, and requiring the use of continuous emissions monitoring systems to demonstrate compliance. Until the EPA ultimately takes final action on these rulemakings, Dominion Energy is unable to predict whether or to what extent the new rules will ultimately require additional controls. The expenditures required to implement additional controls could have a material impact on Dominion Energy’s financial condition and cash flows.
Federal Income Tax Laws
In April 2023, the IRS issued safe harbor guidance to taxpayers on the treatment of amounts paid to repair, maintain, replace, or improve natural gas distribution property, including whether expenditures should be deducted as repairs or capitalized and depreciated on tax returns. The guidance includes safe harbor tax accounting methods which a taxpayer may choose to elect and provides special transition rules and incentives that vary depending on which tax year is the year of change. Dominion Energy is evaluating this new guidance and cannot currently estimate the potential financial statement impacts, but there could be a material impact to its results of operations, financial condition and/or cash flows.
17