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SCG Dominion Energy South Carolina

Filed: 4 May 21, 11:51am

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

 

 

 

 

I.R.S. Employer

Commission File Number

 

Exact name of registrant as specified in its charter

 

Identification Number

 

 

 

 

 

001-3375

  

DOMINION ENERGY SOUTH CAROLINA, INC.

  

57-0248695

 

 

 

 

 

 

  

south carolina

  

 

 

  

(State or other jurisdiction of incorporation or organization)

  

 

 

 

 

 

 

 

 

400 OTARRE PARKWAY

 

 

 

 

CAYCE, South Carolina

 

29033

 

 

(Address of principal executive offices)

 

(Zip Code)

 

 

 

 

 

 

 

(803) 217-9000

 

 

 

  

(Registrants’ telephone number)

  

 

 

Securities registered pursuant to Section 12(b) of the Act:

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Emerging growth company

Non-accelerated filer

 

Smaller reporting company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At April 23, 2021, Dominion Energy South Carolina, Inc. had outstanding 40,296,147 shares of common stock, all of which were held by SCANA Corporation, a wholly-owned subsidiary of Dominion Energy, Inc.

Dominion Energy South Carolina, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and therefore is filing this Form with the reduced disclosure format allowed under General Instruction H(2).

 

 


 

 

TABLE OF CONTENTS 

 

 

 

 

 

Page

 

 

Glossary of Terms

 

3

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

5

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

 

 

 

 

 

Item 1A.

 

Risk Factors

 

30

 

 

 

 

 

Item 6.

 

Exhibits

 

31

 

 

 

 

 

 

 

 

2


 

 

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:

 

Abbreviation or Acronym

 

Definition

2017 Tax Reform Act

 

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017

ACE Rule

 

Affordable Clean Energy Rule

AOCI

 

Accumulated other comprehensive income (loss)

ARO

 

Asset retirement obligation

BACT

 

Best available control technology

BLRA

 

South Carolina Base Load Review Act

CAA

 

Clean Air Act

CCR

 

Coal combustion residual

CEO

 

Chief Executive Officer

CERCLA

 

Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund

CFO

 

Chief Financial Officer

CO2

 

Carbon dioxide

Consortium

 

A consortium consisting of Westinghouse and WECTEC

CUA

 

Capacity Use Area

CWA

 

Clean Water Act

DECG

 

Carolina Gas Transmission, LLC, (formerly known as Dominion Energy Carolina Gas Transmission, LLC), a subsidiary of Berkshire Hathaway Energy Company effective November 2020 (previously a subsidiary of Dominion Energy)

DES

 

Dominion Energy 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

DESS

 

Dominion Energy Southeast Services, Inc.

Dominion Energy

 

The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than DESC) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries

Dominion Energy South Carolina

 

Dominion Energy South Carolina operating segment

 

DSM

 

Demand-side management

ELG Rule

 

Effluent limitations guidelines for the steam electric power generating category

EMANI

 

European Mutual Association for Nuclear Insurance

EPA

 

U.S. Environmental Protection Agency

FERC

 

Federal Energy Regulatory Commission

FILOT

 

Fee in lieu of taxes

Fuel Company

 

South Carolina Fuel Company, Inc.

GAAP

 

U.S. generally accepted accounting principles

GENCO

 

South Carolina Generating Company, Inc.

GHG

 

Greenhouse gas

IAA

 

Interim Assessment Agreement dated March 28, 2017, as amended, among DESC, Santee Cooper, Westinghouse and WECTEC

MD&A

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

MGD

 

Million gallons a day

MGP

 

Manufactured gas plant

NEIL

 

Nuclear Electric Insurance Limited

NND Project

 

V. C. Summer Units 2 and 3 nuclear development project under which DESC and Santee Cooper undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina

NOx

 

Nitrogen oxide

3


 

Abbreviation or Acronym

 

Definition

Order 1000

 

Order issued by FERC adopting requirements for electric transmission planning, cost allocation and development

Price-Anderson

 

Price-Anderson Amendments Act of 1988

PSD

 

Prevention of significant deterioration

Questar Gas

 

Questar Gas Company, a wholly-owned subsidiary of Dominion Energy

Reorganization Plan

 

Modified Second Amended Joint Chapter 11 Plan of Reorganization, filed by Westinghouse

RICO

 

Racketeer Influenced and Corrupt Organizations Act

Santee Cooper

 

South Carolina Public Service Authority

SCANA

 

The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries (other than DESC) 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 SCANA Merger Agreement

SCANA Merger Agreement

 

Agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA

SCANA Merger Approval Order

 

Final order issued by the South Carolina Commission on December 21, 2018 setting forth its approval of the SCANA Combination

SCDHEC

 

South Carolina Department of Health and Environmental Control

SCDOR

 

South Carolina Department of Revenue

SEC

 

U.S. Securities and Exchange Commission

SO2

 

Sulfur dioxide

South Carolina Commission

 

Public Service Commission of South Carolina

Summer

 

V. C. Summer nuclear power station

Toshiba

 

Toshiba Corporation, parent company of Westinghouse

Toshiba Settlement

 

Settlement Agreement dated as of July 27, 2017, by and among Toshiba, DESC and Santee Cooper

VIE

 

Variable interest entity

Virginia Power

 

The legal entity, Virginia Electric and Power Company, a wholly-owned subsidiary of Dominion Energy, one or more of its consolidated subsidiaries or operating segment, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries

WECTEC

 

WECTEC Global Project Services, Inc., a wholly-owned subsidiary of Westinghouse

Westinghouse

 

Westinghouse Electric Company LLC

Westinghouse Subcontractors

 

Subcontractors and suppliers to the Consortium

 

 

 

4


 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Dominion Energy South Carolina, Inc.

Consolidated Balance Sheets

(Unaudited)

 

(millions)

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Utility plant in service

 

$

13,865

 

 

$

13,680

 

Accumulated depreciation and amortization

 

 

(5,077

)

 

 

(5,027

)

Construction work in progress

 

 

398

 

 

 

460

 

Nuclear fuel, net of accumulated amortization

 

 

216

 

 

 

221

 

Utility plant, net ($726 and $730 related to VIEs)

 

 

9,402

 

 

 

9,334

 

Nonutility Property and Investments:

 

 

 

 

 

 

 

 

Nonutility property, net of accumulated depreciation

 

 

38

 

 

 

39

 

Assets held in trust, nuclear decommissioning

 

 

238

 

 

 

238

 

Nonutility property and investments, net

 

 

276

 

 

 

277

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

29

 

 

 

5

 

Receivables:

 

 

 

 

 

 

 

 

Customer, net of allowance for uncollectible accounts of $9 and $10

 

 

297

 

 

 

365

 

Affiliated and related party

 

 

3

 

 

 

16

 

Other

 

 

94

 

 

 

64

 

Inventories (at average cost):

 

 

 

 

 

 

 

 

Fuel

 

 

63

 

 

 

68

 

Gas stored

 

 

11

 

 

 

14

 

Materials and supplies

 

 

167

 

 

 

176

 

Prepayments

 

 

70

 

 

 

75

 

Regulatory assets

 

 

226

 

 

 

229

 

Other current assets

 

 

21

 

 

 

27

 

Total current assets ($96 and $103 related to VIEs)

 

 

981

 

 

 

1,039

 

Deferred Debits and Other Assets:

 

 

 

 

 

 

 

 

Regulatory assets

 

 

3,690

 

 

 

3,726

 

Other

 

 

110

 

 

 

103

 

Total deferred debits and other assets ($36 and $35 related to VIEs)

 

 

3,800

 

 

 

3,829

 

Total assets

 

$

14,459

 

 

$

14,479

 

 

See Notes to Consolidated Financial Statements.

5


 

Dominion Energy South Carolina, Inc.

Consolidated Balance Sheets—(Continued)

(Unaudited)

 

(millions)

 

March 31,

2021

 

 

December 31,

2020

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

Common Stock - no par value, 40.3 million shares outstanding

 

$

4,017

 

 

$

4,017

 

Retained earnings

 

 

253

 

 

 

277

 

Accumulated other comprehensive loss

 

 

(2

)

 

 

(2

)

Total common equity

 

 

4,268

 

 

 

4,292

 

Noncontrolling interest

 

 

196

 

 

 

192

 

Total equity

 

 

4,464

 

 

 

4,484

 

Long-term debt, net

 

 

3,327

 

 

 

3,327

 

Affiliated long-term debt

 

 

230

 

 

 

230

 

Finance leases

 

 

14

 

 

 

15

 

Total long-term debt

 

 

3,571

 

 

 

3,572

 

Total capitalization

 

 

8,035

 

 

 

8,056

 

Current Liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

30

 

 

 

0

 

Securities due within one year

 

 

39

 

 

 

39

 

Accounts payable

 

 

141

 

 

 

178

 

Affiliated and related party payables

 

 

566

 

 

 

457

 

Customer deposits and customer prepayments

 

 

66

 

 

 

70

 

Taxes accrued

 

 

62

 

 

 

215

 

Interest accrued

 

 

87

 

 

 

95

 

Regulatory liabilities

 

 

280

 

 

 

283

 

Reserves for litigation and regulatory proceedings

 

 

268

 

 

 

208

 

Other

 

 

82

 

 

 

40

 

Total current liabilities

 

 

1,621

 

 

 

1,585

 

Deferred Credits and Other Liabilities:

 

 

 

 

 

 

 

 

Deferred income taxes and investment tax credits

 

 

871

 

 

 

858

 

Asset retirement obligations

 

 

603

 

 

 

597

 

Pension and other postretirement benefits

 

 

174

 

 

 

172

 

Regulatory liabilities

 

 

2,962

 

 

 

3,005

 

Affiliated liabilities

 

 

4

 

 

 

13

 

Other

 

 

189

 

 

 

193

 

Total deferred credits and other liabilities

 

 

4,803

 

 

 

4,838

 

Commitments and Contingencies (see Note 10)

 

 

 

 

 

 

 

 

Total capitalization and liabilities

 

$

14,459

 

 

$

14,479

 

 

See Notes to Consolidated Financial Statements.

6


 

Dominion Energy South Carolina, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

(millions)

 

2021

 

 

2020

 

Operating Revenue(1)

 

$

744

 

 

$

672

 

Operating Expenses:

 

 

 

 

 

 

 

 

Fuel used in electric generation(1)

 

 

132

 

 

 

104

 

Purchased power(1)

 

 

16

 

 

 

13

 

Gas purchased for resale(1)

 

 

81

 

 

 

57

 

Other operations and maintenance

 

 

99

 

 

 

90

 

Other operations and maintenance - affiliated suppliers

 

 

53

 

 

 

55

 

Impairment of assets and other charges

 

 

60

 

 

 

2

 

Depreciation and amortization

 

 

121

 

 

 

118

 

Other taxes(1)

 

 

65

 

 

 

62

 

Total operating expenses

 

 

627

 

 

 

501

 

Operating income

 

 

117

 

 

 

171

 

Other income, net

 

 

6

 

 

 

3

 

Interest charges, net of allowance for borrowed funds used during

   construction of $1 and $2(1)

 

 

55

 

 

 

58

 

Income before income tax expense

 

 

68

 

 

 

116

 

Income tax expense

 

 

13

 

 

 

23

 

Net Income and Other Comprehensive Income

 

 

55

 

 

 

93

 

Comprehensive Income Attributable to Noncontrolling

   Interest

 

 

4

 

 

 

5

 

Comprehensive Income Available to Common Shareholder

 

$

51

 

 

$

88

 

 

(1)

See Note 12 for amounts attributable to affiliates.

 

See Notes to Consolidated Financial Statements.

7


 

Dominion Energy South Carolina, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended March 31,

 

(millions)

 

2021

 

 

2020

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

55

 

 

$

93

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Impairment of assets and other charges

 

 

60

 

 

 

2

 

Deferred income taxes, net

 

 

13

 

 

 

25

 

Depreciation and amortization

 

 

121

 

 

 

118

 

Amortization of nuclear fuel

 

 

10

 

 

 

14

 

Other adjustments

 

 

4

 

 

 

2

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

30

 

 

 

17

 

Receivables - affiliated and related party

 

 

(2

)

 

 

4

 

Inventories

 

 

17

 

 

 

(13

)

Prepayments

 

 

1

 

 

 

4

 

Pension and other postretirement benefits

 

 

2

 

 

 

(1

)

Regulatory assets

 

 

(6

)

 

 

(9

)

Regulatory liabilities

 

 

(49

)

 

 

(48

)

Accounts payable

 

 

39

 

 

 

(20

)

Accounts payable - affiliated and related party

 

 

21

 

 

 

(8

)

Taxes accrued

 

 

(153

)

 

 

(157

)

Interest accrued

 

 

(8

)

 

 

(6

)

Other assets and liabilities

 

 

28

 

 

 

3

 

Net cash provided by operating activities

 

 

183

 

 

 

20

 

Investing Activities

 

 

 

 

 

 

 

 

Property additions and construction expenditures

 

 

(215

)

 

 

(166

)

Proceeds from investments and sales of assets

 

 

3

 

 

 

26

 

Purchase of investments

 

 

(3

)

 

 

(29

)

Proceeds from investments - affiliated

 

 

15

 

 

 

6

 

Investment in affiliate, net

 

 

(1

)

 

 

(1

)

Net cash used in investing activities

 

 

(201

)

 

 

(164

)

Financing Activities

 

 

 

 

 

 

 

 

Dividend to parent

 

 

(75

)

 

 

0

 

Short-term borrowings, net

 

 

30

 

 

 

0

 

Short-term borrowings - affiliated, net

 

 

88

 

 

 

151

 

Other

 

 

(1

)

 

 

(1

)

Net cash provided by financing activities

 

 

42

 

 

 

150

 

Net increase in cash, restricted cash and equivalents

 

 

24

 

 

 

6

 

Cash, restricted cash and equivalents at beginning of period(1)

 

 

5

 

 

 

4

 

Cash, restricted cash and equivalents at end of period(1)

 

$

29

 

 

$

10

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Significant noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued construction expenditures

 

$

76

 

 

$

53

 

Leases(2)

 

 

0

 

 

 

3

 

(1)

At March 31, 2021, March 31, 2020, December 31, 2020 and December 31, 2019 there were 0 restricted cash and equivalent balances.

(2)

Includes $2 million of financing leases and $1 million of operating leases for the three months ended March 31, 2020.

 

See Notes to Consolidated Financial Statements.

8


 

Dominion Energy South Carolina, Inc.

Consolidated Statements of Changes in Common Equity

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions)

 

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

AOCI

 

 

Noncontrolling

Interest

 

 

Total

Equity

 

December 31, 2019

 

 

40

 

 

$

3,695

 

 

$

20

 

 

$

(3

)

 

$

180

 

 

$

3,892

 

Total comprehensive income available to common

   shareholder

 

 

 

 

 

 

 

 

 

 

88

 

 

 

 

 

 

 

5

 

 

 

93

 

March 31, 2020

 

 

40

 

 

$

3,695

 

 

$

108

 

 

$

(3

)

 

$

185

 

 

$

3,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

40

 

 

$

4,017

 

 

$

277

 

 

$

(2

)

 

$

192

 

 

$

4,484

 

Total comprehensive income available to common

   shareholder

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

4

 

 

 

55

 

Dividend to parent

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

 

 

 

 

 

 

 

 

(75

)

March 31, 2021

 

 

40

 

 

$

4,017

 

 

$

253

 

 

$

(2

)

 

$

196

 

 

$

4,464

 

 

See Notes to Consolidated Financial Statements.

9


 

Dominion Energy South Carolina, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in DESC's Annual Report on Form 10-K for the year ended December 31, 2020.

These are interim financial statements and, due to the seasonality of DESC's business and matters that may occur during the rest of the year, the amounts reported in the Consolidated Statements of Comprehensive Income are not necessarily indicative of amounts expected for the full year. In the opinion of management, the information furnished herein reflects all adjustments which are necessary for a fair statement of the results for the interim periods reported, and such adjustments are of a normal recurring nature. In addition, the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain amounts in DESC's 2020 Consolidated Financial Statements and Notes have been reclassified to conform to the 2021 presentation for comparative purposes; however, such reclassifications did not affect DESC's net income (loss) and other comprehensive income (loss), total assets, liabilities, equity or cash flows.

DESC is a wholly-owned subsidiary of SCANA, which is a wholly-owned subsidiary of Dominion Energy.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Variable Interest Entities

DESC has determined that it has a controlling financial interest in each of GENCO and Fuel Company (which are considered to be VIEs) and, accordingly, DESC's Consolidated Financial Statements include, after eliminating intercompany balances and transactions, the accounts of DESC, GENCO and Fuel Company. See Note 2 to the Consolidated Financial Statements included in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of GENCO and Fuel Company.

Effective January 2021, DESC purchases shared services from DES, an affiliated VIE that provides accounting, legal, finance and certain administrative and technical services to all Dominion Energy subsidiaries, including DESC. DESC had previously purchased such services from DESS, an affiliated VIE, that had provided such services to all SCANA subsidiaries. DESC has determined that it is not the primary beneficiary of DES as it does not have either the power to direct the activities that most significantly impact its economic performance or an obligation to absorb losses and benefits which could be significant to it. See Note 12 for amounts attributable to affiliates.

Significant Accounting Policies

There have been no significant changes from Note 2 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2020.

2. RATE AND OTHER REGULATORY MATTERS

 

Regulatory Matters Involving Potential Loss Contingencies

As a result of issues generated in the ordinary course of business, DESC is involved in various regulatory matters. Certain regulatory matters may ultimately result in a loss; however, as such matters are in an initial procedural phase, involve uncertainty as to the outcome of pending reviews or orders, and/or involve significant factual issues that need to be resolved, it is not possible for DESC to estimate a range of possible loss. For regulatory matters that DESC cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the regulatory process such that DESC is able to estimate a range of possible loss. For regulatory matters that DESC is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any estimated range is based on currently available information, involves elements of judgment and significant uncertainties and may not represent DESC’s maximum possible loss exposure. The circumstances of such regulatory matters will change from time to time and actual results may vary significantly from the current estimate. For current matters not specifically reported below, management does not anticipate that the outcome from such matters would have a material effect on DESC’s financial position, liquidity or results of operations.

Other Regulatory Matters

Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 3 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2020.

10


 

Electric Cost of Fuel

DESC’s retail electric rates include a cost of fuel component approved by the South Carolina Commission which may be adjusted periodically to reflect changes in the price of fuel purchased by DESC. In February 2021, DESC filed a proposal with the South Carolina Commission to increase the total fuel cost component of retail electric rates. DESC’s proposed adjustment would increase annual base fuel component recoveries by $36 million and is designed to recover DESC’s current base fuel costs, net of the existing over-collected balance, over the 12-month period beginning with the first billing cycle of May 2021. In addition, DESC proposed a decrease to its variable environmental component and an increase to its distributed energy resource components. In April 2021, the South Carolina Commission approved the filing.

Electric Other

 

DESC has approval for a DSM rider through which it recovers expenditures related to its DSM programs. In January 2021, DESC filed an application with the South Carolina Commission seeking approval to recover $48 million of costs and net lost revenues associated with these programs, along with an incentive to invest in such programs. In April 2021, the South Carolina Commission approved the filing.

 

DESC utilizes a pension costs rider approved by the South Carolina Commission which is designed to allow recovery of projected pension costs, including under-collected balances or net of over-collected balances, as applicable. The rider is typically reviewed for adjustment every 12 months with any resulting increase or decrease going into effect beginning with the first billing cycle in May. In February 2021, DESC requested that the South Carolina Commission approve an adjustment to this rider to decrease annual revenue by less than $1 million. In April 2021, the South Carolina Commission approved the filing.

 

11


 

 

Regulatory Assets and Regulatory Liabilities

Rate-regulated utilities recognize in their financial statements certain revenues and expenses in different periods than do other enterprises. As a result, DESC has recorded regulatory assets and regulatory liabilities which are summarized in the following table. Except for NND Project costs and certain other unrecovered plant costs, substantially all regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.

 

 

 

March 31,

 

 

December 31,

 

(millions)

 

2021

 

 

2020

 

Regulatory assets:

 

 

 

 

 

 

 

 

NND Project costs(1)

 

$

138

 

 

$

138

 

Deferred employee benefit plan costs(2)

 

 

9

 

 

 

9

 

Other unrecovered plant(3)

 

 

14

 

 

 

14

 

DSM programs(4)

 

 

26

 

 

 

29

 

AROs(5)

 

 

2

 

 

 

2

 

Cost of fuel and purchased gas under-collections(6)

 

 

0

 

 

 

1

 

Other

 

 

37

 

 

 

36

 

Regulatory assets - current

 

 

226

 

 

 

229

 

NND Project costs(1)

 

 

2,330

 

 

 

2,364

 

AROs(5)

 

 

317

 

 

 

309

 

Cost of reacquired debt(7)

 

 

241

 

 

 

243

 

Deferred employee benefit plan costs(2)

 

 

156

 

 

 

159

 

Deferred losses on interest rate derivatives(8)

 

 

297

 

 

 

308

 

Other unrecovered plant(3)

 

 

60

 

 

 

61

 

DSM programs(4)

 

 

46

 

 

 

46

 

Environmental remediation costs(9)

 

 

20

 

 

 

20

 

Deferred storm damage costs(10)

 

 

45

 

 

 

45

 

Deferred transmission operating costs(11)

 

 

69

 

 

 

63

 

Other(12)

 

 

109

 

 

 

108

 

Regulatory assets - noncurrent

 

 

3,690

 

 

 

3,726

 

Total regulatory assets

 

$

3,916

 

 

$

3,955

 

Regulatory liabilities:

 

 

 

 

 

 

 

 

Monetization of guaranty settlement(13)

 

$

67

 

 

$

67

 

Income taxes refundable through future rates(14)

 

 

22

 

 

 

21

 

Reserve for refunds to electric utility customers(15)

 

 

127

 

 

 

128

 

Cost of fuel and purchased gas over-collections(6)

 

 

53

 

 

 

58

 

Other

 

 

11

 

 

 

9

 

Regulatory liabilities - current

 

 

280

 

 

 

283

 

Monetization of guaranty settlement(13)

 

 

886

 

 

 

903

 

Income taxes refundable through future rates(14)

 

 

916

 

 

 

919

 

Asset removal costs(16)

 

 

571

 

 

 

564

 

Deferred gains on interest rate derivatives(8)

 

 

69

 

 

 

69

 

Reserve for refunds to electric utility customers(15)

 

 

505

 

 

 

540

 

Other

 

 

15

 

 

 

10

 

Regulatory liabilities - noncurrent

 

 

2,962

 

 

 

3,005

 

Total regulatory liabilities

 

$

3,242

 

 

$

3,288

 

 

(1)

Reflects expenditures associated with the NND Project, which pursuant to the SCANA Merger Approval Order, will be recovered from electric service customers over a 20-year period ending in 2039. See Note 10 for more information.

(2)

Employee benefit plan costs have historically been recovered as they have been recorded under GAAP. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific South Carolina Commission regulatory orders. DESC expects to recover deferred pension costs through utility rates over periods through 2044. DESC expects to recover other deferred benefit costs through utility rates, primarily over average service periods of participating employees up to 11 years.

(3)

12


 

Represents the carrying value of coal-fired generating units, including related materials and supplies inventory, retired from service prior to being fully depreciated. DESC is amortizing these amounts through cost of service rates following deprecation amounts that were designed to recover the retired units’ cost over their previous estimated remaining useful lives, which has been estimated to be through 2025. Based on current projections of remaining decommissioning costs, projected recovery is expected to extend to 2028. Unamortized amounts are included in rate base and are earning a current return.

(4)

Represents deferred costs associated with electric demand reduction programs, and such deferred costs are currently being recovered over three years through an approved rate rider.

(5)

Represents deferred depreciation and accretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties. The AROs primarily relate to DESC’s electric generating facilities, including Summer, and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 105 years.

(6)

Represents amounts under- or over-collected from customers pursuant to the cost of fuel and purchased gas components approved by the South Carolina Commission.

(7)

Costs of the reacquisition of debt are deferred and amortized as interest expense over the would-be remaining life of the reacquired debt or over the life of the replacement debt if refinanced. The reacquired debt had a weighted-average life of approximately 26 years as of March 31, 2021.

(8)

Represents (i) the changes in fair value and payments made or received upon settlement of certain interest rate derivatives designated as cash flow hedges and (ii) the changes in fair value and payments made or received upon settlement of certain other interest rate derivatives not so designated. The amounts recorded with respect to (i) are expected to be amortized to interest expense over the lives of the underlying debt through 2043.The amounts recorded with respect to (ii) are expected to be similarly amortized to interest expense through 2065.

(9)

Reflects amounts associated with the assessment and clean-up of sites currently or formerly owned by DESC. Such remediation costs are expected to be recovered over periods of up to 15 years. See Note 10 for more information.

(10)

Represents storm restoration costs for which DESC expects to receive future recovery through customer rates.

(11)

Includes deferred depreciation and property taxes associated with certain transmission assets for which DESC expects recovery from customers through future rates. See Note 10 for more information.

(12)

Various other regulatory assets are expected to be recovered through rates over varying periods through 2047.

(13)

Represents proceeds related to the monetization of the Toshiba Settlement. In accordance with the SCANA Merger Approval Order, this balance, net of amounts that may be required to satisfy liens, will be refunded to electric customers over a 20-year period ending in 2039. See Note 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020.

(14)

Includes (i) excess deferred income taxes arising from the remeasurement of deferred income taxes in connection with the enactment of the 2017 Tax Reform Act (certain of which are protected under normalization rules and will be amortized over the remaining lives of related property, and certain of which will be amortized to the benefit of customers over prescribed periods as instructed by regulators) and (ii) deferred income taxes arising from investment tax credits, offset by (iii) deferred income taxes that arise from utility operations that have not been included in customer rates (a portion of which relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to 85 years). See Note 6 for more information.

(15)

Reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited to customers over an estimated 11-year period effective February 2019 in connection with the SCANA Merger Approval Order. See Note 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020.

(16)

Represents estimated net collections through depreciation rates of amounts to be expended for the removal of assets in the future.

 

Regulatory assets have been recorded based on the probability of their recovery. All regulatory assets represent incurred costs that may be deferred under GAAP for regulated operations. The South Carolina Commission or FERC has reviewed and approved through specific orders certain of the items shown as regulatory assets. In addition, regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by one of these regulatory agencies, including deferred transmission operating costs that are the subject of regulatory proceedings discussed in Note 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020. While such costs are not currently being recovered, management believes they would be allowable under existing rate-making concepts embodied in rate orders or applicable state law and expects to recover these costs through rates in future periods.

3. REVENUE RECOGNITION

DESC has disaggregated operating revenues by customer class as follows:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

(millions)

 

Electric

 

 

Gas

 

 

Electric

 

 

Gas

 

Customer class:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

275

 

 

$

98

 

 

$

252

 

 

$

79

 

Commercial

 

 

175

 

 

 

39

 

 

 

175

 

 

 

33

 

Industrial

 

 

88

 

 

 

22

 

 

 

80

 

 

 

17

 

Other

 

 

33

 

 

 

5

 

 

 

30

 

 

 

4

 

Revenues from contracts with

   customers

 

 

571

 

 

 

164

 

 

 

537

 

 

 

133

 

Other revenues

 

 

8

 

 

 

1

 

 

 

2

 

 

 

0

 

Total Operating Revenues

 

$

579

 

 

$

165

 

 

$

539

 

 

$

133

 

 

Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has already been received from the customer. DESC had contract liability balances of $5 million at both March 31, 2021 and December 31, 2020. During the three months ended March 31, 2021 and 2020, DESC recognized revenue of $3 million and $5 million, respectively, from the beginning contract liability balances as DESC fulfilled its obligations to provide service to its customers. Contract liabilities are recorded in customer deposits and customer prepayments in the Consolidated Balance Sheets.

13


 

4. EQUITY

For all periods presented, DESC's authorized shares of common stock, no par value, were 50 million, of which 40.3 million were issued and outstanding, and DESC's authorized shares of preferred stock, no par value, were 20 million, of which 1,000 shares were issued and outstanding. All outstanding shares of common and preferred stock are held by SCANA.

There have been no material changes to the dividend restrictions affecting DESC described in Note 5 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020.

5. LONG-TERM AND SHORT-TERM DEBT

DESC's short-term financing is supported through its access as co-borrower to Dominion Energy’s $6.0 billion joint revolving credit facility, which can be used for working capital, as support for the combined commercial paper programs of DESC, Dominion Energy, Virginia Power and Questar Gas, and for other general corporate purposes.

At March 31, 2021, DESC's share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, was as follows:

 

(millions)

 

Facility Limit

 

 

Outstanding

Commercial Paper

 

 

Outstanding

Letters of Credit

 

Joint revolving credit facility(1)

 

$

1,000

 

 

$

30

 

 

$

0

 

 

(1)

A maximum of $1.0 billion of the facility is available to DESC, assuming adequate capacity is available after giving effect to uses by co-borrowers Dominion Energy, Virginia Power and Questar Gas. The sub-limit for DESC is set within the facility limit but can be changed at the option of the co-borrowers multiple times per year. At March 31, 2021, the sub-limit for DESC was $500 million. If DESC has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from DESC's parent or from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.0 billion (or the sub-limit, whichever is less) of letters of credit.

In January 2021, DESC and GENCO each applied to FERC for a two-year short-term borrowing authorization. In March 2021, FERC granted DESC authority through March 2023 to issue short-term indebtedness (pursuant to Section 204 of the Federal Power Act) in amounts not to exceed $2.2 billion outstanding with maturity dates of one year or less. In addition, in March 2021, FERC granted GENCO authority through March 2023 to issue short-term indebtedness not to exceed $200 million outstanding with maturity dates of one year or less.

DESC is obligated with respect to an aggregate of $68 million of industrial revenue bonds which are secured by letters of credit. These letters of credit expire, subject to renewal, in the fourth quarter of 2021.

DESC has FERC approval to enter into an inter-company credit agreement with Dominion Energy under which DESC may have short-term borrowings outstanding up to $900 million. At March 31, 2021 and December 31, 2020, DESC had borrowings outstanding under this credit agreement totaling $443 million and $149 million, respectively, which are recorded in affiliated and related party payables in DESC’s Consolidated Balance Sheets. For both the three months ended March 31, 2021 and 2020, DESC recorded interest charges of $2 million.

Fuel Company and GENCO participated in a SCANA utility money pool until January 2021, when that utility money pool was closed. Money pool borrowings and investments bore interest at short-term market rates. For the three months ended March 31, 2021 and 2020 DESC recorded interest income from money pool transactions of less than $1 million and $1 million, respectively, and for the same period DESC recorded interest expense from money pool transactions of less than $1 million and $1 million, respectively. At December 31, 2020, DESC had outstanding money pool borrowings due to an affiliate of $206 million and investments due from an affiliate of $15 million. On its Consolidated Balance Sheet, DESC includes money pool borrowings within affiliated and related party payables and money pool investments within affiliated and related party receivables.

6. INCOME TAXES

 

DESC’s effective tax rate for the three months ended March 31, 2021 is 19.5% compared to 19.9% for the three months ended March 31, 2020.

DESC has recorded an estimate of excess deferred income tax amortization in 2021. The reversal of these excess deferred income taxes will impact the effective tax rate and rates charged to customers. See Note 3 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020 for more information.

14


 

As of March 31, 2021, there have been no material changes in DESC’s unrecognized tax benefits. See Note 7 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of these unrecognized tax benefits.

7. DERIVATIVE FINANCIAL INSTRUMENTS

DESC’s accounting policies, objectives, and strategies for using derivative instruments are discussed in Note 2 in the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020. See Note 8 for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Consolidated Balance Sheets. DESC’s derivative contracts include over-the-counter transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter contracts contain contractual rights of setoff through master netting arrangements and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions are subject to collateral requirements. Types of collateral for over-the-counter contracts include cash, letters of credit, and, in some cases, other forms of security, none of which are subject to restrictions. Cash collateral, as presented in the table below, is used to offset derivative assets and liabilities.

All of DESC’s derivative instruments contain credit-related contingent provisions. These provisions require DESC to provide collateral upon the occurrence of specific events, primarily a credit rating downgrade. If the credit-related contingent features underlying the instruments that are in a liability position and not fully collateralized with cash were fully triggered as of March 31, 2021 and December 31, 2020, DESC would have been required to post $7 million and $10 million, respectively, of additional collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any amounts already posted for derivatives per contractual terms. DESC had posted $1 million of collateral at December 31, 2020 related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. NaN such collateral was posted at DESC at March 31, 2021. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash was $7 million and $11 million at March 31, 2021 and December 31, 2020, respectively.

The table below presents derivative balances by type of financial instrument, if the gross amounts recognized in the Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Gross Amounts Not Offset in the Consolidated

Balance Sheet

 

 

Gross Amounts Not Offset in the Consolidated

Balance Sheet

 

(millions)

 

Gross

Liabilities

Presented in the

Consolidated

Balance Sheet

 

 

Financial

Instruments

 

 

Cash

Collateral

Paid

 

 

Net

Amounts

 

 

Gross

Liabilities

Presented in the

Consolidated

Balance Sheet

 

 

Financial

Instruments

 

 

Cash

Collateral

Paid

 

 

Net

Amounts

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over-the-counter

 

$

18

 

 

$

0

 

 

$

11

 

 

$

7

 

 

$

27

 

 

$

0

 

 

$

17

 

 

$

10

 

Total derivatives

 

$

18

 

 

$

0

 

 

$

11

 

 

$

7

 

 

$

27

 

 

$

0

 

 

$

17

 

 

$

10

 

 

Volumes

The following table presents the volume of derivative activity at March 31, 2021. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions.

 

 

 

Current

 

 

Noncurrent

 

Interest rate(1) (millions)

 

$

0

 

 

$

71

 

 

(1)

Maturity is determined based on final settlement period.

15


 

 

Fair Value and Gains and Losses on Derivative Instruments

The following tables present the fair values of derivatives and where they are presented in the Consolidated Balance Sheets:

 

(millions)

 

Fair Value -

Derivatives

under Hedge

Accounting

 

 

Fair Value -

Derivatives not

under Hedge

Accounting

 

 

Total Fair Value

 

At March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

$

1

 

 

$

1

 

 

$

2

 

Total current derivative liabilities(1)

 

 

1

 

 

 

1

 

 

 

2

 

Noncurrent Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

10

 

 

 

6

 

 

 

16

 

Total noncurrent derivative liabilities(2)

 

 

10

 

 

 

6

 

 

 

16

 

Total derivative liabilities

 

$

11

 

 

$

7

 

 

$

18

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

$

1

 

 

$

1

 

 

$

2

 

Total current derivative liabilities(1)

 

 

1

 

 

 

1

 

 

 

2

 

Noncurrent Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

15

 

 

 

10

 

 

 

25

 

Total noncurrent derivative liabilities(2)

 

 

15

 

 

 

10

 

 

 

25

 

Total derivative liabilities

 

$

16

 

 

$

11

 

 

$

27

 

 

(1)

Current derivative liabilities are presented in other current liabilities in the Consolidated Balance Sheets.

(2)

Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in the Consolidated Balance Sheets.

The following tables present the gains and losses on derivatives, as well as where the associated activity is presented in the Consolidated Balance Sheets and Statements of Comprehensive Income (Loss):

Derivatives in Cash Flow Hedging Relationships

 

(millions)

Increase (Decrease)

in Derivatives

Subject to

Regulatory

Treatment(1)

 

Three Months Ended March 31, 2021

 

 

 

Derivative type and location of gains (losses):

 

 

 

Interest rate(2)

$

7

 

Total

$

7

 

Three Months Ended March 31, 2020

 

 

 

Derivative type and location of gains (losses):

 

 

 

Interest rate(2)

$

(6

)

Total

$

(6

)

 

(1)

Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/ liabilities have no associated effect in the Consolidated Statements of Comprehensive Income (Loss).

(2)

Amounts recorded in DESC’s Consolidated Statements of Comprehensive Income (Loss) are classified in interest charges.

16


 

 

  

 

Derivatives Not Designated as Hedging Instrument

(millions)

 

 

 

Amount of Gain (Loss)

Recognized in Income on

Derivatives(1)

 

Three Months Ended March 31,

 

Location

 

2021

 

 

2020

 

Derivative type and location of gains (losses):

 

 

 

 

 

 

 

 

 

 

Interest rate contracts:

 

Interest charges

 

$

(1

)

 

$

0

 

Total interest rate contracts

 

 

 

$

(1

)

 

$

0

 

(1)

Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in the Consolidated Statements of Comprehensive Income (Loss).

8. FAIR VALUE MEASUREMENTS, INCLUDING DERIVATIVES

DESC’s fair value measurements are made in accordance with the policies discussed in Note 9 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020. See Note 7 in this report for further information about DESC’s derivatives and hedge accounting activities.

Recurring Fair Value Measurements

The following table presents DESC’s liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

 

(millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

At March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

$

0

 

 

$

18

 

 

$

0

 

 

$

18

 

Total liabilities

 

$

0

 

 

$

18

 

 

$

0

 

 

$

18

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

$

0

 

 

$

27

 

 

$

0

 

 

$

27

 

Total liabilities

 

$

0

 

 

$

27

 

 

$

0

 

 

$

27

 

 

Fair Value of Financial Instruments

Substantially all of DESC’s financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of financial instruments classified within current assets and current liabilities are representative of fair value because of the short-term nature of these instruments. For financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

(millions)

 

Carrying

Amount

 

 

Estimated

Fair Value(1)

 

 

Carrying

Amount

 

 

Estimated

Fair Value(1)

 

Long-term debt(2)

 

$

3,360

 

 

$

4,299

 

 

$

3,360

 

 

$

4,748

 

Affiliated long-term debt

 

 

230

 

 

 

230

 

 

 

230

 

 

 

230

 

 

(1)

Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issuances with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.

(2)   Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs and discount or premium.

 

 

 

 

 

 

 

17


 

 

9. EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost recorded by DESC were as follows:

(millions)

 

Pension Benefits

 

 

Other Postretirement Benefits

 

Three Months Ended March 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

3

 

 

$

3

 

 

$

1

 

 

$

1

 

Interest cost

 

 

5

 

 

 

6

 

 

 

1

 

 

 

2

 

Expected return on assets

 

 

(12

)

 

 

(11

)

 

 

0

 

 

 

0

 

Amortization of actuarial losses

 

 

2

 

 

 

2

 

 

 

0

 

 

 

0

 

Net periodic benefit cost (credit)

 

$

(2

)

 

$

0

 

 

$

2

 

 

$

3

 

 

During the three months ended March 31, 2021, DESC made no contributions to its pension trust and does not expect to make any such contributions in 2021. DESC recovers current pension costs through either a rate rider that may be adjusted annually for retail electric operations or through cost of service rates for gas operations.

10. COMMITMENTS AND CONTINGENCIES

As a result of issues generated in the ordinary course of business, DESC is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by regulatory authorities), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for DESC to estimate a range of possible loss. For such matters that DESC cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that DESC is able to estimate a range of possible loss. For legal proceedings and governmental examinations that DESC is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent DESC’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on DESC’s financial position, liquidity or results of operations.

Environmental Matters

DESC is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.

From a regulatory perspective, DESC and GENCO continually monitor and evaluate their current and projected emission levels and strive to comply with all state and federal regulations regarding those emissions. DESC and GENCO participate in the SO2 and NOX emission allowance programs with respect to coal plant emissions and also have constructed additional pollution control equipment at their coal-fired electric generating plants. These actions are expected to address many of the rules and regulations discussed herein.

Air

The CAA, as amended, is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation's air quality. At a minimum, states are required to establish regulatory programs to meet applicable requirements of the CAA. However, states may choose to develop regulatory programs that are more restrictive. Many of DESC’s facilities are subject to the CAA’s permitting and other requirements.

Ozone Standards

The EPA published final non-attainment designations for the October 2015 ozone standard in June 2018. States have until August 2021 to develop plans to address the new standard. Until the states have developed implementation plans for the standard, DESC 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 DESC’s results of operations and cash flows.

18


 

ACE Rule

In July 2019, the EPA published the final rule informally referred to as the ACE Rule, as a replacement for the Clean Power Plan. The ACE Rule regulated GHG emissions from existing coal-fired power plants pursuant to Section 111(d) of the CAA and required states to develop plans by July 2022 establishing unit-specific performance standards for existing coal-fired power plants. In January 2021, the U.S. Court of Appeals for the D.C. Circuit vacated the ACE Rule and remanded it to the EPA. This decision would take effect upon issuance of the court’s mandate. In March 2021, the court issued a partial mandate vacating and remanding all parts of the ACE Rule except for the portion of the ACE Rule that repealed the Clean Power Plan. While the EPA has stated its intention to replace the ACE Rule, it is unknown at this time if or how the EPA will issue a replacement for the ACE Rule and how that replacement will affect DESC’s operations, financial condition and/or cash flows.

Carbon Regulations

In August 2016, the EPA issued a draft rule proposing to reaffirm that a source’s obligation to obtain a PSD or Title V permit for GHGs is triggered only if such permitting requirements are first triggered by non-GHG, or conventional, pollutants that are regulated by the New Source Review program, and exceed a significant emissions rate of 75,000 tons per year of CO2 equivalent emissions. Until the EPA ultimately takes final action on this rulemaking, DESC cannot predict the impact to its results of operations, financial condition and/or cash flows.

In December 2018, the EPA proposed revised Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources. The proposed rule would amend the previous determination that the best system of emission reduction for newly constructed coal-fired steam generating units is no longer partial carbon capture and storage. Instead, the proposed revised best system of emission reduction for this source category is the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units) in combination with best operating practices. In January 2021, the EPA published a final rule affirming that fossil fuel-fired electric generating units meet the requirement that a source category “significantly contribute” to endangering air pollution for the purposes of regulating GHG emissions from new, modified and reconstructed stationary sources. The January 2021 rule also established a threshold for the “significant contribution” threshold that would have meant that no other source category, such as oil and gas facilities, petroleum refineries, and boilers, would meet that requirement at this time. In April 2021, the U.S. Court of Appeals for the D.C. Circuit granted an unopposed motion by the EPA to vacate and remand the January 2021 rule. The proposed revision to the performance standards for coal-fired steam generating units remains pending. Until the EPA ultimately takes final action on this rulemaking, DESC cannot predict the impact to its results of operations, financial condition and/or cash flows.

Water

The CWA, as amended, is a comprehensive program requiring a broad range of regulatory tools including a permit program to authorize and regulate discharges to surface waters with strong enforcement mechanisms. DESC must comply with applicable aspects of the CWA programs at its operating facilities.

Regulation 316(b)

 

In October 2014, the final regulations under Section 316(b) of the CWA that govern existing facilities and new units at existing facilities that employ a cooling water intake structure and that have flow levels exceeding a minimum threshold became effective. The rule establishes a national standard for impingement based on seven compliance options, but forgoes the creation of a single technology standard for entrainment. Instead, the EPA has delegated entrainment technology decisions to state regulators. State regulators are to make case-by-case entrainment technology determinations after an examination of five mandatory facility-specific factors, including a social cost-benefit test, and six optional facility-specific factors. The rule governs all electric generating stations with water withdrawals above 2 MGD, with a heightened entrainment analysis for those facilities over 125 MGD. DESC has 5 facilities that are subject to the final regulations. DESC is also working with the EPA and state regulatory agencies to assess the applicability of Section 316(b) to 5 hydroelectric facilities. DESC anticipates that it may have to install impingement control technologies at certain of these stations that have once-through cooling systems. DESC is currently evaluating the need or potential for entrainment controls under the final rule as these decisions will be made on a case-by-case basis after a thorough review of detailed biological, technology, cost and benefit studies. DESC is conducting studies and implementing plans as required by the rule to determine appropriate intake structure modifications at certain facilities to ensure compliance with this rule. While the impacts of this rule could be material to DESC’s results of operations, financial condition and/or cash flows, the existing regulatory framework in South Carolina provides rate recovery mechanisms that could substantially mitigate any such impacts for DESC.

 

19


 

 

Effluent Limitations Guidelines

 

In September 2015, the EPA released a final rule to revise the ELG Rule. The final rule established updated standards for wastewater discharges that apply primarily at coal and oil steam generating stations. Affected facilities are required to convert from wet to dry or closed cycle coal ash management, improve existing wastewater treatment systems and/or install new wastewater treatment technologies in order to meet the new discharge limits. In April 2017, the EPA granted two separate petitions for reconsideration of the final ELG Rule and stayed future compliance dates in the rule. Also in April 2017, the U.S. Court of Appeals for the Fifth Circuit granted the EPA’s request for a stay of the pending consolidated litigation challenging the rule while the EPA addresses the petitions for reconsideration. In September 2017, the EPA signed a rule to postpone the earliest compliance dates for certain waste streams regulations in the final ELG Rule from November 2018 to November 2020; however, the latest date for compliance for these regulations was December 2023. In October 2020, the EPA released the final rule that extends the latest dates for compliance. Individual facilities’ compliance dates will vary based on circumstances and the determination by state regulators and may range from 2021 to 2028. While the impacts of this rule could be material to DESC’s results of operations, financial condition and/or cash flows, as DESC expects that wastewater treatment technology retrofits and modifications to the bottom ash handling systems at the Williams and Wateree generating stations will be required, the existing regulatory framework in South Carolina provides rate recovery mechanisms that could substantially mitigate any such impacts for DESC.

 

Capacity Use Area

In November 2019, a new CUA was established in the counties surrounding the Cope Generating Station (Western Capacity Use Area) under the South Carolina Groundwater Use and Reporting Regulation. Under the regulation any groundwater well in a CUA that withdraws above three million gallons per month must be permitted. The Cope Generating Station is located within this new Western Capacity Use Area. Cope has been using four deep groundwater wells for cooling water and other house loads since 1996. Prior to designation of the new Western Capacity Use Area, the wells at Cope Station were only required to be registered not permitted. As a result of this designation, Cope will need to restore the surface water equipment to operable status to reduce reliance on groundwater wells. This includes completion of 316(b) requirements, (including SCDHEC BACT determination and modification of the station national pollutant discharge elimination system permit) and extensive inspection, repair and/or replacement of the associated surface water withdrawal equipment which has been idle since 1996. While the impacts of this rule change are material to DESC’s results of operations, financial condition and/or cash flows, the existing regulatory framework in South Carolina provides rate recovery mechanisms that could substantially mitigate any such impacts for DESC.

 

Waste Management and Remediation

 

The operations of DESC are subject to a variety of state and federal laws and regulations governing the management and disposal of solid and hazardous waste, and release of hazardous substances associated with current and/or historical operations. The CERCLA, as amended, and similar state laws, may impose joint, several and strict liability for cleanup on potentially responsible parties who owned, operated or arranged for disposal at facilities affected by a release of hazardous substances. In addition, many states have created programs to incentivize voluntary remediation of sites where historical releases of hazardous substances are identified and property owners or responsible parties decide to initiate cleanups.

 

From time to time, DESC may be identified as a potentially responsible party in connection with the alleged release of hazardous substances or wastes at a site. Under applicable federal and state laws, DESC could be responsible for costs associated with the investigation or remediation of impacted sites, or subject to contribution claims by other responsible parties for their costs incurred at such sites. DESC also may identify, evaluate and remediate other potentially impacted sites under voluntary state programs. Remediation costs may be subject to reimbursement under DESC’s insurance policies, rate recovery mechanisms, or both. Except as described below, DESC does not believe these matters will have a material effect on results of operations, financial condition and/or cash flows.

 

DESC has 4 decommissioned MGP sites in South Carolina that are in various states of investigation, remediation and monitoring under work plans approved by, or under review by, the SCDHEC or the EPA. DESC anticipates that activities at these sites will continue through 2025 at an estimated cost of $9 million. In addition, for one site, an updated work plan submitted to SCDHEC in September 2018, would increase costs by approximately $11 million if approved by federal and state agencies. In September 2020, this plan was submitted to the Army Corps of Engineers. DESC expects to recover costs arising from the remediation work at all four sites through rate recovery mechanisms and as of March 31, 2021, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $22 million and are included in regulatory assets.

 

Ash Pond and Landfill Closure Costs

 

In April 2015, the EPA enacted a final rule regulating CCR landfills, existing ash ponds that still receive and manage CCRs, and inactive ash ponds that do not receive, but still store, CCRs. DESC currently has inactive and existing CCR ponds and CCR landfills subject to the final rule at 3 different facilities. This rule created a legal obligation for DESC to retrofit or close all of its inactive and existing ash ponds over a certain period of time, as well as perform required monitoring, corrective action, and post-closure care activities as necessary.

 

20


 

 

In December 2016, legislation was enacted that creates a framework for EPA- approved state CCR permit programs. In August 2017, the EPA issued interim guidance outlining the framework for state CCR program approval. The EPA has enforcement authority until state programs are approved. The EPA and states with approved programs both will have authority to enforce CCR requirements under their respective rules and programs. In September 2017, the EPA agreed to reconsider portions of the CCR rule in response to two petitions for reconsideration. In March 2018, the EPA proposed certain changes to the CCR rule related to issues remanded as part of the pending litigation and other issues the EPA is reconsidering. Several of the proposed changes would allow states with approved CCR permit programs additional flexibility in implementing their programs. In July 2018, the EPA promulgated the first phase of changes to the CCR rule. In August 2018, the U.S. Court of Appeals for the D.C. Circuit issued its decision in the pending challenges of the CCR rule, vacating and remanding to the EPA three provisions of the rule. Until this matter is resolved and all phases of the CCR rule are promulgated, DESC is unable to precisely estimate potential incremental impacts or costs related to existing coal ash sites in connection with future implementation of the final CCR rule. While such amounts may be material to DESC’s results of operations, financial condition and/or cash flows, the existing regulatory framework in South Carolina provides rate recovery mechanisms that could substantially mitigate any such impacts.

Abandoned NND Project

A description of events and circumstances leading up to DESC's abandonment of the NND Project and subsequent regulatory, legislative, legal and investigative proceedings, as well as related impairments of NND Project and other costs are described in Note 12 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2020.

 

Claims and Litigation

The following describes certain legal proceedings involving DESC relating to events occurring before closing of the SCANA Combination. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material. For certain of these matters, and unless otherwise noted therein, DESC is unable to estimate a reasonable range of possible loss and the related financial statement impacts, but for any such matter there could be a material impact to its results of operations, financial condition and/or cash flows. For the matters for which DESC is able to reasonably estimate, the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 include reserves of $268 million and $208 million, respectively, and insurance receivables at both dates of $8 million, included within other receivables. During the three months ended March 31, 2021, DESC’s Consolidated Statements of Income include charges of $60 million ($45 million after-tax) included within impairment of assets and other charges.

Ratepayer Class Actions

In May 2018, a consolidated complaint against DESC, SCANA and the State of South Carolina was filed in the State Court of Common Pleas in Hampton County, South Carolina (the DESC Ratepayer Case). The plaintiffs alleged, among other things, that DESC was negligent and unjustly enriched, breached alleged fiduciary and contractual duties and committed fraud and misrepresentation in failing to properly manage the NND Project, and that DESC committed unfair trade practices and violated state anti-trust laws. In December 2018, the State Court of Common Pleas in Hampton County entered an order granting preliminary approval of a class action settlement. The court entered an order granting final approval of the settlement in June 2019, which became effective in July 2019. The settlement agreement, contingent upon the closing of the SCANA Combination, provided that SCANA and DESC establish an escrow account and proceeds from the escrow account would be distributed to the plaintiffs, after payment of certain taxes, attorneys' fees and other expenses and administrative costs. The escrow account would include (1) up to $2.0 billion, net of a credit of up to $2.0 billion in future electric bill relief, which would inure to the benefit of the escrow account in favor of class members over a period of time established by the South Carolina Commission in its order related to matters before the South Carolina Commission related to the NND Project, (2) a cash payment of $115 million and (3) the transfer of certain DESC-owned real estate or sales proceeds from the sale of such properties, which counsel for the plaintiffs estimated to have an aggregate value between $60 million and $85 million. At the closing of the SCANA Combination, SCANA and DESC funded the cash payment portion of the escrow account. In July 2019, DESC transferred $117 million representing the cash payment, plus accrued interest, to the plaintiffs. Through August 2020, property, plant and equipment with a net recorded value of $22 million had been transferred to the plaintiffs in coordination with the court-appointed real estate trustee to satisfy the settlement agreement. In September 2020, the court entered an order approving a final resolution of the transfer of real estate or sales proceeds with a cash contribution of $38.5 million by DESC and the conveyance of property, plant and equipment with a net recorded value of $3 million, which was completed by DESC in October 2020.

In September 2017, a purported class action was filed by Santee Cooper ratepayers against Santee Cooper, DESC, Palmetto Electric Cooperative, Inc. and Central Electric Power Cooperative, Inc. in the State Court of Common Pleas in Hampton County, South Carolina (the Santee Cooper Ratepayer Case). The allegations were substantially similar to those in the DESC Ratepayer Case. In March 2020, the parties executed a settlement agreement relating to this matter as well as the Luquire Case and the Glibowski Case described below. The settlement agreement provided that Dominion Energy and Santee Cooper establish a fund for the benefit of class members in the amount of $520 million, of which Dominion Energy’s portion was $320 million of shares of Dominion Energy common stock. In July 2020, the court issued a final approval of the settlement agreement. In September 2020, Dominion Energy issued $322 million of shares of Dominion Energy common stock to satisfy its obligation under the settlement agreement, including interest charges.

21


 

In July 2019, a similar purported class action was filed by certain Santee Cooper ratepayers against DESC, SCANA, Dominion Energy and former directors and officers of SCANA in the State Court of Common Pleas in Orangeburg, South Carolina (the Luquire Case). In August 2019, DESC, SCANA and Dominion Energy were voluntarily dismissed from the case. The claims were similar to the Santee Cooper Ratepayer Case. In March 2020, the parties executed a settlement agreement as described above relating to this matter as well as the Santee Cooper Ratepayer Case and the Glibowski Case. This case was dismissed as part of the Santee Cooper Ratepayer Case settlement described above.

RICO Class Action

In January 2018, a purported class action was filed, and subsequently amended, against SCANA, DESC and certain former executive officers in the U.S. District Court for the District of South Carolina (the Glibowski Case). The plaintiff alleged, among other things, that SCANA, DESC and the individual defendants participated in an unlawful racketeering enterprise in violation of RICO and conspired to violate RICO by fraudulently inflating utility bills to generate unlawful proceeds. In March 2020, the parties executed a settlement agreement as described above relating to this matter as well as the Santee Cooper Ratepayer Case and the Luquire Case. This case was dismissed as part of the Santee Cooper Ratepayer Case settlement described above.

SCANA Shareholder Litigation

In February 2018, a purported class action was filed against Dominion Energy and certain former directors of SCANA and DESC in the State Court of Common Pleas in Richland County, South Carolina (the Metzler Lawsuit). The plaintiff alleges, among other things, that defendants violated their fiduciary duties to shareholders by executing a merger agreement that would unfairly deprive plaintiffs of the true value of their SCANA stock, and that Dominion Energy aided and abetted these actions. Among other remedies, the plaintiff seeks to enjoin and/or rescind the merger. In February 2018, Dominion Energy removed the case to the U.S. District Court for the District of South Carolina and filed a Motion to Dismiss in March 2018. In September 2019, the U.S. District Court for the District of South Carolina granted the plaintiffs’ motion to consolidate the Metzler Lawsuit with another lawsuit regarding the SCANA Merger Agreement to which DESC is not a party. In October 2019, the plaintiffs filed an amended complaint against certain former directors and executive officers of SCANA and DESC, which stated substantially similar allegations to those in the initial lawsuits as well as an inseparable fraud claim. In November 2019, the defendants filed a motion to dismiss. In April 2020, the U.S. District Court for the District of South Carolina denied the motion to dismiss. In May 2020, SCANA filed a motion to intervene, which was denied in August 2020. In September 2020, SCANA filed a notice of appeal with the U.S. Court of Appeals for the Fourth Circuit. This case is pending.

Employment Class Actions and Indemnification

In August 2017, a case was filed in the U.S. District Court for the District of South Carolina on behalf of persons who were formerly employed at the NND Project. In July 2018, the court certified this case as a class action. In February 2019, certain of these plaintiffs filed an additional case, which case has been dismissed and the plaintiffs have joined the case filed August 2017. The plaintiffs allege, among other things, that SCANA, DESC, Fluor Corporation and Fluor Enterprises, Inc. violated the Worker Adjustment and Retraining Notification Act in connection with the decision to stop construction at the NND Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment and are seeking damages, which could be as much as $100 million for 100% of the NND Project. In January 2021, the U.S. District Court for the District of South Carolina granted summary judgment in favor of SCANA, DESC, Fluor Corporation and Fluor Enterprises, Inc. In February 2021, the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Fourth Circuit. This case is pending.

In September 2018, a case was filed in the State Court of Common Pleas in Fairfield County, South Carolina by Fluor Enterprises, Inc. and Fluor Daniel Maintenance Services, Inc. against DESC and Santee Cooper. The plaintiffs make claims for indemnification, breach of contract and promissory estoppel arising from, among other things, the defendants' alleged failure and refusal to defend and indemnify the Fluor defendants in the aforementioned case. This case is pending.

FILOT Litigation and Related Matters

In November 2017, Fairfield County filed a complaint and a motion for temporary injunction against DESC in the State Court of Common Pleas in Fairfield County, South Carolina, making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of implied duty of good faith and fair dealing and unfair trade practices related to DESC’s termination of the FILOT agreement between DESC and Fairfield County related to the NND Project. The plaintiff sought a temporary and permanent injunction to prevent DESC from terminating the FILOT agreement. The plaintiff withdrew the motion for temporary injunction in December 2017. This case is pending.

22


 

Governmental Proceedings and Investigations

In June 2018, DESC received a notice of proposed assessment of approximately $410 million, excluding interest, from the SCDOR following its audit of DESC’s sales and use tax returns for the periods September 1, 2008 through December 31, 2017. The proposed assessment, which includes 100% of the NND Project, is based on the SCDOR’s position that DESC’s sales and use tax exemption for the NND Project does not apply because the facility will not become operational. In December 2020, the parties reached an agreement in principle in the amount of $165 million to resolve this matter.

In September and October 2017, SCANA was served with subpoenas issued by the U.S. Attorney’s Office for the District of South Carolina and the Staff of the SEC’s Division of Enforcement seeking documents related to the NND Project. In February 2020, the SEC filed a complaint against SCANA, two of its former executive officers and DESC in the U.S. District Court for the District of South Carolina alleging that the defendants violated federal securities laws by making false and misleading statements about the NND Project. In April 2020, SCANA and DESC reached an agreement in principle with the Staff of the SEC’s Division of Enforcement to settle, without admitting or denying the allegations in the complaint. In December 2020, the U.S. District Court for the District of South Carolina issued an order approving the settlement which required SCANA to pay a civil monetary penalty totaling $25 million, and SCANA and DESC to pay disgorgement and prejudgment interest totaling $112.5 million, which disgorgement and prejudgment interest amount were deemed satisfied by the settlements in the SCANA Securities Class Action and the DESC Ratepayer Case. SCANA paid the civil penalty in December 2020. The SEC civil action against two former executive officers of SCANA remains pending and is currently subject to a stay granted by the court in June 2020 at the request of the U.S. Attorney’s Office for the District of South Carolina.

In addition, the South Carolina Law Enforcement Division is conducting a criminal investigation into the handling of the NND Project by SCANA and DESC. Dominion Energy is cooperating fully with the investigations by the U.S. Attorney’s Office and the South Carolina Law Enforcement Division, including responding to additional subpoenas and document requests. Dominion Energy has also entered into a cooperation agreement with the U.S. Attorney’s Office and the South Carolina Attorney General’s Office. The cooperation agreement provides that in consideration of its full cooperation with these investigations to the satisfaction of both agencies, neither such agency will criminally prosecute or bring any civil action against Dominion Energy or any of its current, previous, or future direct or indirect subsidiaries related to the NND Project. A former executive officer of SCANA entered a plea agreement with the U.S. Attorney’s Office and the South Carolina Attorney General’s Office in June 2020 and entered a guilty plea with the U.S. District Court for the District of South Carolina in July 2020. Another former executive officer of SCANA entered a plea agreement with the U.S. Attorney's Office and the South Carolina Attorney General's Office in November 2020 and entered guilty pleas in the U.S. District Court for the District of South Carolina and in South Carolina state court in February 2021. As a result of the pleas, Dominion Energy has terminated indemnity for these former executive officers related to these two cases.

Other Litigation

In September 2019, a South Carolina state court jury awarded a judgment to the estate of Jose Larios in a wrongful death suit filed in June 2017 against DESC, of which DESC was apportioned $19 million. DESC holds general liability insurance coverage which is expected to provide payment for substantially all DESC’s liability in this matter. In October 2019, DESC filed a motion requesting a reduction in the judgment or, in the alternative, a new trial. In November 2019, DESC’s motion for a new trial was granted, setting aside the entire verdict amount. This matter is pending.

Contractor Bankruptcy Proceedings

Westinghouse’s Reorganization Plan became effective August 1, 2018. Initially, Westinghouse had projected that its Reorganization Plan would pay in full or nearly in full its pre-petition trade creditors, including several of the Westinghouse Subcontractors which have alleged non-payment by the Consortium for amounts owed for work performed on the NND Project and have filed liens on related property in Fairfield County, South Carolina. DESC is contesting approximately $285 million of such filed liens. Most of these asserted liens are “pre-petition” claims that relate to work performed by Westinghouse Subcontractors before the Westinghouse bankruptcy, although some of them are “post-petition” claims arising from work performed after the Westinghouse bankruptcy. It is possible that the Reorganization Plan will not provide for payment in full or nearly in full to its pre-petition trade creditors. The shortfall could be significant. In addition, payments under the Toshiba Settlement are subject to reduction if Westinghouse pays Westinghouse Subcontractors holding pre-petition liens directly. Under these circumstances, DESC and Santee Cooper, each in its pro rata share, would be required to make Citibank, N.A., which purchased the scheduled payments under the Toshiba Settlement, whole for reductions related to valid subcontractor and vendor pre-petition liens up to $60 million ($33 million for DESC's 55% share).

DESC and Santee Cooper were responsible for amounts owed to Westinghouse for valid work performed by Westinghouse Subcontractors on the NND Project after the Westinghouse bankruptcy filing (i.e., post-petition) until termination of the IAA (the IAA Period). In the Westinghouse bankruptcy proceeding, deadlines were established for creditors of Westinghouse to assert the amounts owed to such creditors prior to the Westinghouse bankruptcy filing and during the IAA Period. Many of the Westinghouse Subcontractors have filed such claims. In December 2019, DESC and Santee Cooper entered into a confidential settlement agreement with W Wind Down Co LLC resolving claims relating to the IAA.

23


 

Further, some Westinghouse Subcontractors who have made claims against Westinghouse in the bankruptcy proceeding also filed against DESC and Santee Cooper in South Carolina state court for damages. The Westinghouse Subcontractor claims in South Carolina state court include common law claims for pre-petition work, IAA Period work, and work after the termination of the IAA. Many of these claimants have also asserted construction liens against the NND Project site. While DESC cannot be assured that it will not have any exposure on account of unpaid Westinghouse Subcontractor claims, which claims DESC is presently disputing, DESC believes it is unlikely that it will be required to make payments on account of such claims.

Nuclear Insurance

Under Price-Anderson, DESC (for itself and on behalf of Santee-Cooper) maintains agreements of indemnity with the U.S. Nuclear Regulatory Commission that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Summer. Price-Anderson provides funds up to $13.7 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $450 million by American Nuclear Insurers with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of commercial nuclear reactors. Each reactor licensee is liable for up to $138 million per reactor owned for each nuclear incident occurring at any reactor in the U.S., provided that not more than $21 million of the liability per reactor would be assessed per year. DESC’s maximum assessment, based on its two-thirds ownership of Summer, would be $92 million per incident, but not more than $14 million per year. Both the maximum assessment per reactor and the maximum yearly assessment are adjusted for inflation at least every five years.

DESC currently maintains insurance policies (for itself and on behalf of Santee Cooper) with NEIL. The policies provide coverage to Summer for property damage and outage costs up to $2.75 billion resulting from an event of nuclear origin and up to $2.33 billion resulting from an event of a non-nuclear origin. The NEIL policies in aggregate, are subject to a maximum loss of $2.75 billion for any single loss occurrence. The NEIL policies permit retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premium, DESC’s portion of the retrospective premium assessment would not exceed $24 million. DESC currently maintains an excess property insurance policy (for itself and on behalf of Santee Cooper) with EMANI. The policy provides coverage to Summer for property damage and outage costs up to $415 million resulting from an event of a non-nuclear origin. The EMANI policy permits retrospective assessments under certain conditions to cover insurer's losses. Based on the current annual premium, DESC's portion of the retrospective premium assessment would not exceed $2 million.

To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from an incident at Summer exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that DESC's rates would not recover the cost of any purchased replacement power, DESC will retain the risk of loss as a self-insurer. DESC has no reason to anticipate a serious nuclear or other incident. However, if such an incident were to occur, it likely would have a material impact on DESC's results of operations, cash flows and financial position. 

11. OPERATING SEGMENTS

The Corporate and Other segment includes specific items attributable to its operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.

In the three months ended March 31, 2021 and 2020, DESC reported an immaterial amount of specific items in the Corporate and Other segment.

 

(millions)

 

External

Revenue

 

 

Comprehensive

Income (Loss)

Available

(Attributable) to

Common

Shareholder

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

Dominion Energy South Carolina

 

$

744

 

 

$

97

 

Corporate and Other

 

 

0

 

 

 

(46

)

Consolidated Total

 

$

744

 

 

$

51

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

Dominion Energy South Carolina

 

$

672

 

 

$

89

 

Corporate and Other

 

 

0

 

 

 

(1

)

Consolidated Total

 

$

672

 

 

$

88

 

 

24


 

 

 

12. AFFILIATED AND RELATED PARTY TRANSACTIONS

DESC owns 40% of Canadys Refined Coal, LLC, which is involved in the manufacturing and sale of refined coal to reduce emissions at one of DESC's generating facilities. DESC accounts for this investment using the equity method.

DESS, on behalf of itself and its parent company, provided the following services to DESC through December 2020, which were rendered at direct or allocated cost: information systems, telecommunications, customer support, marketing and sales, human resources, corporate compliance, purchasing, financial, risk management, public affairs, legal, investor relations, gas supply and capacity management, strategic planning, general administrative and retirement benefits. In addition, DESS processed and paid invoices for DESC and was reimbursed. Effective January 2021, DES provides to DESC the services previously provided by DESS. Costs for these services include amounts capitalized. Amounts expensed are primarily recorded in other operations and maintenance - affiliated suppliers and other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).

 

 

 

Three Months Ended

March 31,

 

(millions)

 

2021

 

 

2020

 

Direct and allocated costs from DES and DESS(1)

 

$

55

 

 

$

67

 

Operating Revenues - Electric from sales to affiliate

 

 

1

 

 

 

0

 

Operating Revenues - Gas from sales of affiliate

 

 

0

 

 

 

0

 

Operating Expenses - Other taxes from affiliate

 

 

3

 

 

 

3

 

Purchases of electricity from solar affiliates

 

 

2

 

 

 

2

 

Demand and transportation charges from DECG - Fuel used in

   electric generation

 

 

0

 

 

 

4

 

Demand and transportation charges from DECG - Gas purchased

   for resale

 

 

0

 

 

 

11

 

 

(1)

Includes capitalized expenditures of $2 million and $12 million for the three months ended March 31, 2021 and 2020, respectively.

 

(millions)

 

March 31, 2021

 

 

December 31, 2020

 

Payable to DES and DESS

 

$

63

 

 

$

59

 

Payable to Public Service Company of North Carolina, Incorporated

 

 

6

 

 

 

5

 

Payable to solar affiliates

 

 

1

 

 

 

1

 

 

Borrowings from an affiliate are described in Note 5.

13. OTHER INCOME (EXPENSE), NET

Components of other income (expense), net are as follows:

 

 

 

Three Months Ended

March 31,

 

(millions)

 

2021

 

 

2020

 

Revenues from contracts with customers

 

$

0

 

 

$

1

 

Other income

 

 

3

 

 

 

3

 

Other expense

 

 

2

 

 

 

(2

)

Allowance for equity funds used during construction

 

 

1

 

 

 

1

 

Other income, net

 

$

6

 

 

$

3

 

 

Non-service cost components of pension and other postretirement benefits are included in other income (expense).

 

25


 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A provides management’s narrative analysis of its consolidated results of operations. MD&A should be read in conjunction with DESC's Consolidated Financial Statements. DESC meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.

Forward-Looking Statements

This report contains statements concerning DESC’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements.” 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.

DESC makes 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:

 

Unusual weather conditions and their effect on energy sales to customers and energy commodity prices;

 

Extreme weather events and other natural disasters, including, but not limited to, hurricanes, high winds, severe storms, earthquakes, flooding, climate changes and changes in water temperatures and availability that can cause outages and property damage to facilities;

 

Federal, state and local legislative and regulatory developments, including changes in federal and state tax laws and regulations;

 

Risks of operating businesses in regulated industries that are subject to changing regulatory structures;

 

Changes to regulated rates collected;

 

Changes in future levels of domestic and international natural gas production, supply or consumption;

 

Timing and receipt of regulatory approvals necessary for planned construction or growth projects and compliance with conditions associated with such regulatory approvals;

 

The inability to complete planned construction, conversion or growth projects at all, or with the outcomes or within the terms and time frames initially anticipated, including as a result of increased public involvement, intervention or litigation in such projects;

 

Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other substances, more extensive permitting requirements and the regulation of additional substances;

 

Cost of environmental compliance, including those costs related to climate change;

 

Changes in implementation and enforcement practices of regulators relating to environmental standards and litigation exposure for remedial activities;

 

Difficulty in anticipating mitigation requirements associated with environmental and other regulatory approvals or related appeals;

 

The impact of operational hazards, including adverse developments with respect to pipeline and plant safety or integrity, equipment loss, malfunction or failure, operator error and other catastrophic events;

 

Risks associated with the operation of nuclear facilities, including costs associated with the disposal of spent nuclear fuel, decommissioning, plant maintenance and changes in existing regulations governing such facilities;

 

Changes in operating, maintenance and construction costs;

 

Domestic terrorism and other threats to DESC’s physical and intangible assets, as well as threats to cybersecurity;

 

Additional competition from the development and deployment of alternative energy sources, such as self-generation and distributed generation technologies;

 

Competition in the development, construction and ownership of certain electric transmission facilities in connection with Order 1000;

26


 

 

Changes in technology, particularly with respect to new, developing or alternative sources of generation and smart grid technologies;

 

Changes in demand for services, including industrial, commercial and residential growth or decline in service areas, changes in supplies of natural gas delivered, changes in customer growth or usage patterns, including as a result of energy conservation programs, the availability of energy efficient devices and the use of distributed generation methods;

 

Adverse outcomes in litigation matters or regulatory proceedings, including matters related to the NND Project;

 

Counterparty credit and performance risk;

 

Fluctuations in the value of investments held in nuclear decommissioning and benefit plan trusts;

 

Fluctuations in energy-related commodity prices and the effect these could have on DESC’s financial position and the underlying value of assets;

 

Fluctuations in interest rates;

 

Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital;

 

Global capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms;

 

Political and economic conditions, including inflation and deflation;

 

Employee workforce factors including collective bargaining agreements and labor negotiations with union employees; and

 

Changes in financial or regulatory accounting principles or policies imposed by governing bodies.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part I. Item 1A. Risk Factors in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020.

DESC’s forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. DESC cautions the reader not to place undue reliance on its forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. DESC undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Results of Operations

Presented below is a summary of DESC’s consolidated results:

 

 

 

First Quarter

 

(millions)

 

2021

 

 

2020

 

 

$ Change

 

Net income

 

$

55

 

 

$

93

 

 

$

(38)

 

 

Overview

First Quarter 2021 vs. 2020

Net income decreased 41%, primarily due to charges associated with litigation.

27


 

Analysis of Consolidated Operations

Presented below are selected amounts related to DESC’s results of operations:

 

 

 

Year-To-Date

 

(millions)

 

2021

 

 

2020

 

 

$ Change

 

Operating revenues

 

$

744

 

 

$

672

 

 

$

72

 

Fuel used in electric generation

 

 

132

 

 

 

104

 

 

 

28

 

Purchased power

 

 

16

 

 

 

13

 

 

 

3

 

Gas purchased for resale

 

 

81

 

 

 

57

 

 

 

24

 

Other operations and maintenance

 

 

152

 

 

 

145

 

 

 

7

 

Impairment of assets and other charges

 

 

60

 

 

 

2

 

 

 

58

 

Depreciation and amortization

 

 

121

 

 

 

118

 

 

 

3

 

Other taxes

 

 

65

 

 

 

62

 

 

 

3

 

Other income, net

 

 

6

 

 

 

3

 

 

 

3

 

Interest charges

 

 

55

 

 

 

58

 

 

 

(3

)

Income tax expense

 

 

13

 

 

 

23

 

 

 

(10

)

 

An analysis of DESC’s results of operations follows:

First Quarter 2021 vs. 2020

Operating revenue increased 11%, primarily due to:

A $52 million increase in the fuel cost component included in utility rates as a result of an increase in commodity costs and purchased power costs associated with sales to electric utility retail customers ($28 million) and gas utility customers ($24 million); and

A $17 million increase in sales to electric utility retail customers from an increase in heating degree days; partially offset by

A $6 million decrease in sales to electric utility retail customers associated with economic and other usage factors.

Fuel used in electric generation increased 27%, primarily due to increased fuel costs associated with electric utility retail customers, which are offset in operating revenue and do not impact net income.

Gas purchased for resale increased 42%, primarily due to an increase in costs associated with gas utility customers, which are offset in operating revenue and do not impact net income.

Other operations and maintenance increased 5%, primarily due to an increase in salaries, wages and benefits and administrative expenses.

Impairment of assets and other charges increased $58 million, primarily due to charges associated with litigation.

Income tax expense decreased 43%, primarily due to lower pre-tax income.

 


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ITEM 4. CONTROLS AND PROCEDURES

 

Senior management of DESC, including DESC’s CEO and CFO, evaluated the effectiveness of DESC’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, DESC’s CEO and CFO have concluded that DESC’s disclosure controls and procedures are effective.

In the first quarter of 2021, DESC completed the integration of its systems and processes into Dominion Energy’s framework of internal control over financial reporting. As part of this process, DESC transitioned its financial activity into Dominion Energy’s accounting system. Throughout this integration and system implementation, DESC appropriately considered internal controls over financial reporting.

Other than with respect to this item, there were no changes that occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, DESC’s internal control over financial reporting.

 

29


 

 

PART II. OTHER INFORMATION

From time to time, DESC is party to various legal, environmental or other regulatory proceedings, including in the ordinary course of business. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that DESC reasonably believes will exceed a specified threshold. Pursuant to the SEC regulations, DESC uses a threshold of $1 million for such proceedings.

See the following for discussions on various legal, environmental and other regulatory proceedings to which DESC is a party, which information is incorporated herein by reference:

Notes 3 and 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020.

Notes 2 and 10 to the Consolidated Financial Statements in this report.

ITEM 1A. RISK FACTORS

DESC’s business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond its control. A number of these risk factors have been identified in DESC’s Annual Report on Form 10-K for the year ended December 31, 2020, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in DESC's Annual Report on Form 10-K for the year ended December 31, 2020. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in MD&A in this report.

30


 

ITEM 6. EXHIBITS

 

Exhibit No.

 

Description

    3.1

 

Amended and Restated Articles of Incorporation, effective April 29, 2019 (Exhibit 3.1, Form 8-K filed April 29, 2019, File No. 1-3375).

    3.2

 

Amended and Restated Bylaws, effective April 29, 2019 (Exhibit 3.2, Form 8-K filed April 29, 2019, File No. 1-3375).

    4.1

 

Dominion Energy South Carolina, Inc. agrees to furnish to the U.S. Securities and Exchange Commission upon request any instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of its total consolidated assets.

  31.a

 

Certification by Chief Executive Officer of Dominion Energy South Carolina, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

  31.b

 

Certification by Chief Financial Officer of Dominion Energy South Carolina, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

  32.a

 

Certification to the Securities and Exchange Commission by Chief Executive Officer and Chief Financial Officer of Dominion Energy South Carolina, Inc. as required by Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

  101

 

The following financial statements from Dominion Energy South Carolina, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed on May 4, 2021, formatted in iXBRL (Inline eXtensible Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Common Equity, and (v) the Notes to Consolidated Financial Statements.

  104

 

Cover Page Interactive Data File (formatted in iXBRL (Inline eXtensible Reporting Language) and contained in Exhibit 101).

 

 

31


 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

DOMINION ENERGY SOUTH CAROLINA, INC.

 

 

(Registrant)

 

 

 

By:

/s/ Michele L. Cardiff

Date: May 4, 2021

 

Michele L. Cardiff

 

 

Senior Vice President, Controller and Chief Accounting Officer

 

32