DOMINION ENERGY, INC. MD&A discussesDominion Energy's results of operations, general financial condition and liquidity andVirginia Power's results of operations as of and for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 , as applicable. For a discussion of these items for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , please see Part II, Item 7. MD&A in the Companies' Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 25, 2021 . MD&A should be read in conjunction with Item 1. Business and the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.Virginia Power meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.
CONTENTS OF MD&A
MD&A consists of the following information: • Forward-Looking Statements
• Accounting Matters-Dominion Energy
•Dominion Energy • Results of Operations • Outlook • Segment Results of Operations •Virginia Power • Results of Operations
• Liquidity and Capital Resources-Dominion Energy
• Future Issues and Other Matters-Dominion Energy
FORWARD-LOOKING STATEMENTS
This report contains statements concerning the Companies' expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as "anticipate," "estimate," "forecast," "expect," "believe," "should," "could," "plan," "may," "continue," "target" or other similar words. The Companies make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to: • 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;
• The impact of extraordinary external events, such as the current pandemic
health event resulting from COVID-19, and their collateral consequences,
including extended disruption of economic activity in our markets and global
supply chains;
• Federal, state and local legislative and regulatory developments, including
changes in or interpretations of federal and state tax laws and regulations;
• Risks of operating businesses in regulated industries that are subject to
changing regulatory structures;
• Changes to regulated electric rates collected by the Companies and regulated
gas distribution, transportation and storage rates collected by Dominion
Energy;
• Changes in rules for RTOs and ISOs in which the Companies join and/or
participate, including changes in rate designs, changes in
interpretation of market rules and new and evolving capacity models;
• Risks associated with
including risks related to obligations created by the default of other
participants;
55--------------------------------------------------------------------------------
• Risks associated with entities in which
third parties, including risks that result from lack of sole decision making
authority, disputes that may arise between
participants and difficulties in exiting these arrangements;
• Changes in future levels of domestic and international natural gas
production, supply or consumption;
• Impacts to
fluctuations in future volumes of LNG imports or exports from the
other countries worldwide or demand for, purchases of, and prices related to
natural gas or LNG;
• 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;
• Risks and uncertainties that may impact the Companies' ability to develop and
construct the
or at all, and consistent with current cost estimates along with the ability
to recover such costs from customers;
• 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 strategy and 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;
• Unplanned outages at facilities in which the Companies have an ownership
interest;
• 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 the Companies' physical and
intangible assets, as well as threats to cybersecurity;
• Additional competition in industries in which the Companies operate,
including in electric markets in which
generation facilities operate and potential competition from the development
and deployment of alternative energy sources, such as self-generation and
distributed generation technologies, and availability of market alternatives
to large commercial and industrial customers;
• Competition in the development, construction and ownership of certain
electric transmission facilities in the Companies' service territory in
connection with Order 1000;
• Changes in technology, particularly with respect to new, developing or
alternative sources of generation and smart grid technologies;
• Changes in demand for the Companies' services, including industrial,
commercial and residential growth or decline in the Companies' service areas,
changes in supplies of natural gas delivered to
system, failure to maintain or replace customer contracts on favorable terms,
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;
• Receipt of approvals for, and timing of, closing dates for acquisitions and
divestitures;
• Impacts of acquisitions, divestitures, transfers of assets to joint ventures
and retirements of assets based on asset portfolio reviews;
• The expected timing and likelihood of completing the sales of
Hope, including the ability to obtain the requisite regulatory approvals and
the terms and conditions of such regulatory approvals;
• Adverse outcomes in litigation matters or regulatory proceedings, including
matters acquired in the SCANA Combination;
• Counterparty credit and performance risk;
56
--------------------------------------------------------------------------------• Fluctuations in the value of investments held in nuclear decommissioning
trusts by the Companies and in benefit plan trusts by
• Fluctuations in energy-related commodity prices and the effect these could
have on
the underlying value of their assets;
• Fluctuations in interest rates;
• Fluctuations in currency exchange rates of the Euro or
associated with the
• 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 Item 1A. Risk Factors.
The Companies' forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Companies caution the reader not to place undue reliance on their forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. The Companies undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
ACCOUNTING MATTERS
Critical Accounting Policies and Estimates
Dominion Energy has identified the following accounting policies, including certain inherent estimates, that as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.Dominion Energy has discussed the development, selection and disclosure of each of these policies with the Audit Committee of its Board of Directors.
ACCOUNTING FOR REGULATED OPERATIONS
The accounting forDominion Energy's regulated electric and gas operations differs from the accounting for nonregulated operations in thatDominion Energy is required to reflect the effect of rate regulation in its Consolidated Financial Statements. For regulated businesses subject to federal or state cost-of-service rate regulation, regulatory practices that assign costs to accounting periods may differ from accounting methods generally applied by nonregulated companies. When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, these costs that otherwise would be expensed by nonregulated companies are deferred as regulatory assets. Likewise, regulatory liabilities are recognized when it is probable that regulators will require customer refunds or other benefits through future rates or when revenue is collected from customers for expenditures that have yet to be incurred.Dominion Energy evaluates whether or not recovery of its regulatory assets through future rates is probable as well as whether a regulatory liability due to customers is probable and makes various assumptions in its analyses. These analyses are generally based on:
• Orders issued by regulatory commissions, legislation and judicial actions;
• Past experience; • Discussions with applicable regulatory authorities and legal counsel; • Forecasted earnings; and
• Considerations around the likelihood of impacts from events such as unusual
weather conditions, extreme weather events and other natural disasters and
unplanned outages of facilities.
If recovery of a regulatory asset is determined to be less than probable, it will be written off in the period such assessment is made. A regulatory liability, if considered probable, will be recorded in the period such assessment is made or reversed into earnings if no longer probable. In connection with the evaluation ofVirginia Power's earnings for the 2021 Triennial Review, in 2020Virginia Power established a regulatory liability for benefits expected to be provided to Virginia retail electric customers through the use of a CCRO in accordance with the GTSA. In 2021, Virginia Power made further adjustments to this regulatory liability prior to its ultimate resolution through a comprehensive settlement agreement. See Notes 12 and 13 to the Consolidated Financial Statements for additional information. 57 --------------------------------------------------------------------------------
ASSET RETIREMENT OBLIGATIONS
Dominion Energy recognizes liabilities for the expected cost of retiring tangible long-lived assets for which a legal obligation exists and the ARO can be reasonably estimated. These AROs are recognized at fair value as incurred or when sufficient information becomes available to determine fair value and are generally capitalized as part of the cost of the related long-lived assets. In the absence of quoted market prices,Dominion Energy estimates the fair value of its AROs using present value techniques, in which it makes various assumptions including estimates of the amounts and timing of future cash flows associated with retirement activities, credit-adjusted risk free rates and cost escalation rates. The impact on measurements of new AROs or remeasurements of existing AROs, using different cost escalation or credit-adjusted risk free rates in the future, may be significant. WhenDominion Energy revises any assumptions used to calculate the fair value of existing AROs, it adjusts the carrying amount of both the ARO liability and the related long-lived asset for assets that are in service; for assets that have ceased or are expected to cease operations,Dominion Energy adjusts the carrying amount of the ARO liability with such changes either recognized in income or as a regulatory asset.Dominion Energy's AROs include a significant balance related to the future decommissioning of its nonregulated and utility nuclear facilities. These nuclear decommissioning AROs are reported in Dominion Energy Virginia,Dominion Energy South Carolina and Contracted Assets. AtDecember 31, 2021 and 2020,Dominion Energy's nuclear decommissioning AROs totaled$2.0 billion and$1.9 billion , respectively. The following discusses critical assumptions inherent in determining the fair value of AROs associated withDominion Energy's nuclear decommissioning obligations.Dominion Energy obtains from third-party specialists periodic site-specific base year cost studies in order to estimate the nature, cost and timing of planned decommissioning activities for its nuclear plants. These cost studies are based on relevant information available at the time they are performed; however, estimates of future cash flows for extended periods of time are by nature highly uncertain and may vary significantly from actual results. These cash flows include estimates on timing of decommissioning, which for regulated nuclear units factors in the probability of NRC approval for license extensions. In addition,Dominion Energy's cost estimates include cost escalation rates that are applied to the base year costs.Dominion Energy determines cost escalation rates, which represent projected cost increases over time due to both general inflation and increases in the cost of specific decommissioning activities, for each nuclear facility. The selection of these cost escalation rates is dependent on subjective factors which are considered to be critical assumptions. AtDecember 31, 2021 , a 0.25% increase in cost escalation rates would have resulted in an approximate$360 million increase inDominion Energy's nuclear decommissioning AROs.
INCOME TAXES
Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws and associated regulations involves uncertainty since tax authorities may interpret the laws differently. Ultimate resolution or clarification of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to tax-related assets and liabilities could be material. Given the uncertainty and judgment involved in the determination and filing of income taxes, there are standards for recognition and measurement in financial statements of positions taken or expected to be taken by an entity in its income tax returns. Positions taken by an entity in its income tax returns that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the position will be examined by tax authorities with full knowledge of all relevant information. AtDecember 31, 2021 and 2020,Dominion Energy had$128 million and$167 million , respectively, of unrecognized tax benefits. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations. Deferred income tax assets and liabilities are recorded representing future effects on income taxes for temporary differences between the bases of assets and liabilities for financial reporting and tax purposes.Dominion Energy evaluates quarterly the probability of realizing deferred tax assets by considering current and historical financial results, expectations for future taxable income and the availability of tax planning strategies that can be implemented, if necessary, to realize deferred tax assets. Failure to achieve forecasted taxable income or successfully implement tax planning strategies may affect the realization of deferred tax assets. In addition, changes in tax laws or tax rates may require reconsideration of the realizability of existing deferred tax assets.Dominion Energy establishes a valuation allowance when it is more-likely-than-not that all or a portion of a deferred tax asset will not be realized. AtDecember 31, 2021 and 2020,Dominion Energy had established$140 million and$155 million , respectively, of valuation allowances.
ACCOUNTING FOR DERIVATIVE CONTRACTS AND FINANCIAL INSTRUMENTS AT FAIR VALUE
Dominion Energy uses derivative contracts such as physical and financial forwards, futures, swaps, options and FTRs to manage commodity, interest rate and/or foreign currency exchange rate risks of its business operations. Derivative contracts, with certain exceptions, are reported in the Consolidated Balance Sheets at fair value. The majority of investments held inDominion Energy's nuclear decommissioning and rabbi trusts and pension and other postretirement funds are also subject to fair value accounting. See Notes 6 and 22 to the Consolidated Financial Statements for further information on these fair value measurements. 58 -------------------------------------------------------------------------------- Fair value is based on actively-quoted market prices, if available. In the absence of actively-quoted market prices, management seeks indicative price information from external sources, including broker quotes and industry publications. When evaluating pricing information provided by brokers and other pricing services,Dominion Energy considers whether the broker is willing and able to trade at the quoted price, if the broker quotes are based on an active market or an inactive market and the extent to which brokers are utilizing a particular model if pricing is not readily available. If pricing information from external sources is not available, or ifDominion Energy believes that observable pricing information is not indicative of fair value, judgment is required to develop the estimates of fair value. In those cases,Dominion Energy must estimate prices based on available historical and near-term future price information and use of statistical methods, including regression analysis, that reflect its market assumptions.Dominion Energy maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. See Note 6 to the Consolidated Financial Statements for quantitative information on unobservable inputs utilized inDominion Energy's fair value measurements of certain derivative contracts.
USE OF ESTIMATES IN GOODWILL IMPAIRMENT TESTING
In April of each year,Dominion Energy tests its goodwill for potential impairment, and performs additional tests more frequently if an event occurs or circumstances change in the interim that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The 2021 annual test did not result in the recognition of any goodwill impairment. In general,Dominion Energy estimates the fair value of its reporting units by using a combination of discounted cash flows and other valuation techniques that use multiples of earnings for peer group companies and analyses of recent business combinations involving peer group companies. Fair value estimates are dependent on subjective factors such asDominion Energy's estimate of future cash flows, the selection of appropriate discount and growth rates, and the selection of peer group companies and recent transactions. These underlying assumptions and estimates are made as of a point in time; subsequent modifications, particularly changes in discount rates or growth rates inherent inDominion Energy's estimates of future cash flows, could result in a future impairment of goodwill. AlthoughDominion Energy has consistently applied the same methods in developing the assumptions and estimates that underlie the fair value calculations, such as estimates of future cash flows, and based those estimates on relevant information available at the time, such cash flow estimates are highly uncertain by nature and may vary significantly from actual results. If the estimates of future cash flows used in the most recent test had been 10% lower or if the discount rate had been 0.25% higher, the resulting fair values would have still been greater than the carrying values of each of those reporting units tested, indicating that no impairment was present.
See Note 11 to the Consolidated Financial Statements for additional information.
USE OF ESTIMATES IN LONG-LIVED ASSET AND EQUITY METHOD INVESTMENT IMPAIRMENT TESTING
Impairment testing for an individual or group of long-lived assets, including intangible assets with definite lives, and equity method investments is required when circumstances indicate those assets may be impaired. When a long-lived asset's carrying amount exceeds the undiscounted estimated future cash flows associated with the asset, the asset is considered impaired to the extent that the asset's fair value is less than its carrying amount. When an equity method investment's carrying amount exceeds its fair value, and the decline in value is deemed to be other-than-temporary, an impairment is recognized to the extent that the fair value is less than its carrying amount. Performing an impairment test on long-lived assets and equity method investments involves judgment in areas such as identifying if circumstances indicate an impairment may exist, identifying and grouping affected assets in the case of long-lived assets, and developing the undiscounted and discounted estimated future cash flows (used to estimate fair value in the absence of a market-based value) associated with the asset, including probability weighting such cash flows to reflect expectations about possible variations in their amounts or timing, expectations about the operations of the long-lived assets and equity method investments and the selection of an appropriate discount rate. When determining whether a long-lived asset or asset group has been impaired, management groups assets at the lowest level that has identifiable cash flows. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results. For example, estimates of future cash flows would contemplate factors which may change over time, such as the expected use of the asset or underlying assets of equity method investees, including future production and sales levels, expected fluctuations of prices of commodities sold and consumed and expected proceeds from dispositions. There were no tests performed in 2021 of long-lived assets or equity method investments which could have resulted in material impairments.
HELD FOR SALE CLASSIFICATION
Dominion Energy recognizes the assets and liabilities of a disposal group as held for sale in the period (i) it has approved and committed to a plan to sell the disposal group, (ii) the disposal group is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the disposal group have been initiated, (iv) the sale of the disposal group is probable, (v) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.Dominion Energy initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. 59 -------------------------------------------------------------------------------- Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until closing. Upon designation as held for sale,Dominion Energy stops recording depreciation expense and assesses the fair value of the disposal group less any costs to sell at each reporting period and until it is no longer classified as held for sale. The determination as to whether the sale of the disposal group is probable may include significant judgments from management related to the expectation of obtaining approvals from applicable regulatory agencies such as state utility regulatory commissions,FERC or theU.S. Federal Trade Commission . This analysis is generally based on orders issued by regulatory commissions, past experience and discussions with applicable regulatory authorities and legal counsel. InMay 2021 ,Dominion Energy entered into an agreement to sellKewaunee , subject to termination by either party if not completed byDecember 2022 . The consideration as to whether the sale is probable includes judgments related to the ability to obtain the approvals, in a timely manner, of the NRC and theWisconsin Commission . Due to the uncertainty surrounding the timing of or ability to obtain approval by theWisconsin Commission , atDecember 31, 2021 Dominion Energy did not conclude that the sale is probable and, as a result, the disposal group was not classified as held for sale.Dominion Energy would have recognized a loss of approximately$725 million ($570 million after-tax) if such classification had been met. This loss primarily represents the difference between the nuclear decommissioning trust and AROs atDecember 31, 2021 .The Wisconsin Commission requires that any excess decommissioning funds be returned to WPSC and WP&L customers following completion of all decommissioning activities.
See Note 3 to the Consolidated Financial Statements for additional information.
EMPLOYEE BENEFIT PLANS
Dominion Energy sponsors noncontributory defined benefit pension plans and other postretirement benefit plans for eligible active employees, retirees and qualifying dependents. The projected costs of providing benefits under these plans are dependent, in part, on historical information such as employee demographics, the level of contributions made to the plans and earnings on plan assets. Assumptions about the future, including the expected long-term rate of return on plan assets, discount rates applied to benefit obligations, mortality rates and the anticipated rate of increase in healthcare costs and participant compensation, also have a significant impact on employee benefit costs. The impact of changes in these factors, as well as differences betweenDominion Energy's assumptions and actual experience, is generally recognized in the Consolidated Statements of Income over the remaining average service period of plan participants, rather than immediately. The expected long-term rates of return on plan assets, discount rates, healthcare cost trend rates and mortality rates are critical assumptions.Dominion Energy determines the expected long-term rates of return on plan assets for pension plans and other postretirement benefit plans by using a combination of: • Expected inflation and risk-free interest rate assumptions;
• Historical return analysis to determine long-term historic returns as well as
historic risk premiums for various asset classes;
• Expected future risk premiums, asset classes' volatilities and correlations;
• Forward-looking return expectations derived from the yield on long-term bonds
and the expected long-term returns of major capital market assumptions; and
• Investment allocation of plan assets. The strategic target asset allocation
for
32% fixed income, 3% real estate and 20% other alternative investments, such
as private equity investments.
Strategic investment policies are established forDominion Energy's prefunded benefit plans based upon periodic asset/liability studies. Factors considered in setting the investment policy include those mentioned above such as employee demographics, liability growth rates, future discount rates, the funded status of the plans and the expected long-term rate of return on plan assets. Deviations from the plans' strategic allocation are a function ofDominion Energy's assessments regarding short-term risk and reward opportunities in the capital markets and/or short-term market movements which result in the plans' actual asset allocations varying from the strategic target asset allocations. Through periodic rebalancing, actual allocations are brought back in line with the targets. Future asset/liability studies will focus on strategies to further reduce pension and other postretirement plan risk, while still achieving attractive levels of returns.Dominion Energy develops non-investment related assumptions, which are then compared to the forecasts of an independent investment advisor to ensure reasonableness. An internal committee selects the final assumptions.Dominion Energy calculated its pension cost using an expected long-term rate of return on plan assets assumption that ranged from 7.00% to 8.45% for 2021, 7.00% to 8.60% for 2020 and 7.00% to 8.65% for 2019. For 2022, the expected long-term rate of return for the pension cost assumption ranged from 7.00% to 8.35% forDominion Energy's plans held as ofDecember 31, 2021 .Dominion Energy calculated its other 60 -------------------------------------------------------------------------------- postretirement benefit cost using an expected long-term rate of return on plan assets assumption of 8.45% for 2021 and 8.50% for 2020 and 2019. For 2022, the expected long-term rate of return for other postretirement benefit cost assumption is 8.35%.Dominion Energy determines discount rates from analyses of AA/Aa rated bonds with cash flows matching the expected payments to be made under its plans. The discount rates used to calculate pension cost and other postretirement benefit cost ranged from 2.73% to 3.29% for pension plans and 2.69% to 2.80% for other postretirement benefit plans in 2021, ranged from 2.77% to 3.63% for pension plans and 3.07% to 3.52% for other postretirement benefit plans in 2020 and ranged from 3.57% to 4.43% for pension plans and 4.05% to 4.41% for other postretirement benefit plans in 2019.Dominion Energy selected a discount rate ranging from 3.06% to 3.19% for pension plans and 3.04% to 3.11% for other postretirement benefit plans for determining itsDecember 31, 2021 projected benefit obligations.Dominion Energy establishes the healthcare cost trend rate assumption based on analyses of various factors including the specific provisions of its medical plans, actual cost trends experienced and projected and demographics of plan participants.Dominion Energy's healthcare cost trend rate assumption as ofDecember 31, 2021 was 6.25% and is expected to gradually decrease to 5.00% by 2026-2027 and continue at that rate for years thereafter. The following table illustrates the effect on cost of changing the critical actuarial assumptions discussed above, while holding all other assumptions constant: Increase in 2021 Net Periodic Cost Change in Actuarial Other Postretirement Assumptions Pension Benefits Benefits (millions, except percentages) Dominion Energy Discount Rate (0.25)% $ 18 $ - Long-term rate of return on plan assets (0.25)% 25 5 Health care cost trend rate 1% N/A 9 In addition to the effects on cost, a 0.25% decrease in the discount rate would increaseDominion Energy's projected pension benefit obligation atDecember 31, 2021 by$376 million and its accumulated postretirement benefit obligation atDecember 31, 2021 by$44 million , while a 1.00% increase in the healthcare cost trend rate would increase its accumulated postretirement benefit obligation atDecember 31, 2021 by$121 million .
See Note 22 to the Consolidated Financial Statements for additional information
on
New Accounting Standards
See Note 2 to the Consolidated Financial Statements for a discussion of new accounting standards.
DOMINION ENERGY Results of Operations
Presented below is a summary of
Year Ended December 31, 2021 $ Change 2020 $ Change 2019 (millions, except EPS) Net income (loss) attributable to Dominion Energy$ 3,288 $ 3,689 $ (401 ) $ (1,759 ) $ 1,358 Diluted EPS 3.98 4.55 (0.57 ) (2.19 ) 1.62 Overview 2021 VS. 2020 Net income attributable toDominion Energy increased$3.7 billion , primarily due to the absence of: charges associated with the cancellation of theAtlantic Coast Pipeline Project and related portions of theSupply Header Project which are presented in discontinued operations, the planned early retirements of certain electric generation facilities inVirginia , an impairment of interests in certain nonregulated solar generation facilities and the termination of a contract in connection with the sale ofFowler Ridge . In addition, there was an increase in net investment earnings on nuclear decommissioning trust funds, a decrease in charges associated with Virginia Power's 2021 Triennial Review and a gain on the sale of theQ-Pipe Group to Southwest Gas. These increases were 61 -------------------------------------------------------------------------------- partially offset by charges associated with the settlement of theSouth Carolina electric base rate case, increased unrealized losses on economic hedging activities and a net loss on the sales of non-wholly-owned nonregulated solar facilities.
Analysis of Consolidated Operations
Presented below are selected amounts related toDominion Energy's results of operations: Year Ended December 31, 2021 $ Change 2020 $ Change 2019 (millions) Operating revenue$ 13,964 $ (208 ) $ 14,172 $ (229 ) $ 14,401 Electric fuel and other energy-related purchases 2,368 125 2,243 (642 ) 2,885 Purchased electric capacity 70 17 53 (35 ) 88 Purchased gas 1,083 194 889 (671 ) 1,560 Other operations and maintenance 3,734 49 3,685 (105 ) 3,790 Depreciation, depletion and amortization 2,478 146 2,332 49 2,283 Other taxes 909 38 871 (12 ) 883 Impairment of assets and other charges 195 (1,910 ) 2,105 585 1,520 Loss (gain) on sales of assets 108 169 (61 ) 91 (152 ) Earnings from equity method investees 276 236 40 32 8 Other income 1,157 464 693 (110 ) 803 Interest and related charges 1,354 (23 ) 1,377 (109 ) 1,486 Income tax expense 425 342 83 (126 ) 209 Net income (loss) from discontinued operations including noncontrolling interests 641 2,519 (1,878 ) (2,594 ) 716 Noncontrolling interests 26 175 (149 ) (167 ) 18
An analysis of
2021 VS. 2020
Operating revenue decreased 1%, primarily reflecting:
• A
including economic hedging impacts of net realized and unrealized losses on
freestanding derivatives (
• A
customers in
Review;
• A
• A
nonregulated natural gas retail energy contracts to Wrangler;
• A
certain Virginia Power regulated electric sales; and
• A
These decreases were partially offset by:
• A
as a result of an increase in commodity costs associated with sales to gas
utility customers (
million);
• A
• A
associated with growth;
• A
economic and other usage factors;
• A
• A
increase in heating degree days during the heating season (
partially offset by a decrease in cooling degree days during the cooling
season (
• A
generation facilities; and
• A
growth.
62
--------------------------------------------------------------------------------
Electric fuel and other energy-related purchases increased 6%, primarily due to
higher commodity costs for electric utilities ($151 million ), partially offset
by a decrease in PJM off-system sales ($51 million ), which are offset in
operating revenue and do not impact net income.
Purchased electric capacity increased 32%, primarily due to an increase in
expense related to the annual PJM capacity performance market effective June
2021 ($24 million ) and an increase in expense related to the annual PJM capacity
performance market effective June 2020 ($17 million ), partially offset by a
decrease in expense associated with DESC's electric utility operations ($24
million ).
Purchased gas increased 22%, primarily due to an increase in commodity costs for gas utilities, which are offset in operating revenue and do not impact net income.
Other operations and maintenance increased 1%, primarily reflecting:
• A
million of costs for employer-provided healthcare;
• A
nuclear fuel costs associated with the decommissioning of
• A
Power's service territory; partially offset by
• A
with the SCANA Combination;
• A
primarily recovered through state- and
net income; and
• A
Millstone outage costs ($45 million ) partially offset by an increase in
Virginia Power outage costs ($19 million ).
Depreciation, depletion and amortization increased 6%, primarily due to various
projects being placed into service ($132 million ) and an increase for
amortization from the establishment of a regulatory asset associated with the
2021 Triennial Review ($61 million ), partially offset by a decrease due to the
impairment of certain nonregulated solar generation facilities in 2020 ($20
million ).
Impairment of assets and other charges decreased 91%, primarily reflecting: • The absence of a charge associated with the planned early retirements of
certain electric generation facilities in
• The absence of a charge associated with certain nonregulated solar generation
facilities (
• A benefit from the establishment of a regulatory asset associated with the
early retirements of certain coal- and oil-fired generating units associated
with the settlement of the 2021 Triennial Review (
• The absence of a contract termination charge in connection with the sale of
• The absence of a charge for the forgiveness of Virginia retail electric
customer accounts in arrears pursuant to legislation enacted in
(
• The absence of dismantling costs associated with certain Virginia Power
electric generation facilities (
• Charges associated with the settlement of the
rate case (
• A charge for the forgiveness of Virginia retail electric customer accounts in
arrears pursuant to Virginia's 2021 budget process (
• A charge for corporate office lease termination (
• An increase in charges for CCRO benefits provided to retail electric
customers in
(
• A charge for the write-off of nonregulated retail software development assets
($20 million ).
63
--------------------------------------------------------------------------------
Loss on sales of assets increased
Earnings from equity method investees increased
Other income increased 67%, primarily due to an increase in net investment gains on nuclear decommissioning trust funds ($237 million ), the absence of a charge for social justice commitments ($80 million ), an increase in non-service components of pension and other postretirement employee benefit plan credits ($77 million ), the absence of charges associated with litigation acquired in the SCANA Combination ($25 million ) and an increase in AFUDC associated with rate-regulated projects ($25 million ), partially offset by charges associated with the settlement of theSouth Carolina electric base rate case ($18 million ). Interest and related charges decreased 2%, primarily due to the absence of borrowings in response to COVID-19 in 2020 ($42 million ), the absence of charges associated with the early redemption of certain securities in the first quarter of 2020 ($31 million ) and a benefit associated with the effective settlement of uncertain tax positions ($21 million ), partially offset by decreased carrying costs associated with the recovery of CEP beginningJanuary 2021 ($29 million ), charges associated with the early redemption of certain securities in the third quarter of 2021 ($23 million ) and lower unrealized gains in 2021 associated with freestanding derivatives ($13 million ). Income tax expense increased$342 million , primarily due to higher pre-tax income ($365 million ), lower investment tax credits ($38 million ), the absence of prior year benefits including reductions in consolidated state deferred income taxes associated with gas transmission and storage operations ($45 million ) and adjustments finalizing the effects of changes in tax status of certain subsidiaries in connection with the Dominion Energy Gas Restructuring ($24 million ). These increases are partially offset by a benefit associated with the effective settlement of uncertain tax positions ($38 million ), the benefit of a state legislative change ($21 million ) and the absence of prior year expense primarily associated with the impairment of nonregulated solar generating assets held in partnerships attributable to the noncontrolling interest ($55 million ). Net income from discontinued operations including noncontrolling interests increased$2.5 billion , primarily due to a decrease in charges associated with theAtlantic Coast Pipeline Project and related portions of theSupply Header Project ($2.1 billion ) and a gain on the sale of Q-Pipe ($493 million ), partially offset by the absence of operations sold in the GT&S Transaction ($56 million ). Noncontrolling interests increased$175 million , primarily due to the absence of impairments associated with certain nonregulated solar generation facilities ($267 million ) partially offset by the closing of the GT&S Transaction inNovember 2020 ($106 million ).
Outlook
Dominion Energy's 2022 net income is expected to increase on a per share basis as compared to 2021 primarily from the following: • The absence of charges associated with Virginia Power's 2021 Triennial Review;
• The absence of charges associated with the settlement of the
electric base rate case;
• The absence of a net loss on the sales of certain non-wholly-owned
nonregulated solar facilities;
• The absence of charges associated with litigation acquired in the SCANA
Combination; and
• Construction and operation of growth projects in electric utility and gas
distribution operations.
These increases are expected to be partially offset by the following:
• The absence of operations of the
associated gain on sale;
• The absence of a benefit from the establishment of a regulatory asset
associated with the early retirements of certain coal- and oil-fired
generating units associated with the 2021 Triennial Review and an increase
from a full year of amortization of this regulatory asset; and
• Share dilution.
64--------------------------------------------------------------------------------
SEGMENT RESULTS OF OPERATIONS
Segment results include the impact of intersegment revenues and expenses, which
may result in intersegment profit or loss. Presented below is a summary of
contributions by
Year Ended December 31, 2021 2020 2019
Net income
(loss)
attributable Net income (loss) Net income (loss)
to Dominion Diluted attributable to Diluted attributable to Diluted
Energy EPS Dominion Energy EPS Dominion Energy EPS
(millions, except EPS)
Dominion Energy Virginia $ 1,919 $ 2.37 $ 1,891 $ 2.28 $ 1,786 $ 2.21
Gas Distribution 600 0.74 560 0.67 487 0.60
Dominion Energy South Carolina 437 0.54 419 0.51 430 0.53
Contracted Assets 431 0.53 402 0.48 460 0.57
Corporate and Other (99 ) (0.20 ) (3,673 ) (4.51 ) (1,805 ) (2.29 )
Consolidated $ 3,288 $ 3.98 $ (401 ) $ (0.57 ) $ 1,358 $ 1.62
Dominion Energy Virginia
Presented below are operating statistics related to Dominion Energy Virginia's
operations:
Year Ended December 31, 2021 % Change 2020 % Change 2019
Electricity delivered (million MWh) 85.2 2 % 83.3 (5 ) % 87.7
Electricity supplied (million MWh):
Utility 85.7 (1 ) 87.0 (1 ) 88.2
Non-Jurisdictional 1.0 43 0.7 75 0.4 Degree days (electric distribution and utility service area): Cooling 1,783 1 1,759 (13 ) 2,031 Heating 3,210 8 2,970 (9 ) 3,259 Average electric distribution customer accounts (thousands) 2,697 1 2,661 1 2,626
Presented below, on an after-tax basis, are the key factors impacting Dominion Energy Virginia's net income contribution:
2021 VS. 2020
Increase (Decrease)
Amount EPS
(millions, except EPS)
Regulated electric sales:
Weather $ 44 $ 0.05
Other 20 0.02
Rider equity return 41 0.05
Electric capacity (28 ) (0.03 )
Outages (14 ) (0.02 )
Depreciation and amortization (18 ) (0.02 )
Renewable energy investment tax credits 7 0.01
Salaries, wages and benefits & administrative costs (22 ) (0.03 ) Other (2 ) - Share accretion - 0.06 Change in net income contribution$ 28 $
0.09
65
--------------------------------------------------------------------------------Gas Distribution
Presented below are selected operating statistics related to Gas Distribution's operations: Year Ended December 31, 2021 % Change 2020 % Change 2019 Gas distribution throughput (bcf): Sales 183 2 % 180 (6 ) % 192 Transportation 975 12 868 7 811 Heating degree days (gas distribution service area): North Carolina 2,947 8 2,734 (7 ) 2,942 Ohio and West Virginia 5,121 (1 ) 5,148 (4 ) 5,355 Utah, Wyoming, and Idaho 4,874 (2 ) 4,973 (10 ) 5,501 Average gas distribution customer accounts (thousands): Sales 1,935 2 1,897 2 1,857 Transportation 1,131 1 1,123 1 1,108
Presented below, on an after-tax basis, are the key factors impacting Gas Distribution's net income contribution:
2021 VS. 2020
Increase (Decrease)
Amount EPS
(millions, except EPS)
Regulated gas sales:
Weather $ - $ -
Other 31 0.04
Rider equity return 40 0.05
Salaries, wages and benefits & administrative costs (8 ) (0.01 )
Interest expense, net 12 0.01
Other (35 ) (0.04 )
Share accretion - 0.02
Change in net income contribution $ 40 $ 0.07
Presented below are selected operating statistics related to
Year Ended December 31, 2021 % Change 2020 % Change 2019 Electricity delivered (million MWh) 22.4 1 % 22.1 (4 ) % 23.0 Electricity supplied (million MWh) 23.5 2 23.0 (5 ) 24.1 Degree days (electric and gas distribution service areas): Cooling 859 8 794
(17 ) 951
Heating 1,280 19 1,074 (9 ) 1,179 Average electric distribution customer accounts (thousands) 766 2 753 2 739
Gas distribution throughput (bcf):
Sales 72 9 66 2 65
Average gas distribution customer
accounts
(thousands) 412 3 399 3 386
66--------------------------------------------------------------------------------
Presented below, on an after-tax basis, are the key factors impacting
2021 VS. 2020
Increase (Decrease)
Amount EPS
(millions, except EPS)
Regulated electric sales:
Weather $ (6 ) $ (0.01 )
Other 48 0.06
Regulated gas sales 9 0.01
Capital cost rider (6 ) (0.01 )
Depreciation and amortization (9 ) (0.01 )
Interest expense, net 7 0.01
Salaries, wages and benefits & administrative costs (46 ) (0.06 ) Other 21 0.02 Share accretion - 0.02 Change in net income contribution$ 18 $ 0.03 Contracted Assets Presented below are selected operating statistics related to Contracted Asset's operations: Year Ended December 31, 2021 % Change 2020 % Change 2019 Electricity supplied (million MWh) 20.8 8 % 19.3
(4 ) % 20.2
Presented below, on an after-tax basis, are the key factors impacting Contracted Asset's net income contribution:
2021 VS. 2020
Increase (Decrease)
Amount EPS
(millions, except EPS)
Margin(1) $ 28 $ 0.03
Planned outage costs 33 0.04
Renewable energy investment tax credits (43 ) (0.05 )
Absence of contract associated with Fowler Ridge 14 0.02
Other (3 ) (0.00 )
Share accretion - 0.01
Change in net income contribution $ 29 $ 0.05
(1) Includes earnings associated with a 50% noncontrolling interest in Cove
Point.
Corporate and Other
Presented below are the Corporate and Other segment's after-tax results:
Year Ended December 31, 2021 2020
2019
(millions, except EPS) Specific items attributable to operating segments$ (493 ) $ (1,241 ) $ (1,901 ) Specific items attributable to Corporate and Other segment 590 (2,166 ) 384 Total specific items 97 (3,407 ) (1,517 ) Other corporate operations: Interest expense, net (410 ) (384 ) (383 ) Other 214 118 95 Total other corporate operations (196 ) (266 ) (288 ) Total net expense (99 ) (3,673 ) (1,805 ) EPS impact$ (0.20 ) $ (4.51 ) $ (2.29 ) 67
--------------------------------------------------------------------------------
TOTAL SPECIFIC ITEMS
Corporate and Other includes specific items attributable toDominion Energy's primary operating segments that are not included in profit measures evaluated by executive management in assessing the segments' performance or in allocating resources. See Note 26 to the Consolidated Financial Statements for discussion of these items in more detail. Corporate and Other also includes specific items attributable to the Corporate and Other segment. In 2021, this primarily included$641 million net income from discontinued operations, primarily associated with theQ-Pipe Group , a$64 million after-tax benefit for derivative mark-to-market changes,$62 million of after-tax charges for workplace realignment, primarily related to a corporate office lease termination and$32 million of after-tax charges for merger and integration-related costs associated with the SCANA Combination. In 2020, this primarily included$2.2 billion of after-tax loss associated with discontinued operations, including the results of operations of the entities included in the GT&S and Q-Pipe Transactions as well as charges associated with the cancellation of theAtlantic Coast Pipeline Project ,$82 million of after-tax charges for merger and integration-related costs associated with the SCANA Combination, a$78 million after-tax benefit of derivative mark-to-market changes and a$69 million tax benefit associated with the GT&S Transaction. In 2019, this primarily included$521 million of after-tax earnings for the results of operations of the entities included in the GT&S and Q-Pipe Transactions and$135 million of after-tax transaction and transition costs associated with the SCANA Combination.
VIRGINIA POWER
Results of Operations
Presented below is a summary of Virginia Power's consolidated results:
Year Ended December 31, 2021 $ Change 2020 $ Change 2019 (millions) Net income$ 1,712 $ 691 $ 1,021 $ (128 ) $ 1,149 Overview 2021 VS. 2020
Net income increased 68%, primarily due to the absence of charges related to the planned early retirements of certain electric generation facilities and a decrease in charges associated with the 2021 Triennial Review.
Analysis of Consolidated Operations
Presented below are selected amounts related to Virginia Power's results of operations: Year Ended December 31, 2021 $ Change 2020 $ Change 2019 (millions) Operating revenue$ 7,470 $ (293 ) $ 7,763 $ (345 ) $ 8,108 Electric fuel and other energy-related purchases 1,735 99 1,636 (542 ) 2,178 Purchased (excess) electric capacity 24 41 (17 ) (57 ) 40 Other operations and maintenance 1,793 7 1,786 43 1,743 Depreciation and amortization 1,364 112 1,252 29 1,223 Other taxes 326 (1 ) 327 (1 ) 328 Impairment of assets and other charges (benefits) (269 ) (1,362 ) 1,093 336 757 Other income 146 66 80 (18 ) 98 Interest and related charges 534 18 516 (8 ) 524 Income tax expense 397 168 229 (35 ) 264
An analysis of Virginia Power's results of operations follows:
2021 VS. 2020
Operating revenue decreased 4%, primarily reflecting:
• A
customers in
Review;
• A
• A
certain regulated electric sales; and
68
--------------------------------------------------------------------------------
• A
These decreases were partially offset by:
• A
as a result of a net increase in commodity costs associated with sales to
electric utility retail customers
• A
heating degree days during the heating season (
by a decrease in cooling degree days during the cooling season (
• A
associated with growth;
• A
associated with economic and other usage factors; and
• A
generation facilities.
Electric fuel and other energy-related purchases increased 6%, primarily due to higher commodity costs for electric utilities ($125 million ), partially offset by a decrease in PJM off-system sales ($51 million ), which are offset in operating revenue and do not impact net income. Purchased electric capacity increased$41 million , primarily due to an increase in expense related to the annual PJM capacity performance market effectiveJune 2021 ($24 million ) and an increase in expense related to the annual PJM capacity performance market effectiveJune 2020 ($17 million ).
Other operations and maintenance increased
• A
• A
• A
• A
through state- and
• A
• The absence of a
closure costs;
• The absence of a
accounts related to COVID-19;
• A
Virginia retail electric customer accounts in arrears pursuant to Virginia's
2021 budget process; and
• A
Depreciation and amortization increased 9%, primarily due to an increase for amortization from the establishment of a regulatory asset associated with the 2021 Triennial Review ($61 million ), various projects being placed into service ($57 million ), partially offset by the absence of depreciation from certain electric generation facilities that were retired early ($11 million ).
Impairment of assets and other charges (benefits) decreased
certain electric generation facilities (
• A benefit from the establishment of a regulatory asset associated with the
early retirements of certain coal- and oil-fired generating units associated
with the settlement of the 2021 Triennial Review (
• The absence of a charge for the forgiveness of Virginia retail electric
customer accounts in arrears pursuant to legislation enacted in
(
• The absence of charges for dismantling costs associated with certain electric
generation facilities (
• A charge for the forgiveness of Virginia retail electric customer accounts in
arrears pursuant to Virginia's 2021 budget process (
• An increase in charges for CCRO benefits provided to retail electric
customers in Virginia associated with the 2021 Triennial Review ($58
million ).
69-------------------------------------------------------------------------------- Other income increased 83%, primarily due to an increase in net investment gains on nuclear decommissioning trust funds ($38 million ) and an increase in AFUDC associated with rate-regulated projects ($24 million ).
Income tax expense increased 73%, primarily due to higher pre-tax income (
LIQUIDITY AND CAPITAL RESOURCES
Dominion Energy depends on both cash generated from operations and external sources of liquidity to provide working capital and as a bridge to long-term financings.Dominion Energy's material cash requirements include capital and investment expenditures, repaying short-term and long-term debt obligations and paying dividends on its common and preferred stock. Analysis of Cash Flows Presented below are selected amounts related toDominion Energy's cash flows: Year Ended December 31, 2021 2020 2019 (millions) Cash, restricted cash and equivalents at beginning of year$ 247 $ 269 $ 391 Cash flows provided by (used in): Operating activities 4,037 5,227 5,204 Investing activities (6,247 ) (2,916 ) (4,622 ) Financing activities 2,371 (2,333 ) (704 ) Net increase (decrease) in cash, restricted cash and equivalents 161 (22 ) (122 ) Cash, restricted cash and equivalents at end of year$ 408 $ 247 $ 269 Operating Cash Flows Net cash provided byDominion Energy's operating activities decreased$1.2 billion , including a$1.4 billion decrease from discontinued operations largely due to the absence of operations sold in the GT&S Transaction. Net cash provided by continuing operations increased$200 million , primarily as the result of higher operating cash flows from electric utility and gas distribution operations driven by weather, customer growth and riders ($737 million ), the absence of a cash pension plan contribution ($250 million ), increased distributions fromCove Point ($230 million ), absence of a contract termination payment in connection with the sale ofFowler Ridge ($221 million ), decreases in severance payments primarily related to a voluntary retirement program ($174 million ) and a decrease in payments associated with litigation acquired in the SCANA Combination ($143 million ), lower income tax payments ($132 million ) and changes in working capital ($161 million ). These increases were partially offset by lower deferred fuel cost recoveries ($1.2 billion ) and increased margin deposits ($690 million ).
Investing Cash Flows
Net cash used inDominion Energy's investing activities increased$3.3 billion , primarily due to a net decrease in proceeds from the sale of theQ-Pipe Group compared to the GT&S Transaction ($2.2 billion ), the repayment of the Q-Pipe Transaction deposit ($1.3 billion ), an increase in contributions to equity method affiliates including Atlantic Coast Pipeline ($873 million ), partially offset by the proceeds from the sale of non-wholly-owned nonregulated solar facilities ($495 million ), the absence of acquisitions of equity method investments ($178 million ) and a decrease in acquisitions of solar development projects ($210 million ). Financing Cash Flows Net cash provided byDominion Energy's financing activities was$2.4 billion for the year endedDecember 31, 2021 , compared to net cash used by financing activities of$2.3 billion for the year endedDecember 31, 2020 . This change is primarily due to the absence of common stock repurchases ($3.1 billion ), higher net issuances of short-term debt ($1.4 billion ), lower common stock dividend payments ($837 million ) and the issuance of Series C Preferred Stock ($742 million ), partially offset by increased repayments and redemptions of long-term debt ($871 million ). 70 --------------------------------------------------------------------------------
Credit Facilities and Short-Term Debt
Dominion Energy generally uses proceeds from short-term borrowings, including commercial paper, to satisfy short-term cash requirements not met through cash from operations. The levels of borrowing may vary significantly during the course of the year, depending on the timing and amount of cash requirements not satisfied by cash from operations. A description ofDominion Energy's primary available sources of short-term liquidity follows.
Joint Revolving Credit Facility
Facility
Outstanding Outstanding Capacity
Facility Limit Commercial Paper(1) Letters of Credit Available
(millions)
At December 31, 2021
Joint revolving credit
facility(2) $ 6,000 $ 1,883 $ 131 $ 3,986 (1) The weighted-average interest rate of the outstanding commercial paper
supported by
2021.
(2) This credit facility matures in
by the borrowers to
credit facility to support bank borrowings and the issuance of commercial
paper, as well as to support up to a combined $2.0 billion of letters of
credit.
Dominion Energy Reliability InvestmentSM Program
Dominion Energy has an effective registration statement with theSEC for the sale of up to$3.0 billion of variable denomination floating rate demand notes, called Dominion Energy Reliability InvestmentSM. The registration limits the principal amount that may be outstanding at any one time to$1.0 billion . The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Dominion Energy Reliability Investment Committee, or its designee, on a weekly basis. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part byDominion Energy or at the investor's option at any time. AtDecember 31, 2021 ,Dominion Energy's Consolidated Balance Sheets include$431 million presented within short-term debt. The proceeds are used for general corporate purposes and to repay debt.
Other Facilities
In addition to the primary sources of short-term liquidity discussed above, from time to timeDominion Energy enters into separate supplementary credit facilities or term loans as discussed in Note 17 to the Consolidated Financial Statements. Long-Term Debt
Issuances and Borrowings of Long-Term Debt
During 2021,Dominion Energy issued or borrowed the following long-term debt. Unless otherwise noted, the proceeds were used for the repayment of existing long-term indebtedness and for general corporate purposes. 71 --------------------------------------------------------------------------------
Issuer /
Month of Public / Borrowing Stated
Issuance Type Private Entity Principal Rate Maturity
(millions)March Senior notes Private PSNC$ 150 3.100 % 2051 April Senior notes Public Dominion Energy 600 1.450 % 2026 April Senior notes Public Dominion Energy 500 3.300 % 2041 June Sustainability Revolving Private Dominion Credit Agreement(1) Energy 250 variable 2024 August Sustainability Revolving Private Dominion Credit Agreement(1) Energy 650 variable 2024 August Senior notes(2) Public Dominion Energy 1,000 2.250 % 2031 August Senior notes Private Questar Gas 125 2.210 % 2031 August Senior notes Private Questar Gas 125 3.150 % 2051 November Senior notes Public Virginia Power 500 2.300 % 2031 November Senior notes Public Virginia Power 500 2.950 % 2051 November First mortgage bonds Public DESC 400 2.300 % 2031 December Term loan(3) Private DECP Holdings 2,500 variable 2024 Total issuances and borrowings $
7,300
(1) This supplemental credit facility offers a reduced interest rate margin with
respect to borrowed amounts allocated to certain environmental
sustainability or social investment initiatives. Proceeds of the
supplemental credit facility may also be used for general corporate
purposes, but such proceeds are not eligible for a reduced interest rate
margin. The proceeds from these borrowings were used to support
environmental sustainability and social investment initiatives ($250
million) and for general corporate purposes (
2021, no amounts were outstanding under this arrangement.
(2) The proceeds from this offering will be used to finance and/or refinance, in
whole or in part, existing and future capital expenditures associated with
the development, construction, acquisition and operation of certain solar
projects.
(3) The maturity date for this term loan has the potential to be extended to
December 2026 .Dominion Energy currently meets the definition of a well-known seasoned issuer underSEC rules governing the registration, communications and offering processes under the Securities Act of 1933, as amended. The rules provide for a streamlined shelf registration process to provide registrants with timely access to capital. This allowsDominion Energy to use automatic shelf registration statements to register any offering of securities, other than those for exchange offers or business combination transactions.Dominion Energy anticipates, excluding potential opportunistic financings, issuing between approximately$3.2 billion and$4.4 billion of long-term debt during 2022, inclusive of$1.0 billion issued atVirginia Power inJanuary 2022 . The raising of external capital is subject to certain regulatory requirements, including registration with theSEC for certain issuances.
Repayment, Repurchases and Redemptions of Long-Term Debt
The following long-term debt was repaid, repurchased or redeemed in 2021:
Month of Stated
Redemption Type Entity Principal (1) Rate Maturity
(millions)
Debt scheduled to mature in 2021 $ 2,109 (2) various
Early redemptions
August July 2016 hybrids(3) Dominion Energy 800 5.250 % 2076
November Senior notes Virginia Power 450 2.950 % 2022
November Sustainability Revolving
Credit Agreement Dominion Energy 650 variable 2024
December Sustainability Revolving
Credit Agreement Dominion Energy 250 variable 2024
December Senior notes Dominion Energy 400 2.750 % 2022
December Term loan Dominion Solar Projects
III, Inc. 177 variable 2024
Total repayments, repurchases and
redemptions(4) $ 4,836 (1) Total amount redeemed prior to maturity includes remaining outstanding
principal plus accrued interest.
(2) Includes repayment of
revolving credit facility borrowings.
72
--------------------------------------------------------------------------------
(3) The
related to the early redemption were
and related charges in
for the year ended
(4) Amounts exclude
2021.
See Note 18 to the Consolidated Financial Statements for additional information
regarding scheduled maturities and other cancellations of
Remarketing of Long-Term Debt
In 2021,
Credit Ratings
Dominion Energy's credit ratings affect its liquidity, cost of borrowing under credit facilities and collateral posting requirements under commodity contracts, as well as the rates at which it is able to offer its debt securities. The credit ratings forDominion Energy are affected by its financial profile, mix of regulated and nonregulated businesses and respective cash flows, changes in methodologies used by the rating agencies and event risk, if applicable, such as major acquisitions or dispositions.
Credit ratings and outlooks as of
Fitch Moody's Standard & Poor's
Dominion Energy
Issuer BBB+ Baa2 BBB+
Senior unsecured debt securities BBB+ Baa2 BBB
Junior subordinated notes BBB Baa3 BBB
Enhanced junior subordinated notes BBB- Baa3 BBB-
Preferred Stock BBB- Ba1 BBB-
Commercial paper F2 P-2 A-2
Outlook Stable Stable Positive
A credit rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the applicable rating organization.
Financial Covenants
As part of borrowing funds and issuing both short-term and long-term debt or preferred securities,Dominion Energy must enter into enabling agreements. These agreements contain customary covenants that, in the event of default, could result in the acceleration of principal and interest payments; restrictions on distributions related to capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments; and in some cases, the termination of credit commitments unless a waiver of such requirements is agreed to by the lenders/security holders. These provisions are customary, with each agreement specifying which covenants apply. These provisions are not necessarily unique toDominion Energy .Dominion Energy is required to pay annual commitment fees to maintain its joint revolving credit facility. In addition, the credit agreement contains various terms and conditions that could affectDominion Energy's ability to borrow under the facility. They include a maximum debt to total capital ratio, which is also included inDominion Energy's Sustainability Revolving Credit Agreement entered into in 2021, and cross-default provisions.
As of
Maximum Allowed Ratio Actual Ratio(1)
Dominion Energy 67.5 % 56.0 %
(1) Indebtedness as defined by the agreements excludes certain junior
subordinated notes reflected as long-term debt as well as AOCI reflected as
equity in the Consolidated Balance Sheets. Capital is inclusive of preferred
stock whether classified as equity or mezzanine equity.
73-------------------------------------------------------------------------------- IfDominion Energy or any of its material subsidiaries fails to make payment on various debt obligations in excess of$100 million , the lenders could require the defaulting company, if it is a borrower underDominion Energy's joint revolving credit facility, to accelerate its repayment of any outstanding borrowings and the lenders could terminate their commitments, if any, to lend funds to that company under the credit facility. In addition, if the defaulting company is Virginia Power,Dominion Energy's obligations to repay any outstanding borrowing under the credit facility could also be accelerated and the lenders' commitments toDominion Energy could terminate.Dominion Energy monitors compliance with these covenants on a regular basis in order to ensure that events of default will not occur. As ofDecember 31, 2021 , there have been no events of default underDominion Energy's covenants.
Common Stock,
Issuances of
Dominion Energy maintains Dominion Energy Direct® and a number of employee savings plans through which contributions may be invested inDominion Energy's common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans. InJanuary 2021 ,Dominion Energy began issuing new shares of common stock for these direct stock purchase plans. During 2021,Dominion Energy issued 2.6 million of such shares and received proceeds of$192 million .Dominion Energy also maintains sales agency agreements to effect sales under an at-the-market program. Under the sales agency agreements,Dominion Energy may, from time to time, offer and sell shares of its common stock through the sales agents or enter into one or more forward sale agreements with respect to shares of its common stock. Sales byDominion Energy through the sales agents or by forward sellers pursuant to a forward sale agreement cannot exceed$1.0 billion in the aggregate. InNovember 2021 ,Dominion Energy entered forward sale agreements for approximately 1.1 million shares of its common stock to be settled byNovember 2022 at an average initial forward price of$74.66 per share. See Note 20 to the Consolidated Financial Statements for additional information.
In addition,
• In 2021,
valued at
associated with litigation acquired in the SCANA Combination.
• In December 2021 , Dominion Energy issued 750,000 shares of Series C
Preferred Stock and received cash proceeds of
costs. Also in
Series C Preferred Stock, valued at
plans.
Between Dominion Energy Direct® and its at-the-market program (including any related forward-sale agreements), and excluding potential opportunistic financings,Dominion Energy anticipates raising between$300 million and$500 million of capital through the issuance of common stock in 2022. In addition,Dominion Energy may issue up to$150 million of stock under settlement agreements associated with litigation acquired in the SCANA Combination as discussed in Note 23 to the Consolidated Financial Statements. As discussed in Note 19 to the Consolidated Financial Statements, in 2022,Dominion Energy will settle the stock purchase contract component of the 2019 Equity Units expected to result in proceeds of$1.6 billion and the issuance of up to 21.8 million shares, subject to a formula based on the average closing price ofDominion Energy common stock upon settlement.
Repurchases of
InNovember 2020 , the Board of Directors authorized the repurchase of up to$1.0 billion ofDominion Energy's common stock. This repurchase program does not include a specific timetable or price or volume targets and may be modified, suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions or otherwise at the discretion of management subject to prevailing market conditions, applicable securities laws and other factors. No purchases have been made under this authorization as ofDecember 31, 2021 .Dominion Energy does not plan to repurchase shares of common stock in 2022, except for shares tendered by employees to satisfy tax withholding obligations on vested restricted stock, which does not impact the available capacity under its stock repurchase authorization. 74 --------------------------------------------------------------------------------
Capital Expenditures
See Note 26 to the Consolidated Financial Statements forDominion Energy's historical capital expenditures by segment.Dominion Energy's total planned capital expenditures for each segment over the next five years are presented in the table below: 2022 2023 2024 2025 2026 Total(1) (billions) Dominion Energy Virginia$ 5.8 $ 7.2 $ 7.5 $ 7.5 $ 5.3 $ 33.2 Gas Distribution 1.4 1.4 1.2 1.5 1.1 6.5
0.7 4.2 Contracted Assets 0.6 0.9 0.9 0.9 0.5 3.8 Corporate and Other segment 0.1 0.1 0.1 0.1 0.1 0.4 Total(1)$ 8.6 $ 10.3 $ 10.7 $ 10.6 $ 7.7 $ 47.9
(1) Totals may not foot due to rounding.
Dominion Energy's planned growth expenditures are subject to approval by the Board of Directors as well as potentially by regulatory bodies based on the individual project and are expected to include significant investments in support of its clean energy profile. See Dominion Energy Virginia, Gas Distribution,Dominion Energy South Carolina and Contracted Assets in Item 1. Business for additional discussion of various significant capital projects currently under development. The above estimates are based on a capital expenditures plan reviewed and endorsed byDominion Energy's Board of Directors inDecember 2021 and are subject to continuing review and adjustment and actual capital expenditures may vary from these estimates.Dominion Energy may also choose to postpone or cancel certain planned capital expenditures in order to mitigate the need for future debt financings and equity issuances.
Dividends
Dominion Energy believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and maintain or grow the dividend on common shares. InDecember 2021 ,Dominion Energy's Board of Directors established an annual dividend rate for 2022 of$2.67 per share of common stock, a 6% increase over the 2021 rate. Dividends are subject to declaration by the Board of Directors. InJanuary 2022 ,Dominion Energy's Board of Directors declared dividends payable inMarch 2022 of66.75 cents per share of common stock.
See Note 19 for a discussion of
Subsidiary Dividend Restrictions
Certain ofDominion Energy's subsidiaries may, from time to time, be subject to certain restrictions imposed by regulators or financing arrangements on their ability to pay dividends, or to advance or repay funds, toDominion Energy . AtDecember 31, 2021 , these restrictions did not have a significant impact onDominion Energy's ability to pay dividends on its common or preferred stock or meet its other cash obligations. See Note 21 to the Consolidated Financial Statements for a description of such restrictions and any other restrictions onDominion Energy's ability to pay dividends.
Collateral and Credit Risk
Collateral requirements are impacted by commodity prices, hedging levels,Dominion Energy's credit ratings and the credit quality of its counterparties. In connection with commodity hedging activities,Dominion Energy is required to provide collateral to counterparties under some circumstances. Under certain collateral arrangements,Dominion Energy may satisfy these requirements by electing to either deposit cash, post letters of credit or, in some cases, utilize other forms of security. From time to time,Dominion Energy may vary the form of collateral provided to counterparties after weighing the costs and benefits of various factors associated with the different forms of collateral. These factors include short-term borrowing and short-term investment rates, the spread over these short-term rates at whichDominion Energy can issue commercial paper, balance sheet impacts, the costs and fees of alternative collateral postings with these and other counterparties and overall liquidity management objectives.Dominion Energy's exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary ofDominion Energy's credit exposure as ofDecember 31, 2021 for these activities. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights. 75 --------------------------------------------------------------------------------
Gross Credit Credit Net Credit
Exposure Collateral Exposure
(millions)
Investment grade(1) $ 32 $ - $ 32
Non-Investment grade(2) 6 - 6
No external ratings:
Internally
rated-investment grade(3) 98 - 98
Internally
rated-non-investment
grade(4) 39 28 16
Total $ 175 $ 28 $ 152
(1) Designations as investment grade are based upon minimum credit ratings
assigned by Moody's and
exposures, combined, for this category represented approximately 17% of the
total net credit exposure.
(2) The five largest counterparty exposures, combined, for this category
represented approximately 4% of the total net credit exposure.
(3) The five largest counterparty exposures, combined, for this category
represented approximately 64% of the total net credit exposure.
(4) The five largest counterparty exposures, combined, for this category
represented approximately 5% of the total net credit exposure.
Fuel and Other Purchase Commitments
Dominion Energy is party to various contracts for fuel and purchased power commitments related to both its regulated and nonregulated operations. Total estimated costs for such commitments atDecember 31, 2021 are presented in the table below. These costs represent estimated minimum obligations for various purchased power and capacity agreements and actual costs may differ from amounts presented below depending on actual quantities purchased and prices paid. 2022 2023 2024 2025 2026 Total (millions) Purchased electric capacity$ 66 $ 66 $ 66 $ 65 $ 68 $ 331 for utility operations Fuel commitments for utility 1,169 685 371 178 166 2,569 operations Fuel commitments for 104 134 88 68 59 453 nonregulated operations Pipeline transportation and 523 462 365 303 291 1,944 storage Total$ 1,862 $ 1,347 $ 890 $ 614 $ 584 $ 5,297
Other Material Cash Requirements
In addition to the financing arrangements discussed above,Dominion Energy is party to numerous contracts and arrangements obligating it to make cash payments in future years.Dominion Energy expects current liabilities to be paid within the next twelve months. In addition to the items already discussed, the following represent material expected cash requirements recorded onDominion Energy's Consolidated Balance Sheets atDecember 31, 2021 . Such obligations include:
• Operating and financing lease obligations - See Note 15 to the Consolidated
Financial Statements;
• Regulatory liabilities - See Note 12 to the Consolidated Financial
Statements;
• AROs - See Note 14 to the Consolidated Financial Statements;
• Employee benefit plan obligations - See Note 22 to the Consolidated
Financial Statements; and
• Charitable commitments - See Note 23 to the Consolidated Financial
Statements.
In addition, Dominion Energy is party to contracts and arrangements which may
require it to make material cash payments in future years that are not recorded
on its Consolidated Balance Sheets. Such obligations include:
• Off-balance sheet leasing arrangements - See Note 15 to the Consolidated
Financial Statements
• Guarantees - See notes 9 and 23 to the Consolidated Financial Statements
FUTURE ISSUES AND OTHER MATTERS
See Item 1. Business and Notes 13 and 23 to the Consolidated Financial Statements for additional information on various environmental, regulatory, legal and other matters that may impact future results of operations, financial condition and/or cash flows.
76
--------------------------------------------------------------------------------Future Environmental Regulations
Climate Change
The federal government and several states in whichDominion Energy operates have announced a commitment to achieving carbon reduction goals. InFebruary 2021 , theU.S. rejoined the Paris Agreement, which establishes a universal framework for addressing GHG emissions. States may also enact legislation relating to climate change matters such as the reduction of GHG emissions and renewable energy portfolio standards, similar to the VCEA. To the extent legislation is enacted at the federal or state level that is more restrictive than the VCEA and/orDominion Energy's commitment to achieving net zero emissions by 2050, compliance with such legislation could have a material impact toDominion Energy's financial condition and/or cash flows.
State Actions Related to Air and GHG Emissions
InAugust 2017 , theOzone Transport Commission released a draft model rule for control of NOX emissions from natural gas pipeline compressor fuel-fire prime movers. States within the ozone transport region, including states in whichDominion Energy has natural gas operations, are expected to develop reasonably achievable control technology rules for existing sources based on theOzone Transport Commission model rule. States outside of theOzone Transport Commission may also consider the model rules in setting new reasonably achievable control technology standards. Several states in whichDominion Energy operates, including Virginia andOhio , are developing or have announced plans to develop state-specific regulations to control GHG emissions, including methane.Dominion Energy cannot currently estimate the potential financial statement impacts related to these matters, but there could be a material impact to its financial condition and/or cash flows.
PHMSA Regulation
The most recent reauthorization of PHMSA included new provisions on historical records research, maximum-allowed operating pressure validation, use of automated or remote-controlled valves on new or replaced lines, increased civil penalties and evaluation of expanding integrity management beyond high-consequence areas. PHMSA has not yet issued new rulemaking on most of these items. Dodd-Frank Act The CEA, as amended by Title VII of the Dodd-Frank Act, requires certain over-the counter derivatives, or swaps, to be cleared through a derivatives clearing organization and, if the swap is subject to a clearing requirement, to be executed on a designated contract market or swap execution facility. Non-financial entities that use swaps to hedge or mitigate commercial risk may elect the end-user exception to the CEA's clearing requirements.Dominion Energy utilizes the end-user exception with respect to its swaps. If, as a result of changes to the rulemaking process,Dominion Energy can no longer utilize the end-user exception or otherwise becomes subject to mandatory clearing, exchange trading or margin requirements, it could be subject to higher costs due to decreased market liquidity or increased margin payments. In addition,Dominion Energy's swap dealer counterparties may attempt to pass-through additional trading costs in connection with changes to the rulemaking process. Due to the evolving rulemaking process,Dominion Energy is currently unable to assess the potential impact of the Dodd-Frank Act's derivative-related provisions on its financial condition, results of operations or cash flows. NorthAnna Virginia Power is considering the construction of a third nuclear unit at a site located atNorth Anna . If Virginia Power decides to build a new unit, it would require a Combined Construction Permit and Operating License from the NRC, approval of theVirginia Commission and certain environmental permits and other approvals. InJune 2017 , the NRC issued the Combined Construction Permit and Operating License. Virginia Power has not yet committed to building a new nuclear unit atNorth Anna .
Federal Income Tax Laws
Under existing law, the Companies utilize a financial reporting method that classifies and recognizes investment tax credits on nonregulated operations as immediate reductions to income tax expense and, therefore, immediate increases in earnings. This immediate earnings benefit provides a significant incentive for renewable energy development. Provisions in recently proposed federal legislation would allow taxpayers to elect direct payment for investment tax credits. While effective from a cash flow perspective, this option may not provide the same level of incentive due to the financial reporting potentially applicable to the proposed direct pay benefits and "refundable" tax credits, regardless of whether such an option is selected by the taxpayer. Because the investment tax credit could be received as a direct payment under this proposed legislation,Dominion Energy may be required to either report the benefit ratably over the life of the qualifying facility or over the five-year recapture period. Either of these alternatives may be required instead of maintaining our historical financial reporting method regardless of whether we elect the direct pay option. If this legislation is enacted into law, the application of these alternative accounting methodologies could have a material impact on the Companies' future results of operations, financial condition and/or cash flows. 77 -------------------------------------------------------------------------------- Item 7A. Quantitative and Qualitative Disclosures About Market Risk The matters discussed in this Item may contain "forward-looking statements" as described in the introductory paragraphs of Item 7. MD&A. The reader's attention is directed to those paragraphs and Item 1A. Risk Factors for discussion of various risks and uncertainties that may impact the Companies.
MARKET RISK SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Companies' financial instruments, commodity contracts and related financial derivative instruments are exposed to potential losses due to adverse changes in commodity prices, interest rates and equity security prices as described below. Commodity price risk is present in the Companies' electric operations andDominion Energy's natural gas procurement and marketing operations due to the exposure to market shifts in prices received and paid for electricity, natural gas and other commodities. The Companies use commodity derivative contracts to manage price risk exposures for these operations. Interest rate risk is generally related to their outstanding debt and future issuances of debt. In addition, the Companies are exposed to investment price risk through various portfolios of equity and debt securities. The Companies' exposure to foreign currency exchange rate risk is related to certain fixed price contracts entered into in 2021 in connection with theCVOW Commercial Project . The contracts include services denominated in currencies other than theU.S. dollar for approximately €2.6 billion and 5.1 billion kr. In addition, certain of the fixed price contracts, approximately €0.7 billion, contain commodity indexing provisions linked to steel. As a result, any changes in applicable exchange rates or commodity indices could result in a change to the ultimate cost of the project. Virginia Power is evaluating hedging strategies, subject to approval by theVirginia Commission , to mitigate such risk.
The following sensitivity analysis estimates the potential loss of future earnings or fair value from market risk sensitive instruments over a selected time period due to a 10% change in commodity prices or interest rates.
Commodity Price Risk
To manage price risk, the Companies hold commodity-based derivative instruments held for non-trading purposes associated with purchases and sales of electricity, natural gas and other energy-related products.
The derivatives used to manage commodity price risk are executed within established policies and procedures and may include instruments such as futures, forwards, swaps, options and FTRs that are sensitive to changes in the related commodity prices. For sensitivity analysis purposes, the hypothetical change in market prices of commodity-based derivative instruments is determined based on models that consider the market prices of commodities in future periods, the volatility of the market prices in each period, as well as the time value factors of the derivative instruments. Prices and volatility are principally determined based on observable market prices.
A hypothetical 10% increase in commodity prices would have resulted in a
decrease of
A hypothetical 10% increase in commodity prices would have resulted in a decrease of$6 million in the fair value of Virginia Power's commodity-based derivative instruments as ofDecember 31, 2021 . A hypothetical 10% decrease in commodity prices would have resulted in a decrease of$35 million in the fair value of Virginia Power's commodity-based derivative instruments as ofDecember 31, 2020 . The impact of a change in energy commodity prices on the Companies' commodity-based derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net losses from commodity-based financial derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction, such as revenue from physical sales of the commodity. Interest Rate Risk The Companies manage their interest rate risk exposure predominantly by maintaining a balance of fixed and variable rate debt. They also enter into interest rate sensitive derivatives, including interest rate swaps and interest rate lock agreements. For variable rate debt outstanding forDominion Energy and Virginia Power, a hypothetical 10% increase in market interest rates would not have resulted in a material change in earnings atDecember 31, 2021 or 2020. The Companies also use interest rate derivatives, including forward-starting swaps, interest rate swaps and interest rate lock agreements to manage interest rate risk. As ofDecember 31, 2021 ,Dominion Energy and Virginia Power had$11.4 billion and$2.8 billion , respectively, in aggregate notional amounts of these interest rate derivatives outstanding. A hypothetical 10% decrease in market interest rates would have resulted in a decrease of$191 million and$111 million , respectively, in the fair value of Dominion 78 --------------------------------------------------------------------------------Energy and Virginia Power's interest rate derivatives atDecember 31, 2021 . As ofDecember 31, 2020 ,Dominion Energy and Virginia Power had$6.9 billion and$2.1 billion , respectively, in aggregate notional amounts of these interest rate derivatives outstanding. A hypothetical 10% decrease in market interest rates would have resulted in a decrease of$124 million and$75 million , respectively, in the fair value ofDominion Energy and Virginia Power's interest rate derivatives atDecember 31, 2020 . The impact of a change in interest rates on the Companies' interest rate-based financial derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net gains and/or losses from interest rate derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction.
Investment Price Risk
The Companies are subject to investment price risk due to securities held as investments in nuclear decommissioning and rabbi trust funds that are managed by third-party investment managers. These trust funds primarily hold marketable securities that are reported in the Consolidated Balance Sheets at fair value.Dominion Energy recognized net investment gains (including investment income) on nuclear decommissioning and rabbi trust investments of$1.1 billion and$0.7 billion for the years endedDecember 31, 2021 and 2020, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value.Dominion Energy recorded, in AOCI and regulatory liabilities, a net decrease in unrealized gains on debt investments of$64 million and a net increase in unrealized gains on debt investments of$57 million for the years endedDecember 31, 2021 and 2020, respectively. Virginia Power recognized net investment gains (including investment income) on nuclear decommissioning trust investments of$568 million and$287 million for the years endedDecember 31, 2021 and 2020, respectively. Net realized gains and losses include gains and losses from the sale of investments as well as any other-than-temporary declines in fair value. Virginia Power recorded, in AOCI and regulatory liabilities, a net decrease in unrealized gains on debt investments of$31 million and a net increase in unrealized gains on debt investments of$29 million for the years endedDecember 31, 2021 and 2020, respectively.Dominion Energy sponsors pension and other postretirement employee benefit plans that hold investments in trusts to fund employee benefit payments. Virginia Power employees participate in these plans.Dominion Energy's pension and other postretirement plan assets experienced aggregate actual returns (losses) of$1.5 billion and$1.9 billion in 2021 and 2020, respectively, versus expected returns of$1.0 billion and$933 million , respectively. Differences between actual and expected returns on plan assets are accumulated and amortized during future periods. As such, any investment-related declines in these trusts will result in future increases in the net periodic cost recognized for such employee benefit plans and will be included in the determination of the amount of cash to be contributed to the employee benefit plans. A hypothetical 0.25% decrease in the assumed long-term rates of return onDominion Energy's plan assets would result in an increase in net periodic cost of$27 million and$25 million as ofDecember 31, 2021 and 2020, respectively, for pension benefits and$6 million and$5 million as ofDecember 31, 2021 and 2020, respectively, for other postretirement benefits.
Risk Management Policies
The Companies have established operating procedures with corporate management to ensure that proper internal controls are maintained. In addition,Dominion Energy has established an independent function at the corporate level to monitor compliance with the credit and commodity risk management policies of all subsidiaries, including Virginia Power.Dominion Energy maintains credit policies that include the evaluation of a prospective counterparty's financial condition, collateral requirements where deemed necessary and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition,Dominion Energy also monitors the financial condition of existing counterparties on an ongoing basis. Based on these credit policies and the Companies'December 31, 2021 provision for credit losses, management believes that it is unlikely that a material adverse effect on the Companies' financial position, results of operations or cash flows would occur as a result of counterparty nonperformance. 79
--------------------------------------------------------------------------------
© Edgar Online, source
