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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM
8-K
 
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 2019
 
         
Commission File Number
 
Exact name of Registrant as Specified in its Charter
 
IRS Employer Identification No.
         
001-08489
 
DOMINION ENERGY, INC.
 
54-1229715
         
000-55337
 
VIRGINIA ELECTRIC AND POWER COMPANY
 
54-0418825
         
001-37591
 
DOMINION ENERGY GAS HOLDINGS, LLC
 
46-3639580
         
            Virginia            
 
           120 Tredegar Street           
 
        23219        
(State or other jurisdiction
of incorporation)
 
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
 
 
 
 
Registrants’ Telephone Number, Including Area Code:            
(804) 819-2000
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form
8-K
filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (
see
General Instruction A.2. below):
        Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
        Soliciting material pursuant to Rule
14a-12
under the Exchange Act (17 CFR
240.14a-12)
        
Pre-commencement
communications pursuant to Rule
14d-2(b)
under the Exchange Act (17 CFR
240.14d-2(b))
        
Pre-commencement
communications pursuant to Rule
13e-4(c)
under the Exchange Act (17 CFR
240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
             
                                  Registrant                                  
 
                                Title of Each Class                                
 
Trading
    Symbol(s)    
 
Name of Each Exchange
      on which Registered      
DOMINION ENERGY, INC.
 
Common Stock, no par value
 
D
 
New York Stock Exchange
 
2016 Series A 5.25% Enhanced Junior Subordinated Notes
 
DRUA
 
New York Stock Exchange
 
2019 Series A Corporate Units
 
DCUE
 
New York Stock Exchange
DOMINION ENERGY GAS HOLDINGS, LLC
 
2014 Series C 4.6% Senior Notes
 
 
New York Stock Exchange
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule
12b-2
of the Securities Exchange Act of 1934 (§
240.12b-2
of this chapter).
Emerging growth company            
      
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          
 

Item 8.01
Other Events.
 
 
 
 
 
 
 
As reported in a Current Report on Form 8-K filed by Dominion Energy Gas Holdings, LLC (Dominion Energy Gas) on November 8, 2019, Dominion Energy Gas completed a restructuring in which Dominion Energy Gas (1) acquired Dominion Cove Point, LLC and Dominion MLP Holding Company II, LLC and (2) completed the disposition of The East Ohio Gas Company and Dominion Gathering and Processing, Inc. in a series of transactions (the Restructuring).
Attached hereto as Exhibit 99.1 are the unaudited consolidated financial statements of Dominion Energy, Inc., Virginia Electric and Power Company and Dominion Energy Gas (collectively, the Companies) for the quarter ended June 30, 2019, which replace Part I, Item 1. Financial Statements in the Companies’ Quarterly Report for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission (the SEC) on August 1, 2019 (the 2019 Second Quarter Form 10-Q). The unaudited consolidated financial statements with respect to Dominion Energy Gas give retrospective effect to the Restructuring as though it had occurred at the beginning of the period presented. Attached hereto as Exhibit 99.2 is Management’s Discussion and Analysis of Financial Condition and Results of Operations, which relates to the updated unaudited consolidated financial statements with respect to Dominion Energy Gas and replaces Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2019 Second Quarter Form 10-Q.
The information in this report should be read in conjunction with the other information included (but not replaced as described above) in the 2019 Second Quarter Form 10-Q. More current information is contained in the Companies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and the Companies’ other filings with the SEC.
Item 9.01
Financial Statements and Exhibits.
 
 
 
 
 
 
 
Exhibit
No.
 
 
Description
 
 
 
 
 
 
99.1
 
 
 
 
 
 
 
 
99.2
 
 
 
 
 
 
 
 
101
 
 
The following financial statements for the quarter ended June 30, 2019 from Dominion Energy, Inc.’s Current Report on Form
8-K,
filed on November 18, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. The following financial statements for the quarter ended June 30, 2019 from Virginia Electric and Power Company’s Current Report on Form
8-K,
filed on November 18, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Common Shareholder’s Equity (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. The following financial statements for the quarter ended June 30, 2019 from Dominion Energy Gas Holdings, LLC’s Current Report on Form
8-K,
formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.
 
 
 
 
 
 
104
 
 
Cover Page Interactive Data File (embedded within the Inline XBRL document).
 

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
     
DOMINION ENERGY, INC.
Registrat
 
 
 
 
/s/ Michele L. Cardiff
Name:
 
Michele L. Cardiff
Title:
 
Vice President, Controller and Chief Accounting Officer
 
 
 
 
 
  Date:     November 18, 2019
     
VIRGINIA ELECTRIC AND POWER COMPANY
Registrant
 
 
 
 
/s/ Michele L. Cardiff
Name:
 
Michele L. Cardiff
Title:
 
Vice President, Controller and Chief Accounting Officer
 
 
 
 
 
  Date:     November 18, 2019
     
DOMINION ENERGY GAS HOLDINGS, LLC
Registrant
 
 
 
 
/s/ Michele L. Cardiff
Name:
 
Michele L. Cardiff
Title:
 
Vice President, Controller and Chief Accounting Officer
 
 
 
 
 
  Date:     November 18, 2019
 
 
 
 

1611116611111111566.901 yeartrueJune. 30, 202011See Note 10 for amounts attributable to related parties.Net of $27 million and $11 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $32 million and $(26) million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $(5) million and $2 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $6 million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $(49) million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(49) million and $— million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $8 million and $(11) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $18 million and $(14) million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $— million and $(1) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $— million and $(1) million tax for the six months ended June 30, 2019 and 2018, respectively. Net of $3 million and $(7) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $(8) million tax for the six months ended June 30, 2019 and 2018, respectively.Dominion Energy’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.See Note 17 for further information.See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.See Note 17 for noncash financing activities related to the acquisition of the public interest in Dominion Energy Midstream, the remarketing of RSNs and the issuance of stock purchase contracts associated with the 2019 Equity Units.See Note 3 for noncash investing and financing activities related to the SCANA Combination.Includes $22 million of financing leases and $2 million of operating leases.See Note 20 for amounts attributable to affiliates.Net of $4 million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $6 million and $(2) million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $— million tax for both the three months ended June 30, 2019 and 2018 and net of $(1) million and $1 million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $— million tax for both the three and six months ended June 30, 2019 and 2018.Virginia Power’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.500,000 shares authorized; 274,723 shares outstanding at June 30, 2019 and December 31, 2018.See Note 20 for amounts attributable to related parties.Net of $8 million and $7 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $17 million and $2 million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $(11) million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $— million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $— million and $(5) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $— million and $(4) million tax for the six months ended June 30, 2019 and 2018, respectively.Net of $— million tax for both the three months ended June 30, 2019 and 2018 and net of $(1) million tax for both the six months ended June 30, 2019 and 2018.Includes (4.0)% and (4.9)% relating to the absence of tax on noncontrolling interest in 2019 and 2018, respectively.Includes $282 million and $319 million reported in other current liabilities at December 31, 2018 and June 30, 2019, respectively.Primarily related to future ash pond and landfill closure costs at certain utility generation facilities. See Note 18 for further information.Includes $245 million and $262 million reported in other current liabilities at December 31, 2018 and June 30, 2019, respectively.Includes $76 million and $78 million reported in other deferred credits and other liabilities, with the remainder recorded in other current liabilities, at December 31, 2018 and June 30, 2019, respectively.Primarily related to a voluntary retirement program.Related to a voluntary retirement program.Restricted cash and equivalent balances are presented within other current assets in the Companies’ Consolidated Balance Sheets. At June 30, 2019, June 30, 2018, December 31, 2018 and December 31, 2017, Dominion Energy Gas had $12 million, $3 million, $9 million and $3 million of cash and cash equivalents included in current assets of discontinued operations, respectively. Includes amounts reflected in discontinued operations. Included in property, plant and equipment in the Companies’ Consolidated Balance Sheets, net of $32 million, $2 million and $1 million of accumulated amortization at Dominion Energy, Virginia Power and Dominion Energy Gas, respectively, at June 30, 2019.Included in other current liabilities in the Companies’ Consolidated Balance Sheets.Included in securities due within one year in the Companies’ Consolidated Balance Sheets.Included in long-term debt in the Companies’ Consolidated Balance Sheets.Excludes $24 million of lease assets recorded in assets of discontinued operations and $25 million of lease liabilities recorded in liabilities of discontinued operations.Excludes $3 million and $7 million of derivative assets at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Includes $105 million of certain property, plant and equipment associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a charge of $105 million ($79 million after-tax), included in impairment of assets and other charges. Includes $264 million of certain income tax-related regulatory assets associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. See Note 5 for additional information. Includes a $379 million pension and other postretirement benefit liability. Includes $389 million of cash, restricted cash and equivalents, of which $115 million is considered restricted. Includes stock-based compensation awards with an estimated fair value of $21 million. Includes capitalized expenditures of $34 million and $38 million for the three months ended June 30, 2019 and 2018, respectively, and $67 million and $75 million for the six months ended June 30, 2019 and 2018, respectively.Excludes $3 million and $1 million of derivative liabilities at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Includes options. Maturity is determined based on final settlement period. Euro equivalent volumes are €250,000,000. Includes $(895) million and $(892) million related to discontinued hedging relationships at June 30, 2019 and December 31, 2018, respectively. Includes $5 million and $8 million of hedging adjustments on discontinued hedging relationships at June 30, 2019 and December 31, 2018, respectively. Current derivative assets are presented in other current assets in Dominion Energy’s Consolidated Balance Sheets. Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion Energy’s Consolidated Balance Sheets. Current derivative liabilities are presented in other current liabilities in Dominion Energy’s Consolidated Balance Sheets. Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy’s Consolidated Balance Sheets. Amounts above include $42 million and $2 million for the three months ended June 30, 2019, $33 million and $3 million for the three months ended June 30, 2018, $93 and $3 million for the six months ended June 30, 2019 and $63 million and $6 million for the six months ended June 30, 2018 primarily consisting of NGL sales at Dominion Energy and Dominion Energy Gas, respectively, which are considered to be goods transferred at a point in time.See Notes 10 and 20 for amounts attributable to related parties and affiliates. Amounts deferred into AOCI have no associated effect in Dominion Energy’s Consolidated Statements of Income. Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in interest and related charges. Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income. Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in other income. Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income. Excludes $2 million and $26 million of derivative assets at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Amounts above include alternative revenue of $21 million and $35 million at Dominion Energy and $18 million and $26 million at Virginia Power for the three and six months ended June 30, 2019, respectively. Excludes $23 million and $9 million of derivative liabilities at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Current derivative assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets. Noncurrent derivative assets are presented in other deferred charges and other assets in Virginia Power’s Consolidated Balance Sheets. Current derivative liabilities are presented in other current liabilities in Virginia Power’s Consolidated Balance Sheets. Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets. Amounts deferred into AOCI have no associated effect in Virginia Power’s Consolidated Statements of Income. Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in interest and related charges. Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income. Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income. Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases. Current derivative assets include $2 million in other current assets at December 31, 2018, with the remainder recorded in current assets of discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets. All current derivative assets are included in current assets of discontinued operations of Dominion Energy Gas’ Consolidated Balance Sheets at June 30, 2019. Noncurrent derivatives assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets. Current derivative liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets. Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy Gas’ Consolidated Balance Sheets. Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.Amounts deferred into AOCI have no associated effect in Dominion Energy Gas’ Consolidated Statements of Income. Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in interest and related charges. Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in other income. Unrealized gains and losses on equity securities are included in other income and the nuclear decommissioning trust regulatory liability. Unrealized gains and losses on fixed income securities are included in AOCI and the nuclear decommissioning trust regulatory liability. Includes pending sales of securities of $3 million at June 30, 2019.The fair value of securities in an unrealized loss position was $208 million and $833 million at June 30, 2019 and December 31, 2018, respectively. Included in other income and the nuclear decommissioning trust regulatory liability. Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability. Includes pending sales of securities of $3 million and $6 million at June 30, 2019 and December 31, 2018, respectively. The fair value of securities in an unrealized loss position was $97 million and $404 million at June 30, 2019 and December 31, 2018, respectively. See table below for details about these reclassifications. Virginia Power’s reclassifications out of AOCI were immaterial for both the three and six months ended June 30, 2019 and 2018. This credit facility matures in March 2023 and can be used by the borrowers under the 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.The full amount of the facility is available to Virginia Power, less any amounts outstanding to co-borrowers Dominion Energy, Dominion Energy Gas, Questar Gas and DESC. The sub-limit for Virginia Power is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At June 30, 2019, the sub-limit for Virginia Power was $1.5 billion. If Virginia Power has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $2.0 billion (or the sub-limit, whichever is less) of letters of credit.A maximum of $1.5 billion of the facility is available to Dominion Energy Gas, assuming adequate capacity is available after giving effect to uses by co-borrowers Dominion Energy, Virginia Power, Questar Gas and DESC. The sub-limit for Dominion Energy Gas is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At June 30, 2019, the sub-limit for Dominion Energy Gas was $750 million. If Dominion Energy Gas has liquidity needs in excess of its sub-limit, the sub-limit may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the sub-limit, whichever is less) of letters of credit.Issuance costs of $28 million were recorded as a reduction to preferred stock ($14 million) and common stock ($14 million) in the Consolidated Balance Sheets.Amounts include adjustments for non-recurring costs directly related to the SCANA Combination.Guarantees related to commodity commitments of certain subsidiaries. These guarantees were provided to counterparties in order to facilitate physical and financial transaction related commodities and services.Guarantees related to certain DGI subsidiaries regarding all aspects of running a nuclear facility.Guarantees related to Cove Point, in support of terminal services, transportation and construction. Cove Point has two guarantees that have no maximum limit and, therefore, are not included in this amount.Includes guarantees to facilitate the development of solar projects. Also includes guarantees entered into by DGI on behalf of certain subsidiaries to facilitate the acquisition and development of solar projects.Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations, construction projects and insurance programs. Due to the uncertainty of workers’ compensation claims, the parental guarantee has no stated limit.Excludes Dominion Energy’s guarantee for the construction of the new corporate office property discussed in Note 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018.Excludes Dominion Energy’s guarantee for the construction of the new corporate office property discussed in Note 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019. Includes basis.Represents market prices beyond defined terms for Levels 1 and 2.Averages weighted by volume.Represents volatilities unrepresented in published markets.Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $210 million and $220 million of assets at June 30, 2019 and December 31, 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.Includes investments held in the nuclear decommissioning trusts. Excludes $153 million and $160 million of assets at June 30, 2019 and December 31, 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments. At June 30, 2019 and December 31, 2018, includes the valuation of certain fair value hedges associated with fixed rate debt of $2 million and $(20) million, respectively.Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium.Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments.Includes capitalized expenditures of $5 million and $6 million for the three months ended June 30, 2019 and 2018,respectively, and $11 million and $18 million for the six months ended June 30, 2019 and 2018, respectively.Includes amounts attributable to Atlantic Coast Pipeline, a related-party VIE.Represents amounts due from Atlantic Coast Pipeline, a related-party VIE.Amounts are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.Reflects deferred fuel expenses for the Virginia, North Carolina and South Carolina jurisdictions of Dominion Energy’s electric generation operations.Primarily reflects amounts expected to be collected from or owed to gas customers in Dominion Energy’s service territories associated with current and prospective rider projects, including CEP, PIR, and pipeline integrity management. See Note 13 for more information.Reflects unrecovered or overrecovered gas costs at regulated gas operations, which are recovered or refunded through filings with the applicable regulatory authority.Reflects deferrals under Virginia Power’s electric transmission FERC formula rate and the deferral of costs associated with certain current and prospective rider projects, net of income taxes refundable from the 2017 Tax Reform Act for Virginia Power. See Note 13 for more informationAs a result of actions from the Virginia Commission in the first quarter of 2019 regarding the ratemaking treatment of excess deferred taxes from the adoption of the 2017 Tax Reform Act for all existing rate adjustment clauses, Virginia Power recorded a $29 million ($22 million after-tax) charge in operating revenue in the Consolidated Statements of Income for amounts which are probable of being returned to customers.Legislation enacted in Virginia in April 2014 requires Virginia Power to defer operation and maintenance costs incurred in connection with the refueling of any nuclear-powered generating plant. These deferred costs will be amortized over the refueling cycle, not to exceed 18 months.Reflects expenditures by DESC associated with the NND Project, which pursuant to the SCANA Merger Approval Order, will be recovered from DESC electric service customers over a 20-year period ending in 2039. See Note 3 for more information.Reflects amounts to be recovered through retail rates in Virginia for payments Virginia Power will make to PJM over a ten-year period ending 2028 under the terms of a FERC settlement agreement in May 2018 resolving a PJM cost allocation matter. 13Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy’s rate-regulated subsidiaries.During the first quarter of 2019, Virginia Power recorded a charge of $17 million ($13 million after-tax) to write-off the balance of a regulatory asset for which it is no longer seeking recovery.Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 26 years.Represents deferred depreciation and accretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties. The AROs primarily relate to DESC’s electric generating facilities, including V.C. Summer nuclear power station, and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 106 years.Costs of the reacquisition of debt are deferred and amortized as interest expense over the would-be remaining life of the reacquired debt. The reacquired debt costs had a weighted-average life of approximately 30 years as of June 30, 2019.In March 2019, DESC purchased certain of its first mortgage bonds having an aggregate purchase price of $1.2 billion, as discussed in Note 17. As a result of this transaction, Dominion Energy incurred costs, including write-off of unamortized discount, premium, and debt issuance costs, of $187 million.Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCRs to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. See Note 18 for additional information.Rates charged to customers by Dominion Energy’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.Reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated 11-year period in connection with the SCANA Merger Approval Order and Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers in Virginia. See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K, as updated in Current Report on Form 8-K, filed November 18, 2019, for the year ended December 31, 2018 and Note 3 in this report for more information. Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at the Companies’ regulated electric generation and electric and natural gas distribution operations. See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 13 in this report for more information. Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.Reflects amounts to be refunded to DESC electric service customers over a 20-year period ending in 2039 associated with the monetization of a bankruptcy settlement agreement. See Note 3 for additional information.Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon, as applicable) for the future decommissioning of Dominion Energy’s utility nuclear generation stations, in excess of the related AROs.Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred.Rates charged to customers by Virginia Power’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at regulated electric generation and distribution operations. See Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 13 in this report for more information. Charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers. See Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, for more information. Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon) for the future decommissioning of Virginia Power’s utility nuclear generation stations, in excess of the related AROs.Reflects deferred fuel expenses for the Virginia and North Carolina jurisdictions of Virginia Power’s generation operations.Current regulatory assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 22 years.Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCR to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. See Note 18 for additional information.Current regulatory assets are presented in other current assets in Dominion Energy Gas’ Consolidated Balance Sheets.Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy Gas’ rate-regulated subsidiaries.Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted average useful life of approximately 30 years.Noncurrent regulatory assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets.Rates charged to customers by Dominion Energy Gas’ regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.Current regulatory liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.Includes cash and cash equivalents of $4 million and $9 million as of June 30, 2019 and December 31, 2018, respectively.Includes cash and cash equivalents of $8 million and less than a million dollars as of June 30, 2019 and December 31, 2018, respectively. 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Exhibit 99.1
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 8
-K
are defined below:
     
Abbreviation or Acronym                    
 
Definition
     
2016 Equity Units
 
Dominion Energy’s 2016 Series A Equity Units issued in August 2016, initially in the form of 2016 Series A Corporate Units, consisting of a stock purchase contract and a 1/40 interest in RSNs issued by Dominion Energy
     
2019 Equity Units
 
Dominion Energy’s 2019 Series A Equity Units issued in June 2019, initially in the form of 2019 Series A Corporate Units, consisting of a stock purchase contract and a 1/10 interest in a share of the Series A Preferred Stock
     
2017 Tax Reform Act
 
An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017
     
ACE Rule
 
Affordable Clean Energy Rule
     
AFUDC
 
Allowance for funds used during construction
     
AMI
 
Advanced Metering Infrastructure
     
AOCI
 
Accumulated other comprehensive income (loss)
     
ARO
 
Asset retirement obligation
     
Atlantic Coast Pipeline
 
Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion Energy, Duke and Southern Company Gas
     
BACT
 
Best available control technology
     
Bankruptcy Court
 
U.S. Bankruptcy Court for the Southern District of New York
     
bcf
 
Billion cubic feet
     
Bear Garden
 
A 590 MW combined-cycle, natural
gas-fired
power station in Buckingham County, Virginia
     
Blue Racer
 
Blue Racer Midstream, LLC, a joint venture between Caiman Energy II, LLC and FR BR Holdings, LLC effective December 2018
     
Brunswick County
 
A 1,376 MW combined-cycle, natural
gas-fired
power station in Brunswick County, Virginia
     
CAA
 
Clean Air Act
     
CAISO
 
California Independent System Operator
     
CCR
 
Coal combustion residual
     
CEP
 
Capital Expenditure Program, as established by House Bill 95, Ohio legislation enacted in 2011, deployed by East Ohio to recover certain costs associated with capital investment
     
CERCLA
 
Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund
     
CO
2
 
Carbon dioxide
     
Colonial Trail West
 
An approximately 142 MW proposed utility-scale solar power station located in Surry County, Virginia
     
Companies
 
Dominion Energy, Virginia Power and Dominion Energy Gas, collectively
     
Cove Point
 
Dominion Energy Cove Point LNG, LP
     
CPCN
 
Certificate of Public Convenience and Necessity
     
CWA
 
DCPI
 
Clean Water Act
 
The
legal entity Dominion Cove Point, LLC (formerly known as Dominion Cove Point, Inc.), one or more of its consolidated subsidiaries, or the entirety of Dominion Cove Point, LLC and its consolidated subsidiaries
     
DECG
 
Dominion Energy Carolina Gas Transmission, LLC
     
DECGS
 
Dominion Energy Carolina Gas Services, Inc.
 
 
 
 
 
 
1
 

Abbreviation or Acronym                    
 
Definition
     
DEQPS
 
Dominion Energy Questar Pipeline Services, Inc.
     
DES
 
Dominion Energy Services, Inc.
     
DESC
 
The legal entity, Dominion Energy South Carolina, Inc. (formerly known as South Carolina Electric & Gas Company), one or more of its consolidated subsidiaries or operating segments, or the entirety of Dominion Energy South Carolina, Inc. and its consolidated subsidiaries
     
DETI
 
Dominion Energy Transmission, Inc.
     
DGI
 
Dominion Generation, Inc.
     
DGP
 
Dominion Gathering and Processing, Inc.
     
DMLPHCII
 
Dominion MLP Holding Company II, LLC (formerly known as Dominion MLP Holding Company II, Inc.)
     
DOE
 
U.S. Department of Energy
     
Dominion Energy
 
The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than Virginia Power and Dominion Energy Gas) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries
     
Dominion Energy Gas
 
The legal entity, Dominion Energy Gas Holdings, LLC, one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Energy Gas Holdings, LLC and its consolidated subsidiaries
     
Dominion Energy Gas Restructuring
 
The acquisition of DCPI and DMLPHCII from, the disposition of East Ohio and DGP to, Dominion Energy by Dominion Energy Gas on November 6, 2019
     
Dominion Energy Midstream
 
The legal entity, Dominion Energy Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point GP Holding Company, LLC, Iroquois GP Holding Company, LLC, DECG and Dominion Energy Questar Pipeline, or the entirety of Dominion Energy Midstream Partners, LP and its consolidated subsidiaries
     
Dominion Energy Questar Pipeline
 
The legal entity, Dominion Energy Questar Pipeline, LLC, one or more of its consolidated subsidiaries, or the entirety of Dominion Energy Questar Pipeline, LLC and its consolidated subsidiaries
     
DSM
 
Demand-side management
     
Dth
 
Dekatherm
     
Duke
 
The legal entity, Duke Energy Corporation, one or more of its consolidated subsidiaries or operating segments, or the entirety of Duke Energy Corporation and its consolidated subsidiaries
     
East Ohio
 
The East Ohio Gas Company, doing business as Dominion Energy Ohio
     
Eastern Market Access Project
 
Project to provide 150,000 Dths/day of transportation service to help meet demand for natural gas for Washington Gas Light Company, a local gas utility serving customers in D.C., Virginia and Maryland
     
EPA
 
U.S. Environmental Protection Agency
     
EPS
 
Earnings per share
     
Export Customers
 
ST Cove Point, LLC, a joint venture of Sumitomo Corporation and Tokyo Gas Co., Ltd., and GAIL Global (USA) LNG, LLC
     
FASB
 
Financial Accounting Standards Board
     
FERC
 
Federal Energy Regulatory Commission
     
FILOT
 
Fee in lieu of taxes
     
Four Brothers
 
Four Brothers Solar, LLC, a limited liability company owned by Dominion Energy and Four Brothers Holdings, LLC, a subsidiary of GIP effective August 2018
     
FTRs
 
Financial transmission rights
     
GAAP
 
U.S. generally accepted accounting principles
 
 
 
 
 
 
 
2
 

     
Abbreviation or Acronym                    
 
Definition
     
Gal
 
Gallon
     
Gas Infrastructure
 
Gas Infrastructure Group operating segment
     
GENCO
 
South Carolina Generating Company, Inc.
     
GHG
 
Greenhouse gas
     
GIP
 
The legal entity, Global Infrastructure Partners, one or more of its consolidated subsidiaries (including, effective August 2018, Four Brothers Holdings, LLC, Granite Mountain Renewables, LLC, and Iron Springs Renewables, LLC) or operating segments, or the entirety of Global Infrastructure Partners and its consolidated subsidiaries
     
Granite Mountain
 
Granite Mountain Holdings, LLC, a limited liability company owned by Dominion Energy and Granite Mountain Renewables, LLC, a subsidiary of GIP effective August 2018
     
GreenHat
 
GreenHat Energy, LLC
     
Greensville County
 
A 1,588 MW combined-cycle, natural
gas-fired
power station in Greensville County, Virginia
     
GTSA
 
Virginia Grid Transformation and Security Act of 2018
     
Hope
 
Hope Gas, Inc., doing business as Dominion Energy West Virginia
     
Iron Springs
 
Iron Springs Holdings, LLC, a limited liability company owned by Dominion Energy and Iron Springs Renewables, LLC, a subsidiary of GIP effective August 2018
     
Iroquois
 
Iroquois Gas Transmission System, L.P.
     
ISO-NE
 
ISO New England, Inc.
     
June 2006 hybrids
 
Dominion Energy’s 2006 Series A Enhanced Junior Subordinated Notes due 2066
     
Kewaunee
 
Kewaunee nuclear power station
     
kV
 
Kilovolt
     
LNG
 
Liquefied natural gas
     
MATS
 
Utility Mercury and Air Toxics Standard Rule
     
MGD
 
Million gallons a day
     
MW
 
Megawatt
     
MWh
 
Megawatt hour
     
NAV
 
Net asset value
     
NGL
 
Natural gas liquid
     
NND Project
 
V.C. Summer Units 2 and 3 new nuclear development project under which SCANA and Santee Cooper undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina
     
North Carolina Commission
 
North Carolina Utilities Commission
     
NRC
 
U.S. Nuclear Regulatory Commission
     
NSPS
 
New Source Performance Standards
     
NYSE
 
New York Stock Exchange
     
ODEC
 
Old Dominion Electric Cooperative
     
Ohio Commission
 
Public Utilities Commission of Ohio
     
PIPP
 
Percentage of Income Payment Plan deployed by East Ohio
     
PIR
 
Pipeline Infrastructure Replacement program deployed by East Ohio
     
PJM
 
PJM Interconnection, L.L.C.
     
Power Delivery
 
Power Delivery Group operating segment
 
 
 
 
 
 
3
 

     
Abbreviation or Acronym                    
 
Definition
     
Power Generation
 
Power Generation Group operating segment
 
 
 
 
 
 
Predecessor
 
Dominion Energy as the predecessor for accounting purposes for the period of Dominion Energy’s ownership of DCPI and DMLPHCII until the completion of the Dominion Energy Gas Restructuring
     
PREP
 
Pipeline Replacement and Expansion Program, a program of replacing, upgrading and expanding natural gas utility infrastructure deployed by Hope
     
PSD
 
Prevention of significant deterioration
     
PSNC
 
Public Service Company of North Carolina, Incorporated, doing business as Dominion Energy North Carolina
     
Questar Gas
 
Questar Gas Company, doing business as Dominion Energy Utah, Dominion Energy Wyoming and Dominion Energy Idaho
     
RICO
 
Racketeer Influenced and Corrupt Organizations Act
     
Rider B
 
A rate adjustment clause associated with the recovery of costs related to the conversion of three of Virginia Power’s coal-fired power stations to biomass
     
Rider BW
 
A rate adjustment clause associated with the recovery of costs related to Brunswick County
     
Rider GV
 
A rate adjustment clause associated with the recovery of costs related to Greensville County
     
Rider R
 
A rate adjustment clause associated with the recovery of costs related to Bear Garden
     
Rider S
 
A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center
     
Rider T1
 
A rate adjustment clause to recover the difference between revenues produced from transmission rates included in base rates, and the new total revenue requirement developed annually for the rate years effective September 1
     
Rider
US-2
 
A rate adjustment clause associated with the recovery of costs related to Woodland, Scott Solar and Whitehouse
     
Rider
US-3
 
A rate adjustment clause associated with the recovery of costs related to Colonial Trail West and Spring Grove 1
     
Rider
US-4
 
A rate adjustment clause associated with the recovery of costs related to Sadler
     
Rider W
 
A rate adjustment clause associated with the recovery of costs related to Warren County
     
ROE
 
Return on equity
     
RSN
 
Remarketable subordinated note
     
Sadler
 
An approximately 100 MW proposed utility-scale solar power station located in Greensville County, Virginia
     
Santee Cooper
 
South Carolina Public Service Authority
     
SBL Holdco
 
SBL Holdco, LLC, a wholly-owned subsidiary of DGI
     
SCANA
 
The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries or the entirety of SCANA Corporation and its consolidated subsidiaries
     
SCANA Combination
 
Dominion Energy’s acquisition of SCANA completed on January 1, 2019 pursuant to the terms of the agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA
     
SCANA Merger Approval Order
 
Final order issued by the South Carolina Commission on December 21, 2018 setting forth its approval of the SCANA Combination
     
SCDHEC
 
South Carolina Department of Health and Environmental Control
     
SCDOR
 
South Carolina Department of Revenue
     
Scott Solar
 
A 17 MW utility-scale solar power station in Powhatan County, Virginia
     
SEC
 
U.S. Securities and Exchange Commission
     
September 2006 hybrids
 
Dominion Energy’s 2006 Series B Enhanced Junior Subordinated Notes due 2066
     
Series A Preferred Stock
 
Dominion Energy’s 1.75% Series A Cumulative Perpetual Convertible Preferred Stock, without
 
 
 
 
 
 
4
 

     
Abbreviation or Acronym                    
 
Definition
 
par value, with a liquidation preference of $1,000 per share
     
South Carolina Commission
 
Public Service Commission of South Carolina
     
Southeast Energy
 
Southeast Energy Group operating segment
     
Spring Grove 1
 
An approximately 98 MW proposed utility-scale solar power station located in Surry County, Virginia
     
Terra Nova Renewable Partners
 
A partnership comprised primarily of institutional investors advised by J.P. Morgan Asset Management-Global Real Assets
     
Three Cedars
 
Granite Mountain and Iron Springs, collectively
     
UEX
 
Uncollectible Expense Rider deployed by East Ohio
 
 
 
 
 
 
 
 
 
Utah Commission
 
Utah Public Service Commission
     
VDEQ
 
Virginia Department of Environmental Quality
     
VEBA
 
Voluntary Employees’ Beneficiary Association
     
VIE
 
Variable interest entity
     
Virginia City Hybrid Energy Center
 
A 610 MW baseload carbon-capture compatible, clean coal powered electric generation facility in Wise County, Virginia
     
Virginia Commission
 
Virginia State Corporation Commission
     
Virginia Power
 
The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries
     
VOC
 
Volatile organic compounds
     
Warren County
 
A 1,350 MW combined-cycle, natural
gas-fired
power station in Warren County, Virginia
     
WECTEC
 
WECTEC Global Project Services, Inc. (formerly known as Stone & Webster, Inc.), a wholly-owned subsidiary of Westinghouse
     
Westinghouse
 
Westinghouse Electric Company LLC
     
Whitehouse
 
A 20 MW utility-scale solar power station in Louisa County, Virginia
     
White River Hub
 
White River Hub, LLC
     
Woodland
 
A 19 MW utility-scale solar power station in Isle of Wight County, Virginia
     
Wyoming Commission
 
Wyoming Public Service Commission
 
 
 
 
 
 
5
 

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOMINION ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
             
 
    Three Months Ended June 30,    
   
Six Months Ended June 30,    
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions, except per share amounts)
 
   
   
   
 
                                 
Operating Revenue
(1)
 
$
3,970
 
  $
3,088
   
$
   7,828
 
  $
   6,554
 
                                 
                                 
Operating Expenses
 
 
 
   
   
 
 
   
 
                                 
Electric fuel and other energy-related purchases
 
 
718
 
   
623
   
 
1,509
 
   
1,367
 
                                 
Purchased electric capacity
 
 
24
 
   
23
   
 
63
 
   
37
 
                                 
Purchased gas
 
 
227
 
   
64
   
 
957
 
   
404
 
                                 
Other operations and maintenance
 
 
1,283
 
   
873
   
 
2,285
 
   
1,668
 
                                 
Depreciation, depletion and amortization
 
 
661
 
   
463
   
 
1,312
 
   
961
 
                                 
Other taxes
 
 
284
 
   
166
   
 
576
 
   
365
 
                                 
Impairment of assets and other charges
 
 
312
 
   
134
   
 
1,147
 
   
135
 
                                 
                                 
Total operating expenses
 
 
3,509
 
   
2,346
   
 
7,849
 
   
4,937
 
                                 
                                 
Income (loss) from operations
 
 
461
 
   
742
   
 
(21
)
   
1,617
 
                                 
                                 
Other income
 
 
92
 
   
185
   
 
480
 
   
285
 
                                 
Interest and related charges
 
 
452
 
   
361
   
 
921
 
   
675
 
                                 
                                 
Income (loss) from operations including noncontrolling interests before income tax expense
 
 
101
 
   
566
   
 
(462
)
   
1,227
 
                                 
Income tax expense
 
 
43
 
   
88
   
 
157
 
   
223
 
                                 
                                 
Net Income (Loss) Including Noncontrolling Interests
 
 
58
 
   
478
   
 
(619
)
   
1,004
 
                                 
Noncontrolling Interests
 
 
4
 
   
29
   
 
7
 
   
52
 
                                 
                                 
Net Income (Loss) Attributable to Dominion Energy
 
$
54
 
  $
449
   
$
(626
)
  $
952
 
                                 
                                 
Earnings Per Common Share
 
 
 
   
   
 
 
   
 
                                 
Net income (loss) attributable to Dominion Energy - Basic
 
$
0.07
 
  $
0.69
   
$
(0.78
)
  $
1.46
 
                                 
Net income (loss) attributable to Dominion Energy - Diluted
 
 
0.05
 
   
0.69
   
 
(0.78
)
   
1.46
 
(1)
See Note 10 for amounts attributable to related parties.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
6

DOMINION ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
             
 
    Three Months Ended June 30,    
   
    Six Months Ended June 30,    
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
   
   
   
 
                                 
Net income (loss) including noncontrolling interests
 
$
58
 
  $
478
   
$
(619
)
  $
1,004
 
                                 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
                                 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(78
)
   
(33
)  
 
(102
)
   
78
 
                                 
Changes in unrealized net gains (losses) on investment securities
(2)
 
 
13
 
   
(5
)  
 
29
 
   
(18
)
                                 
Changes in net unrecognized pension and other postretirement benefit costs
(3)
 
 
113
 
   
   
 
113
 
   
 
                                 
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
                                 
Net derivative (gains) losses-hedging activities
(4)
 
 
(21
)
   
33
   
 
(52
)
   
41
 
                                 
Net realized (gains) losses on investment securities
(5)
 
 
(1
)
   
   
 
(1
)
   
1
 
                                 
Net pension and other postretirement benefit costs
(6)
 
 
22
 
   
17
   
 
30
 
   
42
 
                                 
Changes in other comprehensive income from equity method investees
(7)
 
 
 
   
1
   
 
 
   
1
 
                                 
                                 
Total other comprehensive income
 
 
48
 
   
13
   
 
17
 
   
145
 
                                 
                                 
Comprehensive income (loss) including noncontrolling interests
 
 
106
 
   
491
   
 
(602
)
   
1,149
 
                                 
Comprehensive income attributable to noncontrolling interests
 
 
4
 
   
29
   
 
7
 
   
53
 
                                 
                                 
Comprehensive income (loss) attributable to Dominion Energy
 
$
102
 
  $
462
   
$
(609
)
  $
1,096
 
                                 
(1)
Net of $27 million and $11 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $32 million and $(26) million tax for the six months ended June 30, 2019 and 2018, respectively.
(2)
Net of $(5) million and $2 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $6 million tax for the six months ended June 30, 2019 and 2018, respectively.
(3)
Net of $(49) million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(49) million and $— million tax for the six months ended June 30, 2019 and 2018, respectively.
(4)
Net of $8 million and $(11) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $18 million and $(14) million tax for the six months ended June 30, 2019 and 2018, respectively.
(5)
Net of $— million and $(1)
 million 
tax for the three months ended June 30, 2019 and 2018, respectively, and net of $— million and $(1) million tax for the six months ended June 30, 2019 and 2018, respectively.
(6)
Net of $3 million and $(7) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $(8) million tax for the six months ended June 30, 2019 and 2018, respectively.
(7)
Net of $— million and $(1) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $— million and $(1) million tax for the six months ended June 30, 2019 and 2018, respectively.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
7

DOMINION ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
        June 30, 2019        
 
 
  December 31, 2018
(1)
  
 
             
(millions)
 
   
 
                 
ASSETS
   
     
 
                 
Current Assets
   
     
 
                 
Cash and cash equivalents
 
$
382
 
  $
268
 
                 
Customer receivables (less allowance for doubtful accounts of $23 and $14)
 
 
1,908
 
   
1,749
 
                 
Other receivables (less allowance for doubtful ​​​​​​​accounts of $3 and $4)
(2)
 
 
188
 
   
331
 
                 
Inventories
 
 
1,724
 
   
1,418
 
                 
Regulatory assets
 
 
745
 
   
496
 
                 
Other
 
 
780
 
   
899
 
                 
                 
Total current assets
 
 
5,727
 
   
5,161
 
                 
                 
Investments
 
 
 
   
 
                 
Nuclear decommissioning trust funds
 
 
5,767
 
   
4,938
 
                 
Investment in equity method affiliates
 
 
1,467
 
   
1,278
 
                 
Other
 
 
362
 
   
344
 
                 
                 
Total investments
 
 
7,596
 
   
6,560
 
                 
                 
Property, Plant and Equipment
 
 
 
   
 
                 
Property, plant and equipment
 
 
94,873
 
   
76,578
 
                 
Accumulated depreciation, depletion and amortization
 
 
(27,732
)
   
(22,018
)
                 
                 
Total property, plant and equipment, net
 
 
67,141
 
   
54,560
 
                 
                 
Deferred Charges and Other Assets
 
 
 
   
 
                 
Goodwill
 
 
8,985
 
   
6,410
 
                 
Intangible assets, net
 
 
878
 
   
670
 
                 
Regulatory assets
 
 
7,563
 
   
2,676
 
                 
Operating lease assets
 
 
468
 
   
 
                 
Pension and other postretirement benefit assets
 
 
1,561
 
   
1,279
 
                 
Other
 
 
903
 
   
598
 
                 
                 
Total deferred charges and other assets
 
 
20,358
 
   
11,633
 
                 
                 
Total assets
 
$
100,822
 
  $
77,914
 
                 
(1)
Dominion Energy’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
(2)
See Note 10 for amounts attributable to related parties.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
8

DOMINION ENERGY, INC.
CONSOLIDATED BALANCE SHEETS—(Continued)
(Unaudited)
 
 
        June 30, 2019        
 
 
  December 31, 2018
(1)
  
 
             
(millions)
 
   
 
                 
LIABILITIES AND EQUITY
 
 
 
   
 
                 
Current Liabilities
 
 
 
   
 
                 
Securities due within one year
 
$
2,364
 
  $
3,624
 
                 
Credit facility borrowings
 
 
 
   
73
 
                 
Short-term debt
 
 
2,547
 
   
334
 
                 
Accounts payable
 
 
787
 
   
914
 
                 
Accrued interest, payroll and taxes
 
 
1,123
 
   
836
 
                 
Regulatory liabilities
 
 
523
 
   
356
 
                 
Other
(2)
 
 
2,159
 
   
1,510
 
                 
                 
Total current liabilities
 
 
9,503
 
   
7,647
 
                 
                 
Long-Term Debt
 
 
 
   
 
                 
Long-term debt
 
 
31,853
 
   
26,328
 
                 
Junior subordinated notes
 
 
4,795
 
   
3,430
 
                 
Remarketable subordinated notes
 
 
 
   
1,386
 
                 
                 
Total long-term debt
 
 
36,648
 
   
31,144
 
                 
                 
Deferred Credits and Other Liabilities
 
 
 
   
 
                 
Deferred income taxes and investment tax credits
 
 
6,185
 
   
5,116
 
                 
Regulatory liabilities
 
 
10,808
 
   
6,840
 
                 
Asset retirement obligations
 
 
4,984
 
   
2,250
 
                 
Operating lease liabilities
 
 
404
 
   
 
                 
Pension and other postretirement benefit liability
 
 
2,612
 
   
2,328
 
                 
Other
 
 
1,297
 
   
541
 
                 
                 
Total deferred credits and other liabilities
 
 
26,290
 
   
17,075
 
                 
                 
Total liabilities
 
 
72,441
 
   
55,866
 
                 
                 
Commitments and Contingencies (see Note 18)
 
 
 
   
 
                 
Equity
 
 
 
   
 
                 
Preferred stock
(3)
 
 
1,596
 
 
 
 
                 
Common stock – no par
(4)
 
 
20,660
 
   
12,588
 
                 
Retained earnings
 
 
7,124
 
   
9,219
 
                 
Accumulated other comprehensive loss
 
 
(1,683
)
   
(1,700
)
                 
                 
Total shareholders’ equity
 
 
27,697
 
   
20,107
 
                 
                 
Noncontrolling interests
 
 
684
 
   
1,941
 
                 
                 
Total equity
 
 
28,381
 
   
22,048
 
                 
                 
Total liabilities and equity
 
$
100,822
 
  $
77,914
 
                 
(1)
Dominion Energy’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
(2)
See Note 10 for amounts attributable to related parties.
(3)
20 million shares authorized; 2 million shares outstanding at June 30, 2019.
(4)
1.8 billion shares authorized and 803 million shares outstanding at June 30, 2019 and 1 billion shares authorized and 681 million shares outstanding at December 31, 2018.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
9

DOMINION ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY -
QUARTER-TO-DATE
(Unaudited)
 
  Preferred Stock  
   
    Common Stock    
   
    Dominion Energy    
Shareholders
   
Total
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Retained
Earnings
 
 
AOCI
 
 
Shareholders’
Equity
 
 
Noncontrolling
Interests
 
 
Total
Equity
 
                                                       
(millions, except per share amounts)
 
   
   
   
   
   
   
   
   
 
                                                                         
March 31, 2018
   
    $
     
653
    $
10,316
    $
8,924
    $
(1,551
)   $
17,689
    $
2,353
    $
20,042
 
                                                                         
                                                                         
Net income including noncontrolling interests
   
     
     
     
     
449
     
     
449
     
29
     
478
 
                                                                         
Issuance of stock
   
     
     
1
     
82
     
     
     
82
     
     
82
 
                                                                         
Remeasurement of noncontrolling interest in Dominion Energy Midstream
   
     
     
     
375
     
     
     
375
     
(375
)    
 
                                                                         
Stock awards (net of change in unearned compensation)
   
     
     
     
9
     
     
     
9
     
     
9
 
                                                                         
Dividends ($0.8350 per common share) and distributions
   
     
     
     
     
(545
)    
     
(545
)    
(34
)    
(579
)
                                                                         
Other comprehensive income, net of tax
   
     
     
     
     
     
13
     
13
     
     
13
 
                                                                         
Other
   
     
     
     
     
(8
)    
     
(8
)    
(1
)    
(9
)
                                                                         
                                                                         
June 30, 2018
   
    $
     
654
    $
10,782
    $
8,820
    $
(1,538
)   $
18,064
    $
1,972
    $
20,036
 
                                                                         
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                         
March 31, 2019
   
    $
     
802
    $
20,834
    $
7,806
    $
(1,731
)   $
26,909
    $
690
    $
27,599
 
                                                                         
                                                                         
Net income including noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
 
 
 
 
 
 
54
 
 
 
4
 
 
 
58
 
                                                                         
Issuance of stock
 
 
2
 
 
 
1,596
 
 
 
1
 
 
 
78
 
 
 
 
 
 
 
 
 
1,674
 
 
 
 
 
 
1,674
 
                                                                         
Stock purchase contract component of 2019 Equity Units
(1)
 
 
 
 
 
 
 
 
 
 
 
(264
)
 
 
 
 
 
 
 
 
(264
)
 
 
 
 
 
(264
)
                                                                         
Stock awards (net of change in unearned compensation)
 
 
 
 
 
 
 
 
 
 
 
12
 
 
 
 
 
 
 
 
 
12
 
 
 
 
 
 
12
 
                                                                         
Dividends ($0.9175 per common share) and distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(736
)
 
 
 
 
 
(736
)
 
 
(10
)
 
 
(746
)
                                                                         
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
 
 
 
48
 
 
 
 
 
 
48
 
                                                                         
                                                                         
June 30, 2019
 
 
2
 
 
$
1,596
 
 
 
803
 
 
$
20,660
 
 
$
7,124
 
 
$
(1,683
)
 
$
27,697
 
 
$
684
 
 
$
28,381
 
                                                                         
(1)
See Note 17 for further information.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
10

DOMINION ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY -
YEAR-TO-DATE
(Unaudited)
 
Preferred Stock
   
Common Stock
   
Dominion Energy
Shareholders
   
Total
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Retained
Earnings
 
 
AOCI
 
 
Shareholders’
Equity
 
 
Noncontrolling
Interests
 
 
Total
Equity
 
                                                       
(millions, except per share amounts)
 
   
   
   
   
   
   
   
   
 
                                                                         
December 31, 2017
   
    $
     
645
    $
9,865
    $
7,936
    $
(659
)   $
17,142
    $
2,228
    $
19,370
 
                                                                         
                                                                         
Cumulative-effect of changes in accounting principles
   
     
     
     
(127
)    
1,029
     
(1,023
)    
(121
)    
127
     
6
 
                                                                         
Net income including noncontrolling interests
   
     
     
     
     
952
     
     
952
     
52
     
1,004
 
                                                                         
Issuance of stock
   
     
     
9
     
662
     
     
     
662
     
     
662
 
                                                                         
Sale of Dominion Energy Midstream common units - net of offering costs
   
     
     
     
     
     
     
     
4
     
4
 
                                                                         
Remeasurement of noncontrolling interest in Dominion Energy Midstream
   
     
     
     
375
     
     
     
375
     
(375
)    
 
                                                                         
Stock awards (net of change in unearned compensation)
   
     
     
     
12
     
     
     
12
     
     
12
 
                                                                         
Dividends ($1.670 per common share) and distributions
   
     
     
     
     
(1,089
)    
     
(1,089
)    
(65
)    
(1,154
)
                                                                         
Other comprehensive income, net of tax
   
     
     
     
     
     
144
     
144
     
1
     
145
 
                                                                         
Other
   
     
     
     
(5
)    
(8
)    
     
(13
)    
     
(13
)
                                                                         
                                                                         
June 30, 2018
   
    $
     
654
    $
10,782
    $
8,820
    $
(1,538
)   $
18,064
    $
1,972
    $
20,036
 
                                                                         
                                                                         
December 31, 2018
   
    $
     
681
    $
12,588
    $
9,219
    $
(1,700
)   $
20,107
    $
1,941
    $
22,048
 
                                                                         
                                                                         
Net income (loss) including noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(626
)
 
 
 
 
 
(626
)
 
 
7
 
 
 
(619
)
                                                                         
Issuance of stock
 
 
2
 
 
 
1,596
 
 
 
4
 
 
 
325
 
 
 
 
 
 
 
 
 
1,921
 
 
 
 
 
 
1,921
 
                                                                         
Stock purchase contract component of 2019 Equity Units
(1)
 
 
 
 
 
 
 
 
 
 
 
(264
)
 
 
 
 
 
 
 
 
(264
)
 
 
 
 
 
(264
)
                                                                         
Acquisition of SCANA
 
 
 
 
 
 
 
 
96
 
 
 
6,818
 
 
 
 
 
 
 
 
 
6,818
 
 
 
 
 
 
6,818
 
                                                                         
Acquisition of public interest in Dominion Energy Midstream
 
 
 
 
 
 
 
 
22
 
 
 
1,181
 
 
 
 
 
 
 
 
 
1,181
 
 
 
(1,221
)
 
 
(40
)
                                                                         
Stock awards (net of change in unearned compensation)
 
 
 
 
 
 
 
 
 
 
 
12
 
 
 
 
 
 
 
 
 
12
 
 
 
 
 
 
12
 
                                                                         
Dividends ($1.835 per common share) and distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,469
)
 
 
 
 
 
(1,469
)
 
 
(43
)
 
 
(1,512
)
                                                                         
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
 
 
 
17
 
 
 
 
 
 
17
 
                                                                         
                                                                         
June 30, 2019
 
 
2
 
 
$
1,596
 
 
 
803
 
 
$
20,660
 
 
$
7,124
 
 
$
(1,683
)
 
$
27,697
 
 
$
684
 
 
$
28,381
 
                                                                         
(1)
See Note 17 for further information.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
11

DOMINION ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
 
        2019        
 
 
        2018        
 
             
(millions)
 
   
 
                 
Operating Activities
 
 
 
   
 
                 
Net income (loss) including noncontrolling interests
 
$
(619
)
  $
1,004
 
                 
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash provided by operating activities:
 
 
 
   
 
                 
Depreciation, depletion and amortization (including nuclear fuel)
 
 
1,472
 
   
1,106
 
                 
Deferred income taxes and investment tax credits
 
 
107
 
   
229
 
                 
Provision for refunds and rate credits to electric utility customers
 
 
953
 
   
215
 
                 
Impairment of assets and other charges
 
 
1,012
 
   
129
 
                 
Charge related to a voluntary retirement program
 
 
409
 
   
 
                 
Net gains on nuclear decommissioning trust funds and other investments
 
 
(371
)
   
(40
)
                 
Charge associated with future ash pond and landfill closure costs
 
 
 
   
81
 
                 
Revision to future ash pond and landfill closure costs
 
 
(113
)
   
 
                 
Other adjustments
 
 
4
 
   
(46
)
                 
Changes in:
 
 
 
   
 
                 
Accounts receivable
 
 
492
 
   
158
 
                 
Inventories
 
 
(14
)
   
31
 
                 
Deferred fuel and purchased gas costs, net
 
 
120
 
   
(295
)
                 
Prepayments
 
 
22
 
   
(15
)
                 
Accounts payable
 
 
(446
)
   
(151
)
                 
Accrued interest, payroll and taxes
 
 
(264
)
   
(90
)
                 
Customer deposits
 
 
(85
)
   
108
 
                 
Margin deposit assets and liabilities
 
 
113
 
   
(34
)
                 
Net realized and unrealized changes related to derivative activities
 
 
(11
)
   
82
 
                 
Other operating assets and liabilities
 
 
(468
)
   
(47
)
                 
                 
Net cash provided by operating activities
 
 
2,313
 
   
2,425
 
                 
                 
Investing Activities
 
 
 
   
 
                 
Plant construction and other property additions (including nuclear fuel)
 
 
(2,112
)
   
(2,046
)
                 
Cash and restricted cash acquired in the SCANA Combination
 
 
389
 
   
 
                 
Acquisition of solar development projects
 
 
(152
)
   
(51
)
                 
Proceeds from sales of securities
 
 
882
 
   
844
 
                 
Purchases of securities
 
 
(888
)
   
(890
)
                 
Proceeds from sales of assets and equity method investments
 
 
196
 
   
44
 
                 
Contributions to equity method affiliates
 
 
(132
)
   
(134
)
                 
Other
 
 
(16
)
   
(3
)
                 
                 
Net cash used in investing activities
 
 
                    (1,833
)
   
                    (2,236
)
                 
                 
Financing Activities
 
 
 
   
 
                 
Issuance (repayment) of short-term debt, net
 
 
2,040
 
   
(553
)
                 
Issuance of short-term notes
 
 
 
   
1,450
 
                 
Credit facility borrowings
 
 
 
   
73
 
                 
Repayment of credit facility borrowings
 
 
(113
)
 
 
 
                 
Issuance of long-term debt
 
 
798
 
   
2,400
 
                 
Repayment of long-term debt, including redemption premiums
 
 
(3,378
)
   
(2,840
)
                 
Issuance of 2019 Equity Units
 
 
1,582
 
 
 
 
                 
Issuance of common stock
 
 
325
 
   
662
 
                 
Common dividend payments
 
 
(1,469
)
   
(1,089
)
                 
Other
 
 
(96
)
   
(123
)
                 
                 
Net cash used in financing activities
 
 
(311
)
   
(20
)
                 
                 
Increase in cash, restricted cash and equivalents
 
 
169
 
   
169
 
                 
Cash, restricted cash and equivalents at beginning of period
 
 
391
 
   
185
 
                 
                 
Cash, restricted cash and equivalents at end of period
 
$
560
 
  $
354
 
                 
                 
Supplemental Cash Flow Information
 
 
 
   
 
                 
Significant noncash investing and financing activities:
(1)(2)(3)
 
 
 
   
 
                 
Accrued capital expenditures
 
$
311
 
  $
253
 
                 
Leases
(4)
 
 
24
 
   
 
                 
 
12

(1)
See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.
(2)
See Note 3 for noncash investing and financing activities related to the SCANA Combination.
(3)
See Note 17 for noncash financing activities related to the acquisition of the public interest in Dominion Energy Midstream, the remarketing of RSNs and the issuance of stock purchase contracts associated with the 2019 Equity Units.
(4)
Includes $22 million of financing leases and $2 million of operating leases.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
13

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
   
   
   
 
                                 
Operating Revenue
(1)
 
$
1,938
 
  $
1,829
   
$
3,903
 
  $
3,577
 
                                 
                                 
Operating Expenses
 
 
 
   
   
 
 
   
 
                                 
Electric fuel and other energy-related purchases
(1)
 
 
536
 
   
508
   
 
1,132
 
   
1,099
 
                                 
Purchased electric capacity
 
 
13
 
   
23
   
 
46
 
   
37
 
                                 
Other operations and maintenance:
 
 
 
   
   
 
 
   
 
                                 
Affiliated suppliers
 
 
127
 
   
74
   
 
213
 
   
157
 
                                 
Other
 
 
438
 
   
365
   
 
631
 
   
681
 
                                 
Depreciation and amortization
 
 
299
 
   
247
   
 
603
 
   
544
 
                                 
Other taxes
 
 
90
 
   
79
   
 
175
 
   
162
 
                                 
Impairment of assets and other charges
 
 
197
 
   
   
 
743
 
   
 
                                 
                                 
Total operating expenses
 
 
1,700
 
   
1,296
   
 
3,543
 
   
2,680
 
                                 
                                 
Income from operations
 
 
238
 
   
533
   
 
360
 
   
897
 
                                 
                                 
Other income
 
 
16
 
   
21
   
 
53
 
   
24
 
                                 
Interest and related charges
(1)
 
 
135
 
   
126
   
 
270
 
   
258
 
                                 
                                 
Income before income tax expense
 
 
119
 
   
428
   
 
143
 
   
663
 
                                 
Income tax expense
 
 
19
 
   
89
   
 
23
 
   
140
 
                                 
                                 
Net Income
 
$
100
 
  $
339
   
$
120
 
  $
523
 
                                 
(1)
See Note
20
 for amounts attributable to affiliates.
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
14

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
        2019        
 
 
        2018        
   
        2019        
 
 
        2018        
 
                         
(millions)
 
 
 
   
 
 
 
                                 
Net income
 
$
100
 
  $
339
   
$
120
 
  $
523
 
                                 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
                                 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(11
)
   
2
   
 
(18
)
   
7
 
                                 
Changes in unrealized net gains (losses) on nuclear decommissioning trust funds
(2)
 
 
2
 
   
(2
)  
 
4
 
   
(2
)
                                 
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
                                 
Net derivative (gains) losses on derivative-hedging activities
(3)
 
 
1
 
   
   
 
1
 
   
 
                                 
Net realized (gains) losses on nuclear decommissioning trust funds
(3)
 
 
(1
)
 
 
 
 
 
(1
)
   
 
                                 
                                 
Total other comprehensive income (loss)
 
 
(9
)
   
   
 
(14
)
   
5
 
                                 
                                 
Comprehensive income
 
$
91
 
  $
339
   
$
106
 
  $
528
 
                                 
(1)
Net of $4 million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $6 million and $(2) million tax for the six months ended June 30, 2019 and 2018, respectively.
(2)
Net of $— million tax for both the three months ended June 30, 2019 and 2018 and net of $(1) million and $1 million tax for the six months ended June 30, 2019 and 2018, respectively.
(3)
Net of $— million tax for both the three and
six months ended June 30
, 2019
and 2018
.
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
15

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
 
 
        June 30, 2019        
   
  December 31, 2018
(1)
  
 
             
(millions)
 
   
 
                 
ASSETS
   
     
 
                 
Current Assets
 
 
 
   
 
                 
Cash and cash equivalents
 
$
17
 
  $
29
 
                 
Customer receivables (less allowance for doubtful accounts of $11 and $9)
 
 
958
 
   
999
 
                 
Other receivables (less allowance for doubtful accounts of $2 and $3)
 
 
47
 
   
76
 
                 
Affiliated receivables
 
 
196
 
   
101
 
                 
Inventories (average cost method)
 
 
847
 
   
837
 
                 
Other
(2)
 
 
410
 
   
529
 
                 
                 
Total current assets
 
 
2,475
 
   
2,571
 
                 
                 
Investments
 
 
 
   
 
                 
Nuclear decommissioning trust funds
 
 
2,682
 
   
2,369
 
                 
Other
 
 
3
 
   
3
 
                 
                 
Total investments
 
 
2,685
 
   
2,372
 
                 
                 
Property, Plant and Equipment
 
 
 
   
 
                 
Property, plant and equipment
 
 
45,749
 
   
44,524
 
                 
Accumulated depreciation and amortization
 
 
(13,877
)
   
(14,003
)
                 
                 
Total property, plant and equipment, net
 
 
31,872
 
   
30,521
 
                 
                 
Deferred Charges and Other Assets
 
 
 
   
 
                 
Regulatory assets
 
 
1,872
 
   
737
 
                 
Operating lease assets
 
 
191
 
   
 
                 
Other
(2)
 
 
903
 
   
679
 
                 
                 
Total deferred charges and other assets
 
 
2,966
 
   
1,416
 
                 
                 
Total assets
 
$
39,998
 
  $
36,880
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Virginia Power’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
 
 
 
 
 
 
 
 
 
 
(2)
See Note
20
 for amounts attributable to affiliates.
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
16

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS—(Continued)
(Unaudited)
             
 
 
 
    June 30, 2019      
 
 
 
 
    
December 31, 2018
(1)
   
 
             
(millions)
 
   
 
                 
LIABILITIES AND SHAREHOLDER’S EQUITY
   
     
 
                 
Current Liabilities
 
 
 
   
 
                 
Securities due within one year
 
$
2
 
  $
350
 
                 
Short-term debt
 
 
1,300
 
   
314
 
                 
Accounts payable
 
 
253
 
   
339
 
                 
Payables to affiliates
 
 
182
 
   
209
 
                 
Affiliated current borrowings
 
 
71
 
   
224
 
                 
Regulatory liabilities
 
 
188
 
   
299
 
                 
Other
(2)
 
 
1,262
 
   
1,080
 
                 
                 
Total current liabilities
 
 
3,258
 
   
2,815
 
                 
                 
Long-Term Debt
 
 
11,291
 
   
11,321
 
                 
                 
Deferred Credits and Other Liabilities
 
 
 
   
 
                 
Deferred income taxes and investment tax credits
 
 
3,006
 
   
3,017
 
                 
Asset retirement obligations
 
 
3,389
 
   
1,200
 
                 
Regulatory liabilities
 
 
4,812
 
   
4,647
 
                 
Operating lease liabilities
 
 
158
 
   
 
                 
Other
(2)
 
 
1,120
 
   
833
 
                 
                 
Total deferred credits and other liabilities
 
 
12,485
 
   
9,697
 
                 
                 
Total liabilities
 
 
27,034
 
   
23,833
 
                 
                 
Commitments and Contingencies (see Note 18)
 
 
 
   
 
                 
Common Shareholder’s Equity
 
 
 
   
 
                 
Common stock – no par
(3)
 
 
5,738
 
   
5,738
 
                 
Other
paid-in
capital
 
 
1,113
 
   
1,113
 
                 
Retained earnings
 
 
6,139
 
   
6,208
 
                 
Accumulated other comprehensive loss
 
 
(26
)
   
(12
)
                 
                 
Total common shareholder’s equity
 
 
12,964
 
   
13,047
 
                 
                 
Total liabilities and shareholder’s equity
 
$
39,998
 
  $
36,880
 
                 
(1)
Virginia Power’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
(2)
See Note
20
 for amounts attributable to affiliates.
(3)
500,000 shares authorized; 274,723 shares outstanding at June 30, 2019 and December 31, 2018.
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
17

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY
(Unaudited)
QUARTER-TO-DATE
                                                 
 
 
Common Stock
   
 
   
 
   
 
   
 
 
 
 
Shares
   
    Amount    
   
Other
 Paid-
  In Capital  
   
  Retained  
  Earnings  
   
    AOCI    
   
    Total    
 
                                     
(millions, except for shares)
 
(thousands)
   
   
   
   
   
 
                                                 
March 31, 2018
   
275
    $
5,738
    $
1,113
    $
5,420
    $
(9
)   $
12,262
 
                                                 
                                                 
Net income
   
     
     
     
339
     
     
339
 
                                                 
Dividends
   
     
     
     
(103
)    
     
(103
)
                                                 
Other
   
     
     
     
(1
)    
     
(1
)
                                                 
                                                 
June 30, 2018
   
275
    $
5,738
    $
1,113
    $
5,655
    $
(9
)   $
12,497
 
                                                 
   
     
     
     
     
     
 
                                                 
March 31, 2019
   
275
    $
5,738
    $
1,113
    $
6,110
    $
(17
)   $
12,944
 
                                                 
                                                 
Net income
 
 
 
 
 
 
 
 
 
 
 
100
 
 
 
 
 
 
100
 
                                                 
Dividends
 
 
 
 
 
 
 
 
 
 
 
(71
)
 
 
 
 
 
(71
)
                                                 
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9
)
 
 
(9
)
                                                 
                                                 
June 30, 2019
 
 
275
 
 
$
5,738
 
 
$
1,113
 
 
$
6,139
 
 
$
 
 
 
 
(26
)
 
$
12,964
 
                                                 
   
YEAR-TO-DATE
 
                               
 
Common Stock
   
 
 
 
 
 
 
 
 
Shares
 
 
   Amount   
 
 
Other
 Paid-
  In Capital  
 
 
Retained
Earnings
 
 
    AOCI    
 
 
    Total    
 
                                     
(millions, except for shares)
 
(thousands)
   
   
   
   
   
 
                                                 
December 31, 2017
   
275
    $
5,738
    $
1,113
    $
5,311
    $
62
    $
12,224
 
                                                 
                                                 
Cumulative-effect of changes in accounting principles
   
     
     
     
79
     
(76
)    
3
 
                                                 
Net income
   
     
     
     
523
     
     
523
 
                                                 
Dividends
   
     
     
     
(257
)    
     
(257
)
                                                 
Other comprehensive income, net of tax
   
     
     
     
     
5
     
5
 
                                                 
Other
   
     
     
     
(1
)    
     
(1
)
                                                 
                                                 
June 30, 2018
   
275
    $
5,738
    $
1,113
    $
5,655
    $
(9
)   $
12,497
 
                                                 
   
     
     
     
     
     
 
                                                 
December 31, 2018
   
275
    $
5,738
    $
1,113
    $
6,208
    $
(12
)   $
13,047
 
                                                 
                                                 
Net income
 
 
 
 
 
 
 
 
 
 
 
120
 
 
 
 
 
 
120
 
                                                 
Dividends
 
 
 
 
 
 
 
 
 
 
 
(189
)
 
 
 
 
 
(189
)
                                                 
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14
)
 
 
(14
)
                                                 
                                                 
June 30, 2019
 
 
275
 
 
$
5,738
 
 
$
1,113
 
 
$
6,139
 
 
$   
 
 
     
(26
)
 
$
   12,964
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
18

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                         
Six Months Ended June 30,
 
2019
   
 
   
2018
 
                   
(millions)
 
   
   
 
                         
Operating Activities
   
     
     
 
                         
Net income
 
$
120
 
 
 
 
  $
523
 
                         
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
   
 
                         
Depreciation and amortization (including nuclear fuel)
 
 
690
 
 
 
 
   
632
 
                         
Deferred income taxes and investment tax credits
 
 
(43
)
 
 
 
   
137
 
                         
Charge associated with future ash pond and landfill closure costs
 
 
 
 
 
 
   
81
 
                         
Revision to future ash pond and landfill closure costs
 
 
(113
)
 
 
 
 
   
 
                         
Impairment of assets and other charges
 
 
608
 
 
 
 
 
   
 
                         
Provision for rate credits to customers
 
 
   
 
 
 
   
215
 
                         
Charge related to a voluntary retirement program
 
 
190
 
 
 
 
   
 
                         
Other adjustments
 
 
(51
)
 
 
 
   
(19
)
                         
Changes in:
 
 
 
 
 
 
   
 
                         
Accounts receivable
 
 
68
 
 
 
 
   
(26
)
                         
Affiliated receivables and payables
 
 
(179
)
 
 
 
   
(86
)
                         
Inventories
 
 
(30
)
 
 
 
   
36
 
                         
Prepayments
 
 
(4
)
 
 
 
   
(6
)
                         
Deferred fuel expenses, net
 
 
153
 
 
 
 
   
(357
)
                         
Accounts payable
 
 
(35
)
 
 
 
   
(45
)
                         
Accrued interest, payroll and taxes
 
 
14
 
 
 
 
   
13
 
                         
Net realized and unrealized changes related to derivative activities
 
 
17
 
 
 
 
   
54
 
                         
Asset retirement obligations
 
 
14
 
 
 
 
   
(18
)
                         
Other operating assets and liabilities
 
 
(345
)
 
 
 
   
64
 
                         
                         
Net cash provided by operating activities
 
 
1,074
 
 
 
 
   
1,198
 
                         
                         
Investing Activities
 
 
 
 
 
 
   
 
                         
Plant construction and other property additions
 
 
(1,079
)
 
 
 
   
(1,170
)
                         
Purchases of nuclear fuel
 
 
(67
)
 
 
 
   
(55
)
                         
Acquisition of solar development projects
 
 
(150
)
 
 
 
   
(43
)
                         
Proceeds from sales of securities
 
 
447
 
 
 
 
   
414
 
                         
Purchases of securities
 
 
(478
)
 
 
 
   
(436
)
                         
Other
 
 
(11
)
 
 
 
   
4
 
                         
                         
Net cash used in investing activities
 
 
                
(1,338
)
 
 
 
   
                
(1,286
)
                         
                         
Financing Activities
 
 
 
 
 
 
   
 
                         
Issuance of short-term debt, net
 
 
986
 
 
 
 
   
616
 
                         
Repayment of affiliated current borrowings, net
 
 
(153
)
 
 
 
   
(8
)
                         
Issuance of long-term debt
 
 
198
 
 
 
 
   
700
 
                         
Repayment of long-term debt
 
 
(589
)
 
 
 
   
(951
)
                         
Common dividend payments to parent
 
 
(189
)
 
 
 
   
(257
)
                         
Other
 
 
(2
)
 
 
 
   
(6
)
                         
                         
Net cash provided by financing activities
 
 
251
 
 
 
 
   
94
 
                         
                         
Increase (decrease) in cash, restricted cash and equivalents
 
 
(13
)
 
 
 
   
6
 
                         
Cash, restricted cash and equivalents at beginning of period
 
 
38
 
 
 
 
   
24
 
                         
                         
Cash, restricted cash and equivalents at end of period
 
$
25
 
 
 
 
  $
30
 
                         
                         
Supplemental Cash Flow Information
 
 
 
 
 
 
   
 
                         
Significant noncash investing activities:
(1)
 
 
 
 
 
 
   
 
                         
Accrued capital expenditures
 
$
193
 
 
 
 
  $
159
 
                         
Financing leases
 
 
9
 
 
 
 
   
 
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
19

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                 
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
   
   
   
 
                                 
Operating Revenue
(1)
 
$
530
 
  $
508
   
$
1,096
 
  $
898
 
                                 
                                 
Operating Expenses
 
 
 
   
   
 
 
   
 
                                 
Purchased
(
excess
gas
(1)
 
 
(3
)
   
(6
)  
 
9
 
   
8
 
                                 
Other energy-related purchases
 
 
1
 
   
2
   
 
1
 
   
2
 
                                 
Other operations and maintenance:
 
 
 
   
   
 
 
   
 
                                 
Affiliated suppliers
 
 
54
 
   
38
   
 
93
 
   
69
 
                                 
Other
 
 
156
 
   
151
   
 
293
 
   
285
 
                                 
Depreciation and amortization
 
 
92
 
   
88
   
 
182
 
   
150
 
                                 
Other taxes
 
 
38
 
   
25
   
 
78
 
   
52
 
                                 
Impairment of assets and other charges
 
 
13
 
   
126
   
 
13
 
   
126
 
                                 
Gains on sales of assets
 
 
 
   
(6
)  
 
 
   
(51
)
                                 
                                 
Total operating expenses
 
 
351
 
   
              418
   
 
              669
 
   
641
 
                                 
                                 
Income from continuing operations
 
 
              179
 
   
90
   
 
427
 
   
              257
 
                                 
                                 
Earnings from equity method investees
 
 
9
 
   
11
   
 
22
 
   
31
 
                                 
Other income
 
 
44
 
   
16
   
 
85
 
   
33
 
                                 
Interest and related charges
(1)
 
 
86
 
   
46
   
 
173
 
   
50
 
                                 
                                 
Income from continuing operations before income tax expense
 (
benefit
)
 
 
146
 
   
71
   
 
361
 
   
271
 
                                 
Income tax expense (benefit)
 
 
23
 
   
(13
)  
 
66
 
   
31
 
                                 
                                 
Net
i
ncome from continuing operations
 
 
123
 
   
84
   
 
295
 
   
240
 
                                 
Net income from discontinued operations
 
 
26
 
   
45
   
 
80
 
   
102
 
                                 
                                 
Net income including noncontrolling interest
 
 
149
 
   
129
   
 
375
 
   
342
 
                                 
Noncontrolling interest
 
 
30
 
   
46
   
 
66
 
   
79
 
                                 
                                 
Net Income attributable to Dominion Energy Gas
 
$
119
 
  $
83
   
$
309
 
  $
263
 
                                 
 
 
 
 
 
 
(1)
See Note 20 for amounts attributable to related parties.
 
 
 
 
 
 
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
20

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
 
 
 
 
 
 
 
                                 
Net income
 
including noncontrolling interest
 
$
149
 
  $
             129
   
$
             375
 
  $
             342
 
                                 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
                                 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(24
)
   
(20
)  
 
(51
)
   
(6
)
                                 
Changes in unrecognized pension and other postretirement benefit costs
(2)
 
 
29
 
   
   
 
29
 
   
 
                                 
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
                                 
Net derivative (gains) losses-hedging activities
(3)
 
 
(2
)
   
13
   
 
1
 
   
11
 
                                 
Net pension and other postretirement benefit costs
(4)
 
 
2
 
   
1
   
 
3
 
   
2
 
                                 
                                 
Total other comprehensive income (loss)
 
 
5
 
   
(6
)  
 
(18
)
   
7
 
                                 
                                 
Comprehensive income including noncontrolling interest
 
 
154
 
   
123
   
 
357
 
   
349
 
                                 
Comprehensive income attributable to noncontrolling interest
 
 
30
 
   
46
   
 
65
 
   
80
 
                                 
Comprehensive income
 
attributable to Dominion Energy Gas
 
$
             124
 
  $
77
   
$
292
 
  $
269
 
                                 
(1)
Net of $8 million and $7 million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $17 million and $2 million tax for the six months ended June 30, 2019 and 2018, respectively.
(2)
Net of $(11) million and $— million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $(11) million and $— million tax for the six months ended June 30, 2019 and 2018, respectively.
(3)
Net of $— million and $(5) million tax for the three months ended June 30, 2019 and 2018, respectively, and net of $— million and $(4) million tax for the six months ended June 30, 2019 and 2018, respectively.
(4)
Net of $— million tax for both the three months ended June 30, 2019 and 2018 and net of $(1) million tax for both the six months ended June 30, 2019 and 2018.
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
21

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
    June 30, 2019    
 
 
    December 31, 2018
(1)
    
 
             
(millions)
 
 
 
 
ASSETS
 
 
 
   
 
Current Assets
 
 
 
   
 
Cash and cash equivalents
 
$
183
 
  $
99
 
Customer receivables (less allowance for doubtful accounts of less than $1 at both dates)
 
 
160
 
   
187
 
Other receivables
(2)
 
 
13
 
   
18
 
Affiliated receivables
 
 
335
 
   
319
 
Affiliated notes receivable
 
 
716
 
   
819
 
Inventories
 
 
120
 
   
97
 
Gas imbalances
(2)
 
 
57
 
   
187
 
Current assets of discontinued operations
 
 
326
 
   
444
 
Other
(2)
 
 
84
 
   
178
 
                 
Total current assets
 
 
1,994
 
   
2,348
 
Investments
 
 
 
   
 
Affiliated notes receivable
 
 
4,565
 
   
4,317
 
Investments in equity method affiliates
 
 
331
 
   
339
 
                 
Total investments
 
 
4,896
 
   
4,656
 
Property, Plant and Equipment
 
 
 
   
 
Property, plant and equipment
 
 
14,941
 
   
14,700
 
Accumulated depreciation and amortization
 
 
(3,379
)
   
(3,219
)
                 
Total property, plant and equipment, net
 
 
11,562
 
   
11,481
 
                 
Deferred Charges and Other Assets
 
 
 
   
 
Goodwill
 
 
1,471
 
   
1,471
 
Pension and other postretirement benefit assets
(2)
 
 
781
 
   
705
 
Operating lease assets
 
 
39
 
   
 
Other
 
 
211
 
   
241
 
                 
Total deferred charges and other assets
 
 
2,502
 
   
2,417
 
Noncurrent assets of discontinued operations
 
 
6,051
 
   
5,849
 
                 
Total assets
 
$
             27,005
 
  $
             26,751
 
                 
(1)
Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
(2)
See Note 20 for amounts attributable to related parties.
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
22

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS—(Continued)
(Unaudited)
 
                 
 
        June 30, 2019        
 
 
        December 31, 2018
(1)
        
 
             
(millions)
 
 
 
 
                 
LIABILITIES AND EQUITY
 
 
 
   
 
                 
Current Liabilities
 
 
 
   
 
                 
Securities due within one year
 
$
450
 
  $
748
 
                 
Credit facility borrowings
 
 
 
   
73
 
                 
Short-term debt
 
 
250
 
   
10
 
                 
Accounts payable
 
 
56
 
   
76
 
                 
Payables to affiliates
 
 
69
 
   
124
 
                 
Affiliated current borrowings
 
 
3,086
 
   
3,097
 
                 
Current liabilities of discontinued operations
 
 
1,030
 
   
1,273
 
                 
Other
(2)
 
 
295
 
   
354
 
                 
                 
Total current liabilities
 
 
5,236
 
   
5,755
 
                 
                 
Long-Term Debt
 
 
7,031
 
   
7,022
 
                 
Affiliated Long-Term Debt
 
 
395
 
   
 
                 
Deferred Credits and Other Liabilities
 
 
 
   
 
                 
Deferred income taxes and investment tax credits
 
 
1,338
 
   
1,330
 
                 
Regulatory liabilities
 
 
810
 
   
765
 
                 
Operating lease liabilities
 
 
32
 
   
 
                 
Other
 
 
158
 
   
118
 
                 
                 
Total deferred credits and other liabilities
 
 
2,338
 
   
2,213
 
                 
Noncurrent liabilities of discontinued operations
 
 
3,177
 
   
2,896
 
                 
                 
Total liabilities
 
 
18,177
 
   
17,886
 
                 
                 
Commitments and Contingencies (see Note 18)
 
 
 
   
 
                 
Equity
 
 
 
   
 
                 
Predecessor equity
 
 
2,859
 
   
1,804
 
                 
Membership interests
 
 
4,729
 
   
4,566
 
                 
Accumulated other comprehensive loss
 
 
(186
)
   
(169
)
                 
                 
Total members’ equity
 
 
7,402
 
   
6,201
 
                 
                 
Noncontrolling interest
 
 
1,426
 
   
2,664
 
                 
                 
Total equity
 
 
8,828
 
   
8,865
 
                 
                 
Total liabilities and equity
 
$
27,005
 
  $
26,751
 
                 
 
 
 
 
 
 
 
(1)
Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date.
 
 
 
 
 
 
 
(2)
See Note 20 for amounts attributable to related parties.
 
 
 
 
 
 
 
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
23

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
QUARTER-TO-DATE
                                                 
 
Predecessor
Equity
 
 
Membership
Interests
 
 
AOCI
 
 
Total
Members’
Equity
 
 
Noncontrolling
Interests
 
 
Total
 
                                     
(millions)
 
   
   
   
   
   
 
                                                 
March 31, 2018
  $
1,371
    $
4,443
    $
(113
)   $
5,701
    $
3,005
    $
8,706
 
                                                 
                                                 
Net income
   
68
     
15
     
     
83
     
46
     
129
 
                                                 
Remeasurement of noncontrolling interest in Dominion Energy Midstream
   
375
     
     
     
375
     
(375
)    
 
                                                 
Dividends and distributions
   
(21
)    
(12
)    
     
(33
)    
(35
)    
(68
)
                                                 
Distributions to noncontrolling interest
   
(4
)    
     
     
(4
)    
4
     
 
                                                 
Other comprehensive loss, net of tax
   
(1
)
   
     
(5
)    
(6
)    
     
(6
)
                                                 
                                                 
June 30, 2018
  $
1,788
    $
4,446
    $
(118
)   $
6,116
    $
2,645
    $
8,761
 
                                                 
   
     
     
     
     
     
 
                                                 
March 31, 2019
  $
2,938
    $
4,682
    $
(191
)   $
7,429
    $
1,432
    $
8,861
 
                                                 
                                                 
Net income
 
 
72
 
 
 
47
 
 
 
 
 
 
119
 
 
 
30
 
 
 
149
 
                                                 
Dividends and distributions
 
 
(153
)
 
 
 
 
 
 
 
 
(153
)
 
 
(36
)
 
 
(189
)
                                                 
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
5
 
 
 
5
 
 
 
 
 
 
 
5
 
Other
 
 
2
 
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
2
 
                                                 
                                                 
June 30, 2019
 
$
   2,859
 
 
$
   4,729
 
 
$
 
 
 
 
 
 
 
 
 
 
(186
)
 
$
7,402
 
 
$
1,426
 
 
$
8,828
 
                                                 
   
YEAR-TO-DATE
 
                                     
 
Predecessor
Equity
 
 
Membership
Interests
 
 
AOCI
 
 
Total
Members’
Equity
 
 
Noncontrolling
Interests
 
 
Total
 
                                     
(millions)
 
   
   
   
   
   
 
                                                 
December 31, 2017
  $
1,361
    $
4,261
    $
(98
)   $
5,524
    $
2,971
    $
8,495
 
                                                 
                                                 
Cumulative-effect of changes in accounting principles
   
     
29
     
(26
)    
3
     
     
3
 
                                                 
Net income
   
82
     
181
     
     
263
     
79
     
342
 
                                                 
Sale of Dominion Energy Midstream common units
   
     
     
     
     
4
     
4
 
                                                 
Remeasurement of noncontrolling interest in Dominion Energy Midstream
   
375
     
     
     
375
     
(375
)    
 
                                                 
Dividends and distributions
   
(30
)    
(25
)    
     
(55
)    
(60
)    
(115
)
                                                 
Distributions to noncontrolling interest
   
(25
)    
     
     
(25
)    
25
     
 
                                                 
Equity contributions from Dominion Energy
   
25
     
     
     
25
     
     
25
 
                                                 
Other comprehensive income, net of tax
   
     
     
6
     
6
     
1
     
7
 
                                                 
                                                 
June 30, 2018
  $
1,788
    $
4,446
    $
(118
)   $
6,116
    $
2,645
    $
8,761
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
  $
1,804
    $
4,566
    $
(169
)   $
6,201
    $
2,664
    $
8,865
 
                                                 
                                                 
Net income
 
 
146
 
 
 
163
 
 
 
 
 
 
309
 
 
 
66
 
 
 
375
 
                                                 
Acquisition of public interest in Dominion Energy Midstream
 
 
1,181
 
 
 
 
 
 
 
 
 
1,181
 
 
 
(1,221
)
 
 
(40
)
                                                 
Dividends and distributions
 
 
(266
)
 
 
 
 
 
 
 
 
(266
)
 
 
(82
)
 
 
(348
)
                                                 
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(17
)
 
 
(17
)
 
 
(1
)
 
 
(18
)
O
ther
 
 
(6
)
 
 
 
 
 
 
 
 
 
(6
)
 
 
 
 
 
(6
)
                                                 
                                                 
June 30, 2019
 
$
2,859
 
 
$
4,729
 
 
$
 
 
 
 
 
 
 
 
 
186
   
$
7,402
 
 
$
1,426
 
 
$
       8,828
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
24

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
 
                2019                
 
 
                2018                
 
             
(millions)
 
 
 
 
                 
Operating Activities
 
 
 
   
 
                 
Net income including noncontrolling interest
 
$
375
 
  $
342
 
                 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   
 
                 
Depreciation and amortization
 
 
227
 
   
193
 
                 
Deferred income taxes and investment tax credits
 
 
39
 
   
195
 
                 
Charge related to a voluntary retirement program
 
 
73
 
   
 
                 
Impairment of assets and other charges
 
 
13
 
   
129
 
                 
Gains on sales of assets
 
 
 
   
(44
)
                 
Other adjustments
 
 
15
 
   
9
 
                 
Changes in:
 
 
 
   
 
                 
Accounts receivable
 
 
88
 
   
27
 
                 
Affiliated receivables and payables
 
 
(48
)
   
(107
)
                 
Inventories
 
 
(31
)
   
(28
)
                 
Prepayments
 
 
59
 
   
(100
)
                 
Accounts payable
 
 
(105
)
   
(98
)
                 
Accrued interest, payroll and taxes
 
 
(55
)
   
(49
)
                 
Customer deposits
 
 
(81
)
   
110
 
                 
Pension and other postretirement benefits
 
 
(64
)
   
(71
)
                 
Other operating assets and liabilities
 
 
(45
)    
17
 
                 
                 
Net cash provided by operating activities
 
 
460
 
   
525
 
                 
                 
Investing Activities
 
 
 
   
 
                 
Plant construction and other property additions
 
 
(341
)
   
(541
)
                 
Proceeds from assignments of shale development rights
 
 
 
   
44
 
                 
Other
 
 
(12
)
   
(8
)
                 
                 
Net cash used in investing activities
 
 
(353
)
   
(505
)
                 
                 
Financing Activities
 
 
 
   
 
                 
Issuance (repayment) of short-term debt, net
 
 
240
 
   
(441
)
                 
Issuance (repayment) of affiliated current borrowings, net
 
 
(11
)
   
107
 
                 
Issuance of long-term debt
 
 
 
   
750
 
                 
Repayment of long-term debt
 
 
(300
)
   
(250
)
                 
Issuance of affiliated long-term debt
 
 
395
 
 
 
 
                 
Credit facility borrowings
 
 
 
   
73
 
                 
Repayment of credit facility borrowings
 
 
(73
)
 
 
 
                 
Net proceeds from sale of Dominion Energy Midstream Common Units
 
 
 
   
4
 
                 
Contributions from Dominion Energy
 
 
 
   
25
 
                 
Dividends and distributions
 
 
(348
)
   
(124
)
                 
Other
 
 
(1
)
   
(6
)
                 
                 
Net cash provided by (used in) financing activities
 
 
(98
)
   
138
 
                 
                 
Increase in cash, restricted cash and equivalents
 
 
9
 
   
158
 
                 
Cash, restricted cash and equivalents at beginning of period
 
 
198
 
   
57
 
                 
                 
Cash, restricted cash and equivalents at end of period
 
$
207
 
  $
215
 
                 
                 
Supplemental Cash Flow Information
 
 
 
   
 
                 
Significant noncash investing
and financing 
activities:
(1)
 
 
 
   
 
                 
Accrued capital expenditures
 
$
43
 
  $
56
 
                
Financing leases
   
6
     
 
(1)
See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements.
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
25

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Operations
Dominion Energy, headquartered in Richmond, Virginia, is one of the nation’s largest producers and transporters of energy. Dominion Energy’s operations are conducted through various subsidiaries, including Virginia Power and Dominion Energy Gas. Virginia Power is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and northeastern North Carolina. Following the Dominion Energy Gas Restructuring, Dominion Energy Gas is a holding company that conducts business activities through regulated interstate natural gas transmission and underground storage systems primarily in the eastern and Rocky Mountain regions of the U.S., as well as the Cove Point LNG Facility and Liquefaction Facility. In addition, other Dominion Energy subsidiaries provide merchant generation, natural gas distribution services in the Rocky Mountain region of the U.S, regulated gas transportation and distribution operations in Ohio and
gas gathering and processing activities primarily in West Virginia, Ohio and
 
Pennsylvania. The SCANA Combination was completed in January 2019. See Note 3 for a description of operations acquired in the SCANA Combination and for further discussion of the Dominion Energy Gas Restructuring.
Note 2. Significant Accounting Policies
As permitted by the rules and regulations of the SEC, the Companies’ accompanying unaudited Consolidated Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in the Companies’ Annual Report on Form
 
10-K
 
for the year ended December
 
31,
 
2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
In the Companies’ opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position at June 30, 2019, their results of operations and changes in equity for the three and six months ended June 30, 2019 and 2018 and their cash flows for the six months ended June 30, 2019 and 2018. Such adjustments are normal and recurring in nature unless otherwise noted.
The Companies make certain estimates and assumptions in preparing their Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.
The Companies’ accompanying unaudited Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts, those of their respective majority-owned subsidiaries and
non-wholly-owned
entities in which they have a controlling financial interest. For certain partnership structures, income is allocated based on the liquidation value of the underlying contractual arrangements. At December 31, 2018, Dominion Energy owned the general partner, 60.9% of the common units and 37.5% of the convertible preferred interests in Dominion Energy Midstream, with the public’s ownership interest reflected as noncontrolling interest in Dominion Energy’s Consolidated Financial Statements. In January 2019, Dominion Energy acquired all outstanding partnership interests not owned by Dominion Energy and Dominion Energy Midstream became a wholly-owned subsidiary of Dominion Energy. Subsequent to this activity, as a result of the Dominion Energy Gas Restructuring, Dominion Energy Gas is considered to have acquired all of the outstanding partnership interests of Dominion Energy Midstream and Dominion Energy Midstream has become a wholly-owned subsidiary of Dominion Energy Gas. Also, at June 30, 2019, Dominion Energy owns 50% of the units in and consolidates Four Brothers and Three Cedars. GIP’s ownership interest in Four Brothers and Three Cedars, as well as Terra Nova Renewable Partners’ 33% interest in certain Dominion Energy merchant solar projects, is reflected as noncontrolling interest in Dominion Energy’s Consolidated Financial Statements. Terra Nova Renewable Partners has a future option to buy all or a portion of Dominion Energy’s remaining 67% ownership in the projects upon the occurrence of certain events, none of which had occurred at June 30, 2019 nor are expected to occur in the remainder of 2019.
The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, electric fuel and other energy-related purchases, purchased gas expenses and other factors.
Certain amounts in the Companies’ 2018 Consolidated Financial Statements and Notes have been reclassified to conform to the 2019 presentation for comparative purposes; however, such reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows.
 
26

Amounts disclosed for Dominion Energy are inclusive of Virginia Power and/or Dominion Energy Gas, where applicable. There have been no significant changes from Note 2 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018,
as updated in Current Report on Form 8-K, filed November 18, 2019,
 
with the exception of the items described below.
 
27

Cash, Restricted Cash and Equivalents
The following table provides a reconciliation of the total cash, restricted cash and equivalents reported within the Companies’ Consolidated Balance Sheets to the corresponding amounts reported within the Companies’ Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018:
 
Cash, Restricted Cash and Equivalents
at End of Period
   
Cash, Restricted Cash and Equivalents at 
Beginning of Period
 
 
June 30,
2019
 
 
June 30,
2018
   
December 31,
2018
   
December 31,
2017
 
                         
(millions)
 
 
 
   
   
 
                                 
Dominion Energy
 
 
 
   
     
     
 
                                 
Cash and cash equivalents
 
$
382
 
  $
190
    $
268
    $
120
 
                                 
Restricted cash and equivalents
(1)
 
 
178
 
   
164
     
123
     
65
 
                                 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
560
 
  $
354
    $
391
    $
185
 
                                 
                                 
Virginia Power
 
 
 
   
     
     
 
                                 
Cash and cash equivalents
 
$
17
 
  $
20
    $
29
    $
14
 
                                 
Restricted cash and equivalents
(1)
 
 
8
 
   
10
     
9
     
10
 
                                 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
25
 
  $
30
    $
38
    $
24
 
                                 
                                 
Dominion Energy Gas
 
 
 
   
     
     
 
                                 
Cash and cash equivalents
(2)
 
$
195
 
  $
70
    $
108
    $
18
 
                                 
Restricted cash and equivalents
(1)
 
 
12
 
   
145
     
90
     
39
 
                                 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
         207
 
  $
         215
    $
         198
    $
             57
 
                                 
(1)
Restricted cash and equivalent balances are presented within other current assets in the Companies’ Consolidated Balance Sheets.
(2)
At June 30, 2019, June 30, 2018, December 31, 2018 and December 31, 2017, Dominion Energy Gas had $
12
 million, $
3
 million, $
9
 million and $
3
 million of cash and cash equivalents included in current assets of discontinued operations, respectively.
Property, Plant and Equipment
In January 2019, Virginia Power committed to a plan to retire certain automated meter reading infrastructure associated with its electric operations before the end of its useful life and replace such equipment with more current AMI technology. As a result, Virginia Power recorded a charge of $160 million ($119 million
after-tax)
in the first quarter of 2019, included in impairment of assets and other charges in its Consolidated Statements of Income. This charge is considered a component of Virginia Power’s base rates deemed recovered under the GTSA, subject to review as discussed in Note 13 to the Consolidated Financial Statements in Virginia Power’s Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
In March 2019, Virginia Power committed to retire certain electric generating units before the end of their useful lives and completed the retirement of certain units at
six
facilities representing
1,292
MW of electric generating capacity, which had previously been placed in cold reserve. An additional unit at Possum Point power station will be retired after it meets its capacity obligation to PJM in 2021. As a result, Virginia Power recorded a charge of $369 million ($275 million
after-tax)
in the first quarter of 2019, primarily included in impairment of assets and other charges in its Consolidated Statements of Income. This charge is considered a component of Virginia Power’s base rates deemed recovered under the GTSA, subject to review as discussed in Note 13 to the Consolidated Financial Statements in Virginia Power’s Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 201
9
.
In May 2019, Virginia Power abandoned a coal rail project at its Mt. Storm generating facility. As a result, Virginia Power recorded a charge of $62 million ($46 million
after-tax)
in the second quarter of 2019, included in impairment of assets and other charges in its Consolidated Statements of Income.
Leases
The Companies lease certain assets including vehicles, real estate, office equipment and other operational assets under both operating and finance leases. For the Companies’ operating leases, rent expense is recognized on a straight-line basis over the term of the lease agreement, subject to regulatory framework. Rent expense associated with operating leases, short-term leases and variable leases is primarily recorded in other operations and maintenance expense in the Companies’ Consolidated Statements of Income. Rent expense associated with finance leases results in the separate presentation of interest expense on the lease liability and amortization expense of the related
right-of-use
asset in the Companies’ Consolidated Statements of Income.
 
28

Certain of the Companies’ leases include one or more options to renew, with renewal terms that can extend the lease from
one
to
70
years
. The exercise of renewal options is solely at the Companies’ discretion and is included in the lease term if the option is reasonably certain to be exercised. A
right-of-use
asset and corresponding lease liability for leases with original lease terms of one year or less are not included in the Consolidated Balance Sheets, unless such leases contain renewal options that the Companies are reasonably certain will be exercised. Additionally, certain of the Companies’ leases contain escalation clauses whereby payments are adjusted for consumer price or other indices or contain fixed dollar or percentage increases. The Companies also have leases with variable payments based upon usage of, or revenues associated with, the leased assets.
The determination of the discount rate utilized has a significant impact on the calculation of the present value of the lease liability included in the Companies’ Consolidated Balance Sheets. For the Companies’ fleet of leased vehicles, the discount rate is equal to the prevailing borrowing rate earned by the lessor. For the Companies’ remaining leased assets, the discount rate implicit in the lease is generally unable to be determined from a lessee perspective. As such, the Companies use internally-developed incremental borrowing rates as a discount rate in the calculation of the present value of the lease liability. The incremental borrowing rates are determined based on an analysis of the Companies’ publicly available unsecured borrowing rates, adjusted for a collateral discount, over various lengths of time that most closely correspond to the Companies’ lease maturities.
In addition, Dominion Energy acts as lessor under certain power purchase agreements in which the counterparty or counterparties purchase substantially all of the output of certain solar facilities. These leases are considered operating in nature. For such leasing arrangements, rental revenue and an associated accounts receivable are recorded when the monthly output of the solar facility is determined. Depreciation on these solar facilities is computed on a straight-line basis over an estimated useful life of
30
years
.
New Accounting Standards
Leases
In February 2016, the FASB issued revised accounting guidance for the recognition, measurement, presentation and disclosure of leasing arrangements. The update requires that a liability and corresponding
right-of-use
asset are recorded on the balance sheet for all leases, including those leases classified as operating leases, while also refining the definition of a lease. In addition, lessees are required to disclose key information about the amount, timing and uncertainty of cash flows arising from leasing arrangements. Lessor accounting remains largely unchanged.
The guidance became effective for the Companies’ interim and annual reporting periods beginning January 1, 2019. The Companies adopted this revised accounting guidance using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the date of adoption. Under this approach, the Companies utilized the transition practical expedient to maintain historical presentation for periods before January 1, 2019. The Companies also applied the other practical expedients, which required no reassessment of whether existing contracts are or contain leases, no reassessment of lease classification for existing leases and no reassessment of existing or expired land easements that were not previously accounted for as leases. In connection with the adoption of this revised accounting guidance, Dominion Energy, Virginia Power and Dominion Energy Gas recorded $504 million, $209 million and $64 million, respectively, of offsetting
right-of-use
assets and liabilities for operating leases in effect at the adoption date. As a result of the Dominion Energy Gas Restructuring, $25 million of such
right-or-use
assets and liabilities for operating leases recorded at Dominion Energy Gas were associated with discontinued operations. See Note 15 for additional information.
 
29

Note 3. Acquisitions and Dispositions
Acquisition of SCANA
In January 2019, Dominion Energy issued 95.6 million shares of Dominion Energy common stock, valued at $6.8 billion, representing 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock, in connection with the completion of the SCANA Combination. SCANA, through its regulated subsidiaries, is primarily engaged in the generation, transmission and distribution of electricity in the central, southern and southwestern portions of South Carolina and in the distribution of natural gas in North Carolina and South Carolina. In addition, SCANA markets natural gas to retail customers in the southeast U.S. Following completion of the SCANA Combination, SCANA operates as a wholly-owned subsidiary of Dominion Energy. In addition, SCANA’s debt totaled $6.9 billion at closing. The SCANA Combination expanded Dominion Energy’s portfolio of regulated electric generation, transmission and distribution and regulated natural gas distribution infrastructure operations.
See Note 3 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18,
 
2019, 
and Notes 13, 17 and 18 in this report for more information on the SCANA Combination, including merger approval and conditions, information on assets and liabilities acquired, significant financing transactions, regulatory matters and proceedings, legal proceedings and commitments and contingencies.
Merger Approval and Conditions
Merger Approval
The SCANA Combination required approval of SCANA’s shareholders, FERC, the North Carolina Commission, the South Carolina Commission, the Georgia Public Service Commission and the NRC and clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. All such approvals were received prior to closing of the SCANA Combination.
Various parties filed petitions for rehearing or reconsideration of the SCANA Merger Approval Order. In January 2019, the South Carolina Commission issued an order (1) granting the request of various parties and finding that DESC was imprudent in its actions by not disclosing material information to the South Carolina Office of Regulatory Staff and the South Carolina Commission with regard to costs incurred subsequent to March 2015 and (2) denying the petitions for rehearing or consideration as to other issues raised in the various petitions. The deadline to appeal the SCANA Merger Approval Order and the order on rehearing expired in April 2019, and no party has sought appeal.
Refunds to Customers
As a condition to the SCANA Merger Approval Order, DESC will provide refunds and restitution of $2.0 billion over 20 years with capital support from Dominion Energy.
In September and October 2017, DESC received proceeds totaling $1.1 billion in full satisfaction of its share of a settlement agreement among DESC, Santee Cooper and Toshiba Corporation in connection with Westinghouse and WECTEC, both wholly-owned subsidiaries of Toshiba Corporation and responsible for the engineering and construction of the NND Project, filing for bankruptcy. The purchase price allocation below includes a previously established regulatory liability at DESC totaling $1.1 billion, of which $67 million is considered current, associated with the monetization of the bankruptcy settlement with Toshiba Corporation. In accordance with the terms of the SCANA Merger Approval Order, this regulatory liability, net of amounts that may be required to satisfy any liens against NND Project property, totaling $1.0 billion will be refunded to DESC electric service customers over a
20-year
period ending in 2039.
Additionally, in the first quarter of 2019, DESC recorded a reduction in operating revenue and a corresponding regulatory liability of $1.0 billion, of which $137 million is considered current, representing a refund of amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated
11-year
period. As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a $756 million
after-tax
charge.
NND Project
As a condition to the SCANA Merger Approval Order, DESC committed to excluding from rate recovery $2.4 billion of costs related to the NND Project and $180 million of costs associated with the purchase of the Columbia Energy Center power station. Regulatory assets included in SCANA’s historical balance sheet at December 31, 2018 reflected these disallowances.
The remaining regulatory asset associated with the NND Project of $2.8 billion, of which $138 million is considered current, will be collected over a
20-year
period, including a return on investment. In January 2019, DESC filed the NND Project rider in accordance with the terms of the SCANA Merger Approval Order for rates effective in February 2019 for DESC’s retail electric customers. The South Carolina Commission approved this filing in January 2019.
 
30

Other Terms and Conditions
 
DESC will not file an application for a general rate case with the South Carolina Commission with a requested effective date earlier than January 2021;
 
 
 
 
 
 
 
 
PSNC will not file an application for a general rate case with the North Carolina Commission with a requested effective date earlier than April 2021;
 
 
 
 
 
 
 
 
Dominion Energy has committed to increasing SCANA’s historical level of corporate contributions to charities by $
1
 million per year over the next
five years
;
 
 
 
 
 
 
 
 
Dominion Energy will maintain DESC and PSNC’s headquarters in Cayce, South Carolina and Gastonia, North Carolina, respectively; and
 
 
 
 
 
 
 
 
Dominion Energy will seek to minimize reductions in local employment by allowing some DES employees supporting shared and common services functions and activities to be located in Cayce, South Carolina where it makes economic and practical sense to do so.
 
 
 
 
 
 
 
Purchase Price Allocation
SCANA’s assets acquired and liabilities assumed have been measured at estimated fair value at closing and are included in the Southeast Energy operating segment, which was established following the closing of the SCANA Combination. The majority of the operations acquired are subject to the rate setting authority of FERC and the North and South Carolina Commissions and are therefore accounted for pursuant to ASC 980,
Regulated Operations
. The fair values of SCANA’s assets and liabilities subject to rate-setting and cost recovery provisions provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. As such, the fair values of these assets and liabilities equal their carrying values. Accordingly, neither the assets and liabilities acquired, nor the unaudited pro forma financial information, reflect any adjustments related to these amounts.
The fair value of SCANA’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions discussed above and the fair values of SCANA’s investments accounted for under the equity method have been determined using the income approach and the market approach. The valuation of SCANA’s long-term debt is considered a Level 2 fair value measurement. All other valuations are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future market prices.
The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is reflected as goodwill. The goodwill reflects the value associated with enhancing Dominion Energy’s portfolio of regulated operations in the growing southeast region of the U.S. The goodwill recognized is not deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.
 
31

The table below shows the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at closing, including adjustments related to income taxes identified during the first and second quarters of 2019 as discussed in Note 5. The allocation is subject to change during the measurement period as additional information is obtained about the facts and circumstances that existed at closing. Any material adjustments to provisional amounts identified during the measurement period will be recognized and disclosed in the reporting period in which the adjustment amounts are determined. Certain
tax-related
amounts in the allocation of the purchase price below are preliminary and may change as Dominion Energy completes its analysis and review of applicable tax matters.
         
       
 
                    Amount                    
 
       
(millions)
 
 
         
Total current assets
(1)
 
 
$                            
1,772
 
         
Investments
 
 
224
 
         
Property, plant and equipment
(2)
 
 
11,006
 
         
Goodwill
 
 
2,574
 
         
Regulatory assets
(3)
 
 
3,940
 
         
Other deferred charges and other assets, including intangible assets
 
 
430
 
         
Total Assets
 
 
19,946
 
         
Total current liabilities
 
 
1,515
 
         
Long-term debt
 
 
6,707
 
         
Deferred income taxes
 
 
1,118
 
         
Regulatory liabilities
 
 
2,668
 
         
Other deferred credits and other liabilities
(4)
 
 
1,099
 
         
Total Liabilities
 
 
13,107
 
         
Total purchase price
(5)
 
 
$                            
6,839
 
 
 
 
 
 
 
 
(1)
Includes $389 million of cash, restricted cash and equivalents, of which $115 million is considered restricted.
 
 
 
 
 
 
 
(2)
Includes $105 million of certain property, plant and equipment associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. As a result, Dominion Energy’s Consolidated Statement of Income for the six months ended June 30, 2019 includes a charge of $105 million ($79 million
after-tax),
included in impairment of assets and other charges.
 
 
 
 
 
 
 
(3)
Includes $264 million of certain income
tax-related
regulatory assets associated with the NND Project for which Dominion Energy committed to forgo recovery in accordance with the SCANA Merger Approval Order. See Note 5 for additional information.
 
 
 
 
 
 
 
(4)
Includes a $379 million pension and other postretirement benefit liability.
 
 
 
 
 
 
 
(5)
Includes stock-based compensation awards with an estimated fair value of $21 million.
 
 
 
 
32

See Note 3 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019,
 
for a description of assets acquired and liabilities assumed in connection with the SCANA Combination.
Results of Operations and Unaudited Pro Forma Information
The impact of the SCANA Combination on Dominion Energy’s operating revenue and net income attributable to Dominion Energy in the Consolidated Statements of Income was an increase of $909 million and a decrease of $102 million for the three months ended June 30, 2019, respectively, and an increase of $1.1 billion and a decrease of $1.2 billion for the six months ended June 30, 2019, respectively.
Dominion Energy incurred merger and integration-related costs of $443 million and $567 million in the Consolidated Statements of Income for the three and six months ended June 30, 2019, respectively. These amounts for both the three and six months ended June 30, 2019 include $423 million for a charge related to a voluntary retirement program. See Note 21 for additional information. Of the remaining merger and integration-related costs, $20 million and $135 million was recorded in other operations and maintenance expense in the Consolidated Statements of Income for the three and six months ended June 30, 2019, respectively, and $9 million was recorded in interest and related charges in the Consolidated Statements of Income for the six months ended June 30, 2019. There were
no
such charges recorded in interest and related charges for the three months ended June 30, 2019. During the three and six months ended June 30, 2018, Dominion Energy incurred merger and integration-related costs of $10 million and $14 million, respectively, recorded in other operations and maintenance expense in the Consolidated Statements of Income. These costs consist of professional fees, the charitable contribution commitment described above, employee-related expenses, certain financing costs and other miscellaneous costs.
The following unaudited pro forma financial information reflects the consolidated results of operations of Dominion Energy assuming the SCANA Combination had taken place on January 1, 2018. The unaudited pro forma financial information has been presented for illustrative purposes only and may change as Dominion Energy finalizes its valuation of certain assets acquired and liabilities assumed at the acquisition date. The unaudited pro forma financial information is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of the combined company.
                                 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
(1)
 
 
2018
(1)
   
2019
(1)
 
 
2018
(1)
 
                         
(millions, except EPS)
 
 
 
   
   
 
                                 
Operating Revenue
 
$
3,970
 
  $
3,910
   
$
8,835
 
  $
8,546
 
                                 
Net income attributable to Dominion Energy
 
 
392
 
   
456
   
 
962
 
   
1,131
 
                                 
Earnings Per Common Share – Basic
 
$
0.49
 
  $
0.61
   
$
1.21
 
  $
1.51
 
                                 
Earnings Per Common Share – Diluted
 
$
0.47
 
  $
0.61
   
$
1.19
 
  $
1.51
 
 
 
 
 
 
 
 
 
(1)
Amounts include adjustments for
non-recurring
costs directly related to the SCANA Combination.
 
 
 
Dominion Energy Gas Restructuring
The Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control. As a result, Dominion Energy Gas’ basis in DCPI and DMLPHCII, which includes the general partner of Dominion Energy Midstream, a controlling
75
% interest in Cove Point, DECG, Dominion Energy Questar Pipeline, a
50
% noncontrolling interest in White River Hub and a
25.93
% noncontrolling interest in Iroquois, is equal to Dominion Energy’s cost basis in the assets and liabilities of such entities since the applicable inception dates of common control. In
November 2019
, following completion of the Dominion Energy Gas Restructuring, DCPI and DMLPHCII are wholly-owned subsidiaries of Dominion Energy Gas and therefore are consolidated by Dominion Energy Gas. The accompanying
Consolidated Financial Statements and related Notes of
Dominion Energy Gas have been retrospectively adjusted to include the historical results and financial position of DCPI and DMLPHCII. The
 
25
% interest in Cove Point retained by Dominion Energy and the
 
non-Dominion
 
Energy held interest in Dominion Energy Midstream are reflected as noncontrolling interest.
 
33

The Dominion Energy Gas Restructuring includes the disposition of East Ohio and DGP by Dominion Energy Gas, effective November 2019. This restructuring represents a strategic shift in the operations of Dominion Energy Gas as Dominion Energy Gas’ operations will consist of LNG terminalling and storage and regulated gas transmission and storage operations. As a result, the accompanying 
Consolidated Financial Statements and Notes of Dominion Energy Gas
have been retrospectively adjusted to include the historical results and financial position of East Ohio and DGP as discontinued operations until November 2019, presented within the Corporate and Other segment. As the Dominion Energy Gas Restructuring is considered to be a reorganization of entities under common control, Dominion Energy Gas will reflect the disposition as an equity transaction in November 2019.
The following table represents selected information regarding the results of operations of East Ohio, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
 
 
   
   
 
                                 
Operating revenue
 
$
154
 
  $
164
   
$
383
 
  $
379
 
                                 
Depreciation and amortization
 
 
22
 
   
19
   
 
43
 
   
36
 
                                 
Other
 
operating
expenses
 
 
128
 
   
99
   
 
277
 
   
235
 
                                 
Other income
 
 
18
 
   
18
   
 
37
 
   
36
 
                                 
Interest and related charges
 
 
8
 
   
9
   
 
18
 
   
17
 
                                 
Income tax expense
 
 
3
 
   
11
   
 
17
 
   
26
 
                                 
                                 
Net income from discontinued operations
 
$
11
 
  $
44
   
$
65
 
  $
101
 
                                 
The carrying amounts of major classes of assets and liabilities relating to East Ohio, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets were as follows:
 
  At June 30,  
2019
 
 
 
 
  At December  
31, 2018
 
                   
(millions)
 
 
 
 
 
 
                         
Current assets of discontinued operations
(1)
 
$
303
 
 
 
 
  $
423
 
                         
Investments
 
 
2
 
 
 
 
   
2
 
                         
Property, plant and equipment, net
 
 
3,790
 
 
 
 
   
3,669
 
                         
Regulatory assets
 
 
647
 
 
 
 
   
711
 
                         
Other deferred charges and other assets, including goodwill and intangible assets
 
 
1,418
 
 
 
            
 
   
1,275
 
                         
                         
   Noncurrent assets of discontinued operations
 
 
    5,857
 
 
 
 
   
    5,657
 
                         
Current liabilities of discontinued operations
 
 
1,014
 
 
 
 
   
1,262
 
                         
Long-term debt
 
 
1,552
 
 
 
 
   
1,300
 
                         
Deferred income taxes and investment tax credits
 
 
733
 
 
 
 
   
716
 
                         
Regulatory liabilities
 
 
768
 
 
 
 
   
747
 
                         
Other deferred credits and liabilities
 
 
112
 
 
 
 
   
108
 
                         
                         
   Noncurrent liabilities of discontinued operations
 
 
3,165
 
 
 
 
   
2,871
 
(1) Includes cash and cash equivalents of $4 million and $9 million as of June 30, 2019 and December 31, 2018, respectively.
Capital expenditures and significant noncash items relating to East Ohio included the following:
 
Six Months Ended June 30,
 
 
          2019          
 
 
 
          2018          
 
                 
(millions)
 
   
 
 
                     
Capital expenditures
 
$
168
 
 
  $
157
 
                     
Significant noncash items
 
 
 
 
   
 
   Charge related to a voluntary retirement program
 
 
32
 
 
 
 
 
   Accrued capital expenditures
 
 
8
 
 
   
10
 
 
34
 

The following table represents selected information regarding the results of operations of DGP, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Statements of Income:
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
   
   
   
 
                                 
Operating revenue
 
$
34
 
  $
52
   
$
79
 
  $
102
 
                                 
Depreciation and amortization
 
 
1
 
   
4
   
 
2
 
   
7
 
                                 
Other
operating expenses
 
 
12
 
   
47
   
 
56
 
   
94
 
                                 
Income tax expense
 
 
6
 
   
   
 
6
 
   
 
                                 
                                 
Net income from discontinued operations
 
$
15
 
  $
1
   
$
15
 
  $
1
 
                                 
The carrying amounts of major classes of assets and liabilities relating to DGP, which are reported as discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets were as follows:
 
At June 30,
2019
 
 
At December
31, 2018
 
             
(millions)
 
   
 
                 
Current assets of discontinued operations
(1)
 
$
23
 
  $
21
 
Noncurrent assets of discontinued operations
(2)
 
 
194
 
   
192
 
Current liabilities of discontinued operations
 
 
16
 
   
11
 
                 
Noncurrent liabilities of discontinued operations
 
 
12
 
   
25
 
(1) Includes cash and cash equivalents of $8 million and less than a million dollars as of June 30, 2019 and December 31, 2018, respectively.
(2) Primarily property, plant and equipment, net.
Capital expenditures and significant noncash items of DGP included the following:
 
Six
 Months Ended June 30,
 
 
2019
 
 
2018
 
             
(millions)
 
   
 
Capital expenditures
 
$
         8
 
  $
         3
 
 
35
 

Note 4. Operating Revenue
The Companies’ operating revenue consists of the following:
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
            2019            
 
 
            2018            
   
            2019            
 
 
            2018            
 
                         
(millions)
 
   
   
   
 
                                 
Dominion Energy
   
   
 
 
   
     
 
                                 
Regulated electric sales:
   
   
 
 
   
     
 
                                 
Residential
 
$
1,094
 
  $
788
   
$
1,740
 
  $
1,605
 
                                 
Commercial
 
 
889
 
   
636
   
 
1,385
 
   
1,160
 
                                 
Industrial
 
 
217
 
   
121
   
 
247
 
   
228
 
                                 
Government and other retail
 
 
214
 
   
210
   
 
414
 
   
423
 
                                 
Wholesale
 
 
41
 
   
23
   
 
89
 
   
65
 
                                 
Nonregulated electric sales
 
 
175
 
   
282
   
 
491
 
   
700
 
                                 
Regulated gas sales:
 
 
 
   
   
 
 
   
 
                                 
Residential
 
 
177
 
   
116
   
 
779
 
   
480
 
                                 
Commercial
 
 
73
 
   
34
   
 
264
 
   
137
 
                                 
Other
 
 
25
 
   
1
   
 
63
 
   
11
 
                                 
Nonregulated gas sales
 
 
71
 
   
9
   
 
318
 
   
97
 
                                 
Regulated gas transportation and storage:
 
 
 
   
   
 
 
   
 
                                 
FERC-regulated
 
 
247
 
   
272
   
 
524
 
   
534
 
                                 
State-regulated
 
 
166
 
   
144
   
 
379
 
   
334
 
                                 
Nonregulated gas transportation and storage
 
 
174
 
   
124
   
 
348
 
   
124
 
                                 
Other regulated revenues
(1)
 
 
82
 
   
44
   
 
126
 
   
94
 
                                 
Other nonregulated revenues
(1)(2)
 
 
101
 
   
141
   
 
209
 
   
277
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
3,746
 
   
2,945
   
 
7,376
 
   
6,269
 
                                 
                                 
Other revenues
(3)
 
 
224
 
   
143
   
 
452
 
   
285
 
                                 
                                 
Total operating revenue
 
$
3,970
 
  $
3,088
   
$
7,828
 
  $
6,554
 
                                 
                                 
Virginia Power
 
 
 
   
   
 
 
   
 
                                 
Regulated electric sales:
 
 
 
   
   
 
 
   
 
                                 
Residential
 
$
808
 
  $
788
   
$
1,731
 
  $
1,605
 
                                 
Commercial
 
 
681
 
   
636
   
 
1,317
 
   
1,160
 
                                 
Industrial
 
 
118
 
   
121
   
 
230
 
   
228
 
                                 
Government and other retail
 
 
197
 
   
210
   
 
401
 
   
423
 
                                 
Wholesale
 
 
29
 
   
23
   
 
66
 
   
65
 
                                 
Other regulated revenues
 
 
62
 
   
33
   
 
88
 
   
65
 
                                 
Other nonregulated revenues
(2)
 
 
19
 
   
18
   
 
33
 
   
31
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
1,914
 
   
1,829
   
 
3,866
 
   
3,577
 
                                 
                                 
Other revenues
(2)(3)
 
 
24
 
   
   
 
37
 
   
 
                                 
                                 
Total operating revenue
 
$
1,938
 
  $
1,829
   
$
3,903
 
  $
3,577
 
                                 
                                 
Dominion Energy Gas
 
 
 
   
   
 
 
   
 
                                 
Regulated gas sales - wholesale
 
$
 
  $
   
$
2
 
  $
6
 
                                 
Nonregulated gas sales
(2)
 
 
1
 
   
1
   
 
3
 
   
3
 
                                 
Regulated gas transportation and storage
 
 
306
 
   
303
   
 
646
 
   
616
 
                                 
Nonregulated gas transportation and storage
 
 
173
 
   
124
   
 
348
 
   
124
 
                                 
Management service revenue
(2)
 
 
45
 
   
73
   
 
88
 
   
132
 
                                 
Other regulated revenues
(
1
)
 
 
3
 
   
6
   
 
6
 
   
14
 
                                 
Other nonregulated revenues
(1)(2)
 
 
1
 
   
   
 
1
 
   
1
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
529
 
   
507
   
 
1,094
 
   
896
 
                                 
                                 
Other revenues
 
 
1
 
   
1
   
 
2
 
   
2
 
                                 
                                 
Total operating revenue
 
$
530
 
  $
508
   
$
1,096
 
  $
898
 
                                 
(1)
Amounts above include $42 million
and $
2
 million 
for the three months ended June 30, 2019, $33 million
and $
3
million 
for the three months ended June 30, 2018, $93 
and $
3
 
million for the six months ended June 30, 2019 and $63 million
and $
6
 million 
for the six months ended June 30, 2018 primarily consisting of NGL sales at Dominion Energy
 and Dominion Energy Gas
, respectively, which are considered to be goods transferred at a point in time.
(2)
See Notes 10 and 20 for amounts attributable to related parties and affiliates.
(3)
Amounts above include alternative revenue of $21 million and $35 million at Dominion Energy and $18 million and $26 million at Virginia Power for the three and six months ended June 30, 2019, respectively.
 
36

The table below discloses the aggregate amount of the transaction price allocated to fixed-price performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period and when the Companies expect to recognize this revenue. These revenues relate to contracts containing fixed prices where the Companies will earn the associated revenue over time as they stand ready to perform services provided. This disclosure does not include revenue related to performance obligations that are part of a contract with original durations of one year or less. In addition, this disclosure does not include expected consideration related to performance obligations for which the Companies elect to recognize revenue in the amount they have a right to invoice.
Revenue expected to be recognized on multi-year
contracts in place at June 30, 2019
 
      2019      
 
 
    2020      
 
 
      2021      
 
 
      2022      
 
 
      2023      
 
 
Thereafter
 
 
      Total      
 
                                           
(millions)
 
   
   
   
   
   
   
 
                                                         
Dominion Energy
  $
808
    $
1,561
    $
1,461
    $
1,343
    $
1,173
    $
13,570
    $
19,916
 
                                                         
Virginia Power
   
11
     
3
     
1
     
     
     
     
15
 
                                                         
Dominion Energy Gas
   
854
     
1,666
     
1,566
     
1,427
     
1,234
     
13,879
     
20,626
 
Contract assets represent an entity’s right to consideration in exchange for goods and services that the entity has transferred to a customer. At June 30, 2019 and December 31, 2018, Dominion Energy’s contract asset balances were $37 million and $42 million, respectively. Dominion Energy Gas’ contract asset balances were $51 million and $58 million at June 30, 2019 and December 31, 2018, respectively. Dominion Energy and Dominion Energy Gas’ contract assets are recorded in other deferred charges and other assets in the Consolidated Balance Sheets. Contract liabilities represent an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration, or the amount that is due, from the customer. At June 30, 2019 and December 31, 2018, Dominion Energy’s contract liability balances were $87 million and $106 million, respectively. At June 30, 2019 and December 31, 2018, Virginia Power’s contract liability balances were $26 million and $22 million, respectively. At June 30, 2019 and December 31, 2018, Dominion Energy Gas’ contract liability balances were $34 million and $49 million, respectively. During the six months ended June 30, 2019, Dominion Energy, Virginia Power and Dominion Energy Gas recognized revenue of $91 million, $22 million and $28 million, respectively, from the beginning contract liability balances as the Companies fulfilled their obligations to provide service to their customers. The Companies’ contract liabilities are recorded in other current liabilities and other deferred credits and other liabilities in the Consolidated Balance Sheets.
Note 5. Income Taxes
For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to the Companies’ effective income tax rate as follows:
                         
 
Dominion Energy
   
Virginia Power
   
Dominion Energy Gas
   
 
Six Months Ended June 30,
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
   
      2019      
 
 
 
 
      2018      
   
 
                                                                 
U.S. statutory rate
 
 
21.0
%
   
21.0
%  
 
21.0
%
   
21.0
%  
 
21.0
%
   
     
21.0
%    
 
                                                                 
Increases (reductions) resulting from:
 
 
 
   
   
 
 
   
   
 
 
   
     
     
 
                                                                 
State taxes, net of federal benefit
 
 
0.7
 
   
3.8
   
 
4.7
 
   
4.5
   
 
3.0
 
   
     
3.3
     
 
                                                                 
Investment tax credits
 
 
(3.8
)
   
(0.9
)  
 
(5.2
)
   
(1.4
)  
 
 
   
     
     
 
                                                                 
Production tax credits
 
 
(1.1
)
   
(0.7
)  
 
(0.8
)
   
(0.7
)  
 
 
   
     
     
 
                                                                 
Reversal of excess deferred income taxes
 
 
(6.9
)
   
(1.5
)  
 
(4.2
)
   
(2.0
)  
 
(0.9
)
   
     
(1.1
)    
 
                                                                 
State legislative change
 
 
 
   
(1.6
)  
 
 
   
   
 
 
   
     
(7.2
)    
 
                                                                 
Write-off
of regulatory assets
 
 
(41.6
)
   
   
 
 
   
   
 
 
   
     
     
 
                                                                 
Other, net
 
 
(2.2
)
   
(2.0
)  
 
0.3
 
   
(0.2
)  
 
(4.8
)
   
 
(1)
     
(4.7
)    
 
(1)
 
                                                                 
                                                                 
Effective tax rate
 
 
(33.9
)%
   
18.1
%  
 
15.8
%
   
21.2
%  
 
18.3
%
   
     
11.3
%    
 
                                                                 
(1) Includes
(4.0)
% and
(4.9)
% relating to the absence of tax on noncontrolling interest in 2019 and 2018, respectively.
For the Companies’ rate-regulated entities, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. The Companies have recorded an estimate of the portion of excess deferred income tax amortization in 2019. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. As described in Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018,
as updated in Current Report on Form 8-K, filed November 18, 2019,
 
the Companies decreased revenue and increased regulatory liabilities to offset these deferred tax impacts in accordance with applicable regulatory commission orders or formula rate mechanisms.
In connection with the SCANA Combination, Dominion Energy committed to forgo, or limit, the recovery of certain income
tax-related
regulatory assets associated with the NND Project. Dominion Energy’s effective tax rate reflects deferred income tax expense of $198 million in satisfaction of this commitment. Dominion Energy’s effective tax rate also reflects the changes in consolidated state income taxes resulting from the SCANA Combination.
 
37
 

As part of the SCANA Combination, Dominion Energy acquired SCANA’s unrecognized tax benefits of $106 million. In the first quarter of 2019, Dominion Energy completed the evaluation of a state income tax position acquired in the SCANA Combination that increased unrecognized tax benefits by $51 million. In the second quarter, Dominion Energy completed the evaluation of a federal income tax position acquired in the SCANA Combination that increased unrecognized tax benefits by $18 million. In total, these adjustments resulted in an increase to goodwill of $58 million and had no impact on Dominion Energy’s income tax expense.
As of June 30, 2019, there have been no other material changes in the Companies’ unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 5 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018,
as updated in Current Report on Form 8-K, filed November 18, 2019,
 
for a discussion of these unrecognized tax benefits.
The 2017 Tax Reform Act limits the deductibility of interest expense to 30% of adjusted taxable income for certain businesses, with any disallowed interest carried forward indefinitely. Subject to additional guidance in yet to be finalized regulations, the Companies expect interest expense to be deductible in 2019.
Note 6. Earnings Per Share
The following table presents the calculation of Dominion Energy’s basic and diluted EPS:
                                 
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
            2019            
 
 
            2018            
   
            2019            
 
 
            2018            
 
                         
(millions, except EPS)
 
 
 
 
 
 
 
 
                                 
Net income (loss) attributable to Dominion Energy - Basic
 
$
54
 
  $
449
   
$
(626
)
  $
952
 
                                 
Dilutive effect of Series A Preferred Stock
 
 
(13
)
   
   
 
 
   
 
                                 
                                 
Net income (loss) attributable to Dominion Energy - Diluted
 
 
41
 
   
449
   
 
(626
)
   
952
 
                                 
Average shares of common stock outstanding – Basic
 
 
802.5
 
   
652.8
   
 
797.8
 
   
651.6
 
                                 
Net effect of dilutive securities
 
 
0.1
 
   
0.3
   
 
 
   
0.2
 
                                 
                                 
Average shares of common stock outstanding – Diluted
 
 
802.6
 
   
653.1
   
 
797.8
 
   
651.8
 
                                 
                                 
Earnings Per Common Share – Basic
 
$
0.07
 
  $
0.69
   
$
(0.78
)
  $
1.46
 
                                 
Earnings Per Common Share – Diluted
 
$
0.05
 
  $
0.69
   
$
(0.78
)
  $
1.46
 
 
As a result of a net loss for the six months ended June 30, 2019, any adjustments to earnings or shares would be considered antidilutive and therefore are excluded from the calculation of diluted EPS. The 2019 Equity Units are potentially dilutive securities. The forward stock purchase contracts included within the 2019 Equity Units were excluded from the calculation of diluted EPS for the three months ended June 30, 2019, as the dilutive stock price threshold was not met. The Series A Preferred Stock included within the 2019 Equity Units is excluded from the effect of dilutive securities within diluted EPS, but a fair value adjustment is reflected within net income attributable to Dominion Energy for the calculation of diluted EPS for the three months ended June 30, 2019 based upon the expectation that the conversion will be settled in cash rather than through issuance of Dominion Energy common stock. The 2016 Equity Units are potentially dilutive securities, but were excluded from the calculation of diluted EPS for the three months ended June 30, 2019 and for the three and six months ended June 30, 2018, as the dilutive stock price threshold was not met. The forward sales agreements, effective April 2018, were potentially dilutive securities but had no effect on the calculation of diluted EPS for the three and six months ended June 30, 2018. The Dominion Energy Midstream convertible preferred units were potentially dilutive securities but had no effect on the calculation of diluted EPS for the three and six months ended June 30, 2018. In calculating diluted EPS in connection with the Dominion Energy Midstream convertible preferred units, Dominion Energy applied the
if-converted
method.
 
38
 

Note 7. Accumulated Other Comprehensive Income
Dominion Energy
The following table presents Dominion Energy’s changes in AOCI by component, net of tax:
                                         
 
Deferred
gains and
losses on
derivatives-
hedging
activities 
 
 
Unrealized 
gains and 
losses on
investment
securities 
 
 
Unrecognized
pension and 
other
postretirement
benefit costs 
 
 
Other
comprehensive
loss from
equity method
investees 
 
 
Total
 
                               
(millions)
 
   
   
   
   
 
                                         
Three Months Ended June 30, 2019
   
     
     
     
     
 
                                         
Beginning balance
 
$
(290
)
 
$
18
 
 
$
(1,457
)
 
$
(2
)
 
$
(1,731
)
                                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(78
)
 
 
13
 
 
 
113
 
 
 
 
 
 
48
 
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
(21
)
 
 
(1
)
 
 
22
 
 
 
 
 
 
 
                                         
                                         
Net current period other comprehensive income (loss)
 
 
(99
)
 
 
12
 
 
 
135
 
 
 
 
 
 
48
 
                                         
                                         
Ending balance
 
$
          (389
)
 
$
30
 
 
$
(1,322
)
 
$
(2
)
 
$
(1,683
)
                                         
                                         
Three Months Ended June 30, 2018
   
     
     
     
     
 
                                         
Beginning balance
  $
(248
)   $
3
    $
(1,303
)   $
(3
)   $
(1,551
)
                                         
Other comprehensive income before reclassifications: gains (losses)
   
(33
)    
(5
)    
     
1
     
(37
)
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
33
     
     
17
     
     
50
 
                                         
                                         
Net current period other comprehensive income (loss)
   
     
(5
)    
17
     
1
     
13
 
                                         
                                         
Ending balance
  $
(248
)   $
(2
)   $
(1,286
)   $
(2
)   $
(1,538
)
                                         
                                         
Six Months Ended June 30, 2019
   
     
     
     
     
 
                                         
Beginning balance
 
$
(235
)
 
$
2
 
 
$
(1,465
)
 
$
(2
)
 
$
(1,700
)
                                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(102
)
 
 
29
 
 
 
113
 
 
 
 
 
 
40
 
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
(52
)
 
 
(1
)
 
 
30
 
 
 
 
 
 
(23
)
                                         
                                         
Net current period other comprehensive income (loss)
 
 
(154
)
 
 
28
 
 
 
143
 
 
 
 
 
 
17
 
                                         
                                         
Ending balance
 
$
(389
)
 
$
30
 
 
$
(1,322
)
 
$
(2
)
 
$
(1,683
)
                                         
                                         
Six Months Ended June 30, 2018
   
     
     
     
     
 
                                         
Beginning balance
  $
(302
)   $
747
    $
(1,101
)   $
(3
)   $
          (659
)
                                         
Other comprehensive income before reclassifications: gains (losses)
   
78
     
(18
)    
     
1
     
61
 
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
41
     
1
     
42
     
     
84
 
                                         
                                         
Net current period other comprehensive income (loss)
   
119
     
(17
)    
42
     
1
     
145
 
                                         
Cumulative-effect of changes in accounting principle
   
(64
)    
         (732
)    
        (227
)    
     
(1,023
)
                                         
Less other comprehensive income attributable to noncontrolling interest
   
1
     
     
     
     
1
 
                                         
                                         
Ending balance
  $
(248
)   $
(2
)   $
(1,286
)   $
           (2
)   $
(1,538
)
                                         
 
 
 
 
 
(1)
See table below for details about these reclassifications.
 
 
39
 

The following table presents Dominion Energy’s reclassifications out of AOCI by component:
Details about AOCI components
 
Amounts
reclassified
        from AOCI         
 
 
Affected line item in the
Consolidated Statements of
Income
           
(millions)
 
   
             
Three Months Ended June 30, 2019
   
   
             
Deferred (gains) and losses on derivatives-hedging activities:
   
   
             
Commodity contracts
 
$
(38
)
 
Operating revenue
             
Interest rate contracts
 
 
13
 
 
Interest and related charges
             
Foreign currency contracts
 
 
(4
)
 
Other income
             
             
Total
 
 
(29
)
 
             
Tax
 
 
8
 
 
Income tax expense
             
             
Total, net of tax
 
$
(21
)
 
             
             
Unrealized (gains) and losses on investment securities:
 
 
 
 
             
Realized (gain) loss on sale of securities
 
$
(1
)
 
Other income
             
             
Total
 
 
(1
)
 
             
Tax
 
 
 
 
Income tax expense
             
             
Total, net of tax
 
$
(1
)
 
             
             
Unrecognized pension and other postretirement benefit costs:
 
 
 
 
             
Amortization of prior-service costs (credits)
 
$
(8
)
 
Other income
             
Amortization of actuarial losses
 
 
27
 
 
Other income
             
             
Total
 
 
19
 
 
             
             
Tax
 
 
3
 
 
Income tax expense
             
             
Total, net of tax
 
$
22
 
 
             
             
Three Months Ended June 30, 2018
   
   
             
Deferred (gains) and losses on derivatives-hedging activities:
   
   
             
Commodity contracts
  $
16
   
Operating revenue
             
Interest rate contracts
   
12
   
Interest and related charges
             
Foreign currency contracts
   
16
   
Other income
             
             
Total
   
44
   
             
Tax
   
(11
)  
Income tax expense
             
             
Total, net of tax
  $
33
   
             
             
Unrealized (gains) and losses on investment securities:
   
   
             
Realized (gain) loss on sale of securities
  $
1
   
Other income
             
             
Total
   
1
   
             
Tax
   
(1
)  
Income tax expense
             
             
Total, net of tax
  $
   
             
             
Unrecognized pension and other postretirement benefit costs:
   
   
             
Amortization of prior-service costs (credits)
  $
(5
)  
Other income
             
Amortization of actuarial losses
   
29
   
Other income
             
             
Total
   
24
   
             
Tax
   
(7
)  
Income tax expense
             
             
Total, net of tax
  $
17
   
             
 
40
 

Details about AOCI components
 
Amounts
reclassified
        from AOCI         
 
 
Affected line item in the
Consolidated Statements of
Income
           
(millions)
 
   
             
Six Months Ended June 30, 2019
   
   
             
Deferred (gains) and losses on derivatives-hedging activities:
   
   
             
Commodity contracts
 
$
(92
)
 
Operating revenue
             
 
 
(3
)
 
Purchased gas
             
Interest rate contracts
 
 
23
 
 
Interest and related charges
             
Foreign currency contracts
 
 
2
 
 
Other income
             
             
Total
 
 
(70
)
 
             
Tax
 
 
18
 
 
Income tax expense
             
             
Total, net of tax
 
$
(52
)
 
             
             
Unrealized (gains) and losses on investment securities:
 
 
 
 
             
Realized (gain) loss on sale of securities
 
$
(1
)
 
Other income
             
             
Total
 
 
(1
)
 
             
Tax
 
 
 
 
Income tax expense
             
             
Total, net of tax
 
$
(1
)
 
             
             
Unrecognized pension and other postretirement benefit costs:
 
 
 
 
             
Amortization of prior-service costs (credits)
 
$
(13
)
 
Other income
             
Amortization of actuarial losses
 
 
54
 
 
Other income
             
             
Total
 
 
41
 
 
             
Tax
 
 
(11
)
 
Income tax expense
             
             
Total, net of tax
 
$
30
 
 
             
             
Six Months Ended June 30, 2018
   
   
             
Deferred (gains) and losses on derivatives-hedging activities:
   
   
             
Commodity contracts
  $
28
   
Operating revenue
             
   
2
   
Purchased gas
             
   
(7
)  
Electric fuel and other energy-related purchases
             
Interest rate contracts
   
24
   
Interest and related charges
             
Foreign currency contracts
   
8
   
Other income
             
             
Total
   
55
   
             
Tax
   
(14
)  
Income tax expense
             
             
Total, net of tax
  $
41
   
             
             
Unrealized (gains) and losses on investment securities:
   
   
             
Realized (gain) loss on sale of securities
  $
2
   
Other income
             
             
Total
   
2
   
             
Tax
   
(1
)  
Income tax expense
             
             
Total, net of tax
  $
1
   
             
             
Unrecognized pension and other postretirement benefit costs:
   
   
             
Amortization of prior-service costs (credits)
  $
(11
)  
Other income
             
Amortization of actuarial losses
   
61
   
Other income
             
             
Total
   
50
   
             
Tax
   
(8
)  
Income tax expense
             
             
Total, net of tax
  $
42
   
             
 
41
 

Virginia Power
The following table presents Virginia Power’s changes in AOCI by component, net of tax:
                         
 
Deferred gains
and losses on
derivatives-
hedging
activities
 
 
Unrealized gains
and losses on
investment
securities
 
 
Total
 
                   
(millions)
 
   
   
 
                         
Three Months Ended June 30, 2019
   
     
     
 
                         
Beginning balance
 
$
(20
)
 
$
3
 
 
$
(17
)
                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(11
)
 
 
2
 
 
 
(9
)
                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
1
 
 
 
(1
)
 
 
 
                         
                         
Net current period other comprehensive income (loss)
 
 
(10
)
 
 
1
 
 
 
(9
)
                         
                         
Ending balance
 
$
(30
)
 
$
4
 
 
$
(26
)
                         
                         
Three Months Ended June 30, 2018
   
     
     
 
                         
Beginning balance
  $
(10
)   $
1
    $
(9
)
                         
Other comprehensive income before reclassifications: gains (losses)
   
2
     
(2
)    
 
                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
     
     
 
                         
                         
Net current period other comprehensive income (loss)
   
2
     
(2
)    
 
                         
                         
Ending balance
  $
(8
)   $
(1
)   $
(9
)
                         
                         
Six Months Ended June 30, 2019
   
     
     
 
                         
Beginning balance
 
$
(13
)
 
$
1
 
 
$
(12
)
                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(18
)
 
 
4
 
 
 
(14
)
                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
1
 
 
 
(1
)
 
 
 
                         
                         
Net current period other comprehensive income (loss)
 
 
(17
)
 
 
3
 
 
 
(14
)
                         
                         
Ending balance
 
$
(30
)
 
$
4
 
 
$
(26
)
                         
                         
Six Months Ended June 30, 2018
   
     
     
 
                         
Beginning balance
  $
(12
)   $
74
    $
62
 
                         
Other comprehensive income before reclassifications: gains (losses)
   
7
     
(2
)    
5
 
                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
     
     
 
                         
                         
Net current period other comprehensive income (loss)
   
7
     
(2
)    
5
 
                         
                         
Cumulative-effect of changes in accounting principle
   
(3
)    
(73
)    
(76
)
                         
                         
Ending balance
  $
                   (8
)   $
                   (1
)   $
                   (9
)
                         
 
 
 
 
 
 
 
(1)
Virginia Power’s reclassifications out of AOCI were immaterial for both the three and six months ended June 30, 2019 and 2018.
 
 
 
 
42

Dominion Energy Gas
The following table presents Dominion Energy Gas’ changes in AOCI by component, net of tax:
                         
 
Deferred gains
and losses on
derivatives-
hedging
activities
 
 
Unrecognized
pension costs
 
 
Total
 
                   
(millions)
 
 
 
 
 
 
                   
Three Months Ended June 30, 2019
 
   
   
 
                         
Beginning balance
 
$
(48
)
 
$
(143
)
 
$
(191
)
                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(24
)
 
 
29
 
 
 
5
 
                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
(2
)
 
 
2
 
 
 
 
                         
                         
Net current period other comprehensive income (loss)
 
 
(26
)
 
 
31
 
 
 
5
 
                         
                         
Ending balance
 
$
(74
)
 
$
(112
)
 
$
(186
)
                         
                         
Three Months Ended June 30, 2018
   
     
     
 
                         
Beginning balance
  $
(18
)   $
(95
)   $
(113
)
                         
Other comprehensive income before reclassifications: gains (losses)
   
(19
)    
     
(19
)
                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
13
     
1
     
14
 
                         
                         
Net current period other comprehensive income (loss)
   
(6
)    
1
     
(5
)
                         
                         
Ending balance
  $
(24
)   $
(94
)   $
(118
)
                         
                         
Six Months Ended June 30, 2019
   
     
     
 
                         
Beginning balance
 
$
(25
)
 
$
(144
)
 
$
(169
)
                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(51
)
 
 
29
 
 
 
(22
)
                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
1
 
 
 
3
 
 
 
4
 
                         
                         
Net current period other comprehensive income (loss)
 
 
(50
)
 
 
32
 
 
 
(18
)
                         
                         
Less other comprehensive income attributable to noncontrolling interest
 
 
(1
)
 
 
 
 
 
(1
)
                         
                         
Ending balance
 
$
(74
)
 
$
(112
)
 
$
(186
)
                         
                         
Six Months Ended June 30, 2018
   
     
     
 
                         
Beginning balance
  $
(23
)   $
(75
)   $
(98
)
                         
Other comprehensive income before reclassifications: gains (losses)
   
(6
)    
     
(6
)
                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
                11
     
                    2
     
                    13
 
                         
                         
Net current period other comprehensive income (loss)
   
5
     
2
     
7
 
                         
                         
Cumulative-effect of changes in accounting principle
   
(5
)    
(21
)    
(26
)
                         
Less other comprehensive income attributable to noncontrolling interest
   
1
     
     
1
 
                         
                         
Ending balance
  $
(24
)   $
(94
)   $
(118
)
                         
 
 
 
(1)
See table below for details about these reclassifications.
 
 
 
 
43

The following table presents Dominion Energy Gas’ reclassifications out of AOCI by component:
             
Details about AOCI components
 
Amounts
reclassified
from AOCI
 
 
Affected line item in the
Consolidated Statements of Income
(millions)
 
 
 
     
Three Months Ended June 30, 2019
 
     
Deferred (gains) and losses on derivatives-hedging activities:
 
             
Interest rate contracts
 
$
                     2
 
 
Interest and related charges
             
Foreign currency contracts
 
 
(4
)
 
Other income
             
             
Total
 
 
(2
)
 
             
Tax
 
 
 
 
Income tax expense
             
             
Total, net of tax
 
$
(2
)
 
             
             
Unrecognized pension costs:
 
 
 
 
             
Actuarial losses
 
$
2
 
 
Other income
             
             
Total
 
 
2
 
 
             
Tax
 
 
 
 
Income tax expense
             
             
Total, net of tax
 
$
2
 
 
             
             
Three Months Ended June 30, 2018
   
   
     
Deferred (gains) and losses on derivatives-hedging activities:
 
             
Commodity contracts
  $
2
   
Net income from discontinued operations                    
             
Foreign currency contracts
   
16
   
Other income
             
             
Total
   
18
   
             
Tax
   
(5
)  
Income tax expense
             
             
Total, net of tax
  $
13
   
             
             
Unrecognized pension costs:
   
   
             
Actuarial losses
  $
1
   
Other income
             
             
Total
   
1
   
             
Tax
   
   
Income tax expense
             
             
Total, net of tax
  $
1
   
             
             
Six Months Ended June 30, 2019
   
   
     
Deferred (gains) and losses on derivatives-hedging activities:
 
             
Commodity contracts
 
$
(2
)
 
Net income from discontinued operations
             
Interest rate contracts
 
 
1
 
 
Interest and related charges
             
Foreign currency contracts
 
 
2
 
 
Other income
             
             
Total
 
 
1
 
 
             
Tax
 
 
 
 
Income tax expense
             
             
Total, net of tax
 
$
1
 
 
             
             
Unrecognized pension costs:
 
 
 
 
             
Actuarial losses
 
$
4
 
 
Other income
             
             
Total
 
 
4
 
 
             
Tax
 
 
(1
)
 
Income tax expense
             
             
Total, net of tax
 
$
3
 
 
             
             
Six Months Ended June 30, 2018
   
   
     
Deferred (gains) and losses on derivatives-hedging activities:
 
             
Commodity contracts
  $
5
   
Net income from discontinued operations
             
Interest rate contracts
   
2
   
Interest and related charges
             
Foreign currency contracts
   
8
   
Other income
             
             
Total
   
15
   
             
Tax
   
(4
)  
Income tax expense
             
             
Total, net of tax
  $
11
   
             
             
Unrecognized pension costs:
   
   
             
Actuarial losses
  $
3
   
Other income
             
             
Total
   
3
   
             
Tax
   
(1
)  
Income tax expense
             
             
Total, net of tax
  $
2
   
             
 
 
 
 
44

Note 8. Fair Value Measurements
The Companies’ fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
See Note 9 in this report for further information about the Companies’ derivatives and hedge accounting activities.
The Companies enter into certain physical and financial forwards, futures, options and swaps, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical and financial forwards, futures, and swaps contracts. An option model is used to value Level 3 physical options. The discounted cash flow model for forwards, futures, and swaps calculates
mark-to-market
valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. The option model calculates
mark-to-market
valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, certain forward market prices and implied price volatilities are considered unobservable.
The following table presents Dominion Energy’s quantitative information about Level 3 fair value measurements at June 30, 2019. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.
                                 
                           
 
  Fair Value  
  (millions)  
 
 
            Valuation Techniques            
 
        Unobservable Input        
  
 
 
        Range        
 
Weighted
Average
(1)
 
Assets
 
 
 
 
 
 
 
 
 
 
 
                                 
Physical and financial forwards and futures:
 
 
 
 
   
   
   
 
Natural gas
(2)
 
$
76
 
 
Discounted cash flow
   
Market price (per Dth)
(3)
   
(2) - 6
   
(1
)
FTRs
 
 
7
 
 
Discounted cash flow
   
Market price (per MWh)
(3)
   
(1) - 4
   
1
 
                                 
Physical options:
 
 
 
 
   
   
   
 
Natural gas
 
 
1
 
 
Option model
   
Market price (per Dth)
(3)
   
2 - 12
   
4
 
                                 
 
 
 
 
   
Price volatility
(4)
   
2% - 34%
   
19
%
                                 
Total assets
 
$
84
 
 
   
   
   
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
                                 
Financial forwards:
 
 
 
 
   
   
   
 
FTRs
 
$
3
 
 
Discounted cash flow
   
Market price (per MWh)
(3)
   
(4) - 4
   
 
                                 
Physical options:
 
 
 
 
   
   
   
 
Natural gas
 
 
6
 
 
Option model
   
Market price (per Dth)
(3)
   
1 - 8
   
3
 
                                 
 
 
 
 
   
Price volatility
(4)
   
2% - 71%
   
29
%
                                 
Total liabilities
 
$
9
 
 
   
   
   
 
                                 
 
 
 
 
 
 
 
(1)
Averages weighted by volume.
 
 
 
 
 
 
 
(2)
Includes basis.
 
 
 
 
 
 
 
(3)
Represents market prices beyond defined terms for Levels 1 and 2.
 
 
 
 
 
 
 
(4)
Represents volatilities unrepresented in published markets.    
 
 
 
Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:
             
Significant Unobservable
Inputs
 
Position
 
Change to Input
 
Impact on Fair Value
Measurement
Market price
 
Buy
 
Increase (decrease)
 
Gain (loss)
Market price
 
Sell
 
Increase (decrease)
 
Loss (gain)
Price volatility
 
Buy
 
Increase (decrease)
 
Gain (loss)
Price volatility
 
Sell
 
Increase (decrease)
 
Loss (gain)
 
 
 
 
45

Recurring Fair Value Measurements
Dominion Energy
The following table presents Dominion Energy’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:
 
     Level 1     
 
 
     Level 2     
 
 
     Level 3     
 
 
       Total       
 
                         
(millions)
 
 
 
 
 
 
 
 
At June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Derivatives:
   
     
     
     
 
                                 
Commodity
 
$
 
 
$
104
 
 
$
84
 
 
$
188
 
                                 
Interest rate
 
 
 
 
 
7
 
 
 
 
 
 
7
 
                                 
Foreign currency
 
 
 
 
 
14
 
 
 
 
 
 
14
 
                                 
Investments
(1)
:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
U.S.
 
 
3,826
 
 
 
 
 
 
 
 
 
3,826
 
                                 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Corporate debt instruments
 
 
 
 
 
500
 
 
 
 
 
 
500
 
                                 
Government securities
 
 
488
 
 
 
668
 
 
 
 
 
 
1,156
 
Cash equivalents and other
 
 
19
 
 
 
 
 
 
 
 
 
19
 
                                 
                                 
Total assets
 
$
4,333
 
 
$
1,293
 
 
$
84
 
 
$
5,710
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Commodity
 
$
6
 
 
$
54
 
 
$
9
 
 
$
69
 
                                 
Interest rate
 
 
 
 
 
557
 
 
 
 
 
 
557
 
                                 
Total liabilities
 
$
6
 
 
$
611
 
 
$
9
 
 
$
626
 
                                 
At December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Derivatives:
   
     
     
     
 
Commodity
  $
    $
180
    $
70
    $
250
 
                                 
Interest rate
   
     
18
     
     
18
 
Foreign currency
   
     
26
     
     
26
 
                                 
Investments
(1)
:
   
     
     
     
 
Equity securities:
   
     
     
     
 
                                 
U.S.
   
3,277
     
     
     
3,277
 
Fixed income securities:
   
     
     
     
 
                                 
Corporate debt instruments
   
     
431
     
     
431
 
                                 
Government securities
   
455
     
688
     
     
1,143
 
Cash equivalents and other
   
11
     
     
     
11
 
                                 
Total assets
  $
3,743
    $
1,343
    $
70
    $
5,156
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Derivatives:
   
     
     
     
 
Commodity
  $
    $
129
    $
6
    $
135
 
Interest rate
   
     
142
     
     
142
 
Foreign currency
   
     
2
     
     
2
 
                                 
Total liabilities
  $
    $
273
    $
6
    $
279
 
                                 
(1)
Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $210 million and $220 million of assets at June 30, 2019 and December 31, 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to​​​​​​​ be categorized in the fair value hierarchy.
 
46

The following table presents the net change in Dominion Energy’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:
 
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
 
          2019          
 
 
          2018          
   
          2019          
 
 
          2018          
 
                         
(millions)
 
 
 
 
 
 
 
 
Beginning balance
 
$
53
 
  $
120
   
$
64
 
  $
150
 
Total realized and unrealized gains (losses):
 
 
 
   
   
 
 
   
 
Included in earnings:
 
 
 
   
   
 
 
   
 
Operating revenue
 
 
3
 
   
   
 
2
 
   
(1
)
Purchased gas
 
 
1
 
   
   
 
1
 
   
 
Electric fuel and other energy-related purchases
 
 
(3
)
   
(2
)  
 
(7
)
   
(19
)
Included in other comprehensive income
 
 
 
   
   
 
 
   
1
 
Included in regulatory assets/liabilities
 
 
18
 
   
11
   
 
25
 
   
(10
)
Settlements
 
 
3
 
   
(10
)  
 
2
 
   
(3
)
Purchases
 
 
 
   
   
 
(10
)
   
 
Transfers out of Level 3
 
 
 
   
   
 
(2
)
   
1
 
                                 
Ending balance
 
$
75
 
  $
119
   
$
75
 
  $
119
 
                                 
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date:
 
 
 
   
   
 
 
   
 
Operating revenue
 
$
2
 
  $
   
$
2
 
  $
 
Purchased gas
 
 
1
 
   
   
 
1
 
   
 
                                 
Total
 
$
3
 
  $
   
$
3
 
  $
 
                                 
Virginia Power
The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at June 30, 2019. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.
 
  Fair Value  
  (millions)  
 
 
        Valuation Techniques        
 
        Unobservable Input        
 
 
 
        Range        
 
Weighted
  Average
(1)
  
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Physical and financial forwards and futures:
 
 
 
 
   
   
   
 
Natural gas
(2)
 
$
74
 
 
Discounted cash flow
   
Market price (per Dth)
(3)
   
(2)
 -
 3
   
(1
)
FTRs
 
 
7
 
 
Discounted cash flow
   
Market price (per MWh)
(3)
   
(1) - 4
   
1
 
                                 
Total assets
 
$
81
 
 
   
   
   
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Financial forwards:
 
 
 
 
   
   
   
 
FTRs
 
$
3
 
 
Discounted cash flow
   
Market price (per MWh)
(3)
   
(4) - 4
   
 
Physical options:
 
 
 
 
   
   
   
 
Natural gas
 
 
1
 
 
Option model
   
Market price (per Dth)
(3)
   
1 - 7
   
3
 
 
 
 
 
   
Price volatility
(4)
   
20% - 71%
   
38
%
                                 
Total liabilities
 
$
4
 
 
   
   
   
 
                                 
(1)
Averages weighted by volume.
(2)
Includes basis.
(3)
Represents market prices beyond defined terms for Levels 1 and 2.
(4)
Represents volatilities unrepresented in published markets.
 
47

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:
Significant Unobservable
Inputs
 
Position
 
Change to Input
 
    Impact on Fair Value    
Measurement
             
Market price
 
Buy
 
Increase (decrease)
 
Gain (loss)
             
Market price
 
Sell
 
Increase (decrease)
 
Loss (gain)
             
Price volatility
 
Buy
 
Increase (decrease)
 
Gain (loss)
             
Price volatility
 
Sell
 
Increase (decrease)      
 
Loss (gain)
The following table presents Virginia Power’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:
 
        Level 1        
 
 
        Level 2        
 
 
        Level 3        
 
 
        Total        
 
                         
(millions)
 
 
 
 
 
 
 
 
                                 
At June 30, 2019
   
     
     
     
 
                                 
Assets
   
     
     
     
 
                                 
Derivatives:
   
     
     
     
 
                                 
Commodity
 
$
 
 
$
2
 
 
$
81
 
 
$
83
 
                                 
Investments
(1)
:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
U.S.
 
 
1,753
 
 
 
 
 
 
 
 
 
1,753
 
                                 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Corporate debt instruments
 
 
 
 
 
257
 
 
 
 
 
 
257
 
                                 
Government securities
 
 
205
 
 
 
313
 
 
 
 
 
 
518
 
                                 
                                 
Total assets
 
$
1,958
 
 
$
572
 
 
$
81
 
 
$
2,611
 
                                 
                                 
Liabilities
   
     
     
     
 
                                 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Commodity
 
$
 
 
$
22
 
 
$
4
 
 
$
26
 
                                 
Interest rate
 
 
 
 
 
332
 
 
 
 
 
 
332
 
                                 
                                 
Total liabilities
 
$
 
 
$
354
 
 
$
4
 
 
$
358
 
                                 
                                 
At December 31, 2018
   
     
     
     
 
                                 
Assets
   
     
     
     
 
                                 
Derivatives:
   
     
     
     
 
                                 
Commodity
  $
    $
24
    $
66
    $
90
 
                                 
Interest rate
   
     
3
     
     
3
 
                                 
Investments
(1)
:
   
     
     
     
 
                                 
Equity securities:
   
     
     
     
 
                                 
U.S.
   
1,476
     
     
     
1,476
 
                                 
Fixed income securities:
   
     
     
     
 
                                 
Corporate debt instruments
   
     
221
     
     
221
 
                                 
Government securities
   
164
     
343
     
     
507
 
                                 
                                 
Total assets
  $
1,640
    $
591
    $
66
    $
2,297
 
                                 
                                 
Liabilities
   
     
     
     
 
                                 
Derivatives:
   
     
     
     
 
                                 
Commodity
  $
    $
9
    $
6
    $
15
 
                                 
Interest rate
   
     
88
     
     
88
 
                                 
                                 
Total liabilities
  $
    $
97
    $
6
    $
103
 
                                 
(1)
Includes investments held in the nuclear decommissioning trusts. Excludes $153 million and $160 million of ​​​​​​​assets at June 30, 2019 and December 31, 2018, respectively, measured at fair value using NAV (or its equivalent) as a practical expedient which are not required to be categorized in the fair value hierarchy.
 
48

The following table presents the net change in Virginia Power’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:
             
 
Three Months Ended
   
Six Months Ended
 
             
 
June 30,
   
June 30,
 
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
 
                         
(millions)
 
   
   
   
 
                                 
Beginning balance
 
$
59
 
  $
117
   
$
60
 
  $
147
 
                                 
Total realized and unrealized gains (losses):
 
 
 
   
   
 
 
   
 
                                 
Included in earnings:
 
 
 
   
   
 
 
   
 
                                 
Electric fuel and other energy-related purchases
 
 
(3
)
   
(2
)  
 
(7
)
   
(19
)
                                 
Included in regulatory assets/liabilities
 
 
18
 
   
8
   
 
26
 
   
(11
)
                                 
Settlements
 
 
3
 
   
(8
)  
 
(2
)
   
(2
)
                                 
                                 
Ending balance
 
$
77
 
  $
115
   
$
77
 
  $
115
 
                                 
There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2019 and 2018.
Dominion Energy Gas
The following table presents Dominion Energy Gas’ assets and liabilities for derivatives that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions.
 
      Level 1      
 
 
      Level 2      
 
 
      Level 3      
 
 
      Total      
 
                         
(millions)
 
 
 
 
 
 
 
 
                         
At June 30, 2019
 
   
   
   
 
                                 
Assets
   
     
     
     
 
                                 
Commodity
 
$
 
 
$
2
 
 
$
 
 
$
2
 
                                 
Foreign currency
 
 
 
 
 
14
 
 
 
 
 
 
14
 
                                 
                                 
Total assets
 
$
 
 
$
16
 
 
$
 
 
$
16
 
                                 
                                 
Liabilities
   
     
     
     
 
                                 
Interest rate
 
$
 
 
$
77
 
 
$
 
 
$
77
 
                                 
                                 
Total liabilities
 
$
 
 
$
77
 
 
$
 
 
$
77
 
                                 
                                 
At December 31, 2018
   
     
     
     
 
                                 
Assets
   
     
     
     
 
                                 
Commodity
  $
    $
3
    $
    $
3
 
                                 
Interest rate
   
     
2
     
     
2
 
                                 
Foreign currency
   
     
26
     
     
26
 
                                 
                                 
Total assets
  $
    $
31
    $
    $
31
 
                                 
                                 
Liabilities
   
     
     
     
 
                                 
Interest rate
  $
    $
17
    $
    $
17
 
                                 
Foreign currency
   
     
2
     
     
2
 
                                 
                                 
Total liabilities
  $
    $
19
    $
    $
19
 
                                 
The following table presents the net change in Dominion Energy Gas’ assets and liabilities for derivatives measured at fair value on a recurring basis and included in the Level 3 fair value category. There were
no
net changes in assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category for the three and six months ended June 30, 2019 and the three months ended June 30, 2018.
       
 
    Six Months Ended    
 
       
 
June 30,
 
 
2018
 
       
(millions)
 
 
         
Beginning balance
  $
(2
)
         
Total realized and unrealized gains:
   
 
         
Included in other comprehensive income
   
1
 
         
Transfers out of Level 3
   
1
 
         
         
Ending balance
  $
 
         
 
49
 

There were no gains or losses included in earnings in the Level 3 fair value category for the six months ended June 30, 2018. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the six months ended June 30, 2018.
Fair Value of Financial Instruments
Substantially all of the Companies’ financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, restricted cash and equivalents, customer and other receivables, affiliated receivables, short-term debt, affiliated current borrowings, payables to affiliates and accounts payable are representative of fair value because of the short-term nature of these instruments. For the Companies’ financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:
             
 
June 30, 2019
   
December 31, 2018
 
 
Carrying
Amount
 
 
 
Estimated
Fair
Value
(1)
 
 
Carrying
Amount
   
Estimated
Fair
Value
(1)
 
                         
(millions)
 
 
 
 
 
 
 
 
                                 
Dominion Energy
   
   
 
 
   
     
 
                                 
Long-term debt, including securities due within one year
(2)
 
$
34,217
 
 
$
37,631
 
  $
29,952
    $
31,045
 
                                 
Credit facility borrowings
 
 
 
 
 
 
   
73
     
73
 
                                 
Junior subordinated notes
(3)
 
 
4,795
 
 
 
4,898
 
   
3,430
     
3,358
 
                                 
Remarketable subordinated notes
(3)
 
 
 
 
 
 
   
1,386
     
1,340
 
                                 
Virginia Power
 
 
 
   
   
 
 
   
 
                                 
Long-term debt, including securities due within one year
(3)
 
$
         11,293
 
 
$
         12,840
 
  $
         11,671
    $
         12,400
 
                                 
Dominion Energy Gas
 
 
 
   
   
 
 
   
 
                                 
Long-term debt, including securities due within one year
(4)
 
$
7,481
 
 
$
7,693
 
  $
7,770
    $
7,803
 
                                 
Affiliated long-term debt
 
 
395
 
 
 
395
 
 
 
 
 
 
Credit facility borrowings
   
     
     
73
     
73
 
(1)
Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(2)
Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments. At June 30, 2019 and December 31, 2018, includes the valuation of certain fair value hedges associated with fixed rate debt of $2 million and $(20) million, respectively.
(3)
Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium.
(4)
Carrying amount includes amounts which represent the unamortized debt issuance costs, discount or premium, and foreign currency remeasurement adjustments.
Note 9. Derivatives and Hedge Accounting Activities
The Companies’ accounting policies, objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.
Derivative assets and liabilities are presented gross on the Companies’ Consolidated Balance Sheets. Dominion Energy’s derivative contracts include both
over-the-counter
transactions and those that are executed on an exchange or other trading platform (exchange contracts) and centrally cleared. Virginia Power and Dominion Energy Gas’ derivative contracts include
over-the-counter
transactions.
 Over-the-counter
contracts are bilateral contracts that are transacted directly with a third party. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain
over-the-counter
and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.
In general, most
over-the-counter
transactions and all exchange contracts are subject to collateral requirements. Types of collateral for
over-the-counter
and exchange contracts include cash, letters of credit, and in some cases other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on the Companies’ Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting or similar arrangements and would reduce the net exposure. See Note 18 for further information regarding credit-related contingent features for the Companies’ derivative instruments.
 
50

Dominion Energy
Balance Sheet Presentation
The tables below present Dominion Energy’s derivative asset and liability balances by type of financial instrument, if the gross amounts recognized in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:
                                     
 
 
 
June 30, 2019
   
 
 
 
 
December 31, 2018
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
Gross Assets
Presented in the
Consolidated
Balance Sheet
(1)
 
 
Financial
Instruments
 
 
Cash
Collateral
Received
 
 
Net
Amounts
 
 
Gross Assets
Presented in the
Consolidated
Balance Sheet
(1)
   
Financial
Instruments
   
Cash
Collateral
Received
   
Net
Amounts
 
                                                 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                 
Commodity contracts:
   
     
     
     
     
     
     
     
 
                                                                 
Over-the-counter
 
$
103
 
 
$
5
 
 
$
 
 
$
98
 
  $
175
    $
12
    $
    $
163
 
                                                                 
Exchange
 
 
82
 
 
 
24
 
 
 
 
 
 
58
 
   
68
     
68
     
     
 
                                                                 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
7
 
 
 
3
 
 
 
 
 
 
4
 
   
18
     
1
     
     
17
 
                                                                 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
14
 
 
 
13
 
 
 
 
 
 
1
 
   
26
     
2
     
     
24
 
                                                                 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
             206
 
 
$
             45
 
 
$
             —
 
 
$
         161
 
  $
             287
    $
         83
    $
         —
    $
         204
 
                                                                 
(1)
Excludes $
3
 million and $
7
 million of derivative assets at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
                                     
 
 
 
June 30, 2019
   
 
 
 
 
December 31, 2018
   
 
 
 
 
Gross Amounts Not
Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
Gross
Liabilities
Presented in the
Consolidated
Balance Sheet
(1)
 
 
Financial
Instruments
 
 
Cash
Collateral
Paid
 
 
Net
Amounts
 
 
Gross
Liabilities
Presented in the
Consolidated
Balance Sheet
(1)
   
Financial
Instruments
   
Cash
Collateral
Paid
   
Net
Amounts
 
                                                 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                 
Commodity contracts:
   
     
     
     
     
     
     
     
 
                                                                 
Over-the-counter
 
$
42
 
 
$
5
 
 
$
 
 
$
37
 
  $
19
    $
12
    $
    $
7
 
                                                                 
Exchange
 
 
24
 
 
 
24
 
 
 
 
 
 
 
   
115
     
68
     
47
     
 
                                                                 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
557
 
 
 
16
 
 
 
35
 
 
 
506
 
   
142
     
1
     
     
141
 
                                                                 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
 
 
 
 
 
 
 
 
 
 
   
2
     
2
     
     
 
                                                                 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
             623
 
 
$
             45
 
 
$
             35
 
 
$
         543
 
  $
             278
    $
         83
    $
         47
    $
         148
 
                                                                 
(1)
Excludes $
3
 million and $
1
 million of derivative liabilities at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
 
51

Volumes
The following table presents the volume of Dominion Energy’s derivative activity at June 30, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of its long and short positions.
 
Current
 
 
Noncurrent
 
Natural Gas (bcf):
 
 
 
 
Fixed price
(1)
 
 
111
 
 
 
67
 
Basis
 
 
248
 
 
 
525
 
Electricity (MWh):
 
 
 
 
 
 
Fixed price
 
 
5,881,750
 
 
 
771,800
 
FTRs
 
 
104,772,623
 
 
 
 
NGLs (Gal)
 
 
18,648,000
 
 
 
 
Interest rate
(2)
 
$
     1,150,000,000
 
 
$
     5,394,066,073
 
Foreign currency
(2)(3)
 
$
 
 
$
280,000,000
 
(1)
Includes options.
(2)
Maturity is determined based on final settlement period.
(3)
Euro equivalent volumes are
250,000,000
.
AOCI
The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion Energy’s Consolidated Balance Sheet at June 30, 2019:
 
AOCI
After-Tax
 
 
Amounts Expected to be
Reclassified to Earnings
During the Next 12 Months
After-Tax
 
 
Maximum Term
 
                   
(millions)
 
   
   
 
Commodities:
   
     
     
 
Gas
 
$
(6
)
 
$
(6
)
 
 
40 months
 
Electricity
 
 
38
 
 
 
32
 
 
 
18 months
 
Other
 
 
1
 
 
 
1
 
 
 
9 months
 
Interest rate
 
 
(429
)
 
 
(47
)
 
 
390 months
 
Foreign currency
 
 
7
 
 
 
 
 
 
84 months
 
                         
Total
 
$
             (389
)
 
$
                     (20
)
 
 
 
                         
The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign currency exchange rates.
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings and presented in the same line item. Gains and losses on derivatives in fair value hedge relationships were immaterial for the three and six months ended June 30, 2019 and 2018.
The following table presents the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
 
Carrying Amount of the Hedged Asset
(Liability)
(1)
   
Cumulative Amount of Fair Value Hedging
Adjustments Included in the Carrying Amount
of the Hedged Assets (Liabilities)
(2)
 
 
June 30, 2019
 
 
December 31, 2018
   
 
 
June 30, 2019
 
 
December 31, 2018
 
                               
(millions)
 
 
 
 
 
 
 
 
 
 
                                         
Long-term debt
 
$
             (1,652
)
      $
             (1,631
)    
   
$
                 (2
)
      $
                 20
 
(1)
Includes $(
895
) million and $(
892
) million related to discontinued hedging relationships at June 30, 2019 and December 31, 2018, respectively.
 
52

(2)
Includes $
5
 million and $
8
 million of hedging adjustments on discontinued hedging relationships at June 30, 2019 and December 31, 2018, respectively.
Fair Value and Gains and Losses on Derivative Instruments
The following table presents the fair values of Dominion Energy’s derivatives and where they are presented in its Consolidated Balance Sheets: 
 
Fair Value –
Derivatives under
Hedge
Accounting
 
 
Fair Value –
Derivatives not under
Hedge
Accounting
 
 
 Total Fair Value 
 
(millions)
 
   
   
 
June 30, 2019
   
     
     
 
ASSETS
   
     
     
 
Current Assets
   
     
     
 
Commodity
 
$
43
 
 
$
70
 
 
$
113
 
                         
Total current derivative assets
(1)
 
 
43
 
 
 
70
 
 
 
113
 
                         
Noncurrent Assets
   
     
     
 
Commodity
 
 
10
 
 
 
65
 
 
 
75
 
Interest rate
 
 
7
 
 
 
 
 
 
7
 
Foreign currency
 
 
14
 
 
 
 
 
 
14
 
                         
Total noncurrent derivative assets
(2)
 
 
31
 
 
 
65
 
 
 
96
 
                         
Total derivative assets
 
$
74
 
 
$
135
 
 
$
209
 
                         
LIABILITIES
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
$
10
 
 
$
48
 
 
$
58
 
Interest rate
 
 
142
 
 
 
1
 
 
 
143
 
                         
Total current derivative liabilities
(3)
 
 
152
 
 
 
49
 
 
 
201
 
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
 
2
 
 
 
9
 
 
 
11
 
Interest rate
 
 
397
 
 
 
17
 
 
 
414
 
                         
Total noncurrent derivative liabilities
(4)
 
 
399
 
 
 
26
 
 
 
425
 
                         
Total derivative liabilities
 
$
551
 
 
$
75
 
 
$
626
 
                         
December 31, 2018
   
     
     
 
ASSETS
   
     
     
 
Current Assets
   
     
     
 
Commodity
  $
55
    $
154
    $
209
 
Interest rate
   
14
     
     
14
 
                         
Total current derivative assets
(1)
   
69
     
154
     
223
 
                         
Noncurrent Assets
   
     
     
 
Commodity
   
6
     
35
     
41
 
Interest rate
   
4
     
     
4
 
Foreign currency
   
26
     
     
26
 
                         
Total noncurrent derivative assets
(2)
   
36
     
35
     
71
 
                         
Total derivative assets
  $
105
    $
189
    $
294
 
                         
LIABILITIES
   
     
     
 
Current Liabilities
   
     
     
 
Commodity
  $
17
    $
112
    $
129
 
Interest rate
   
26
     
     
26
 
Foreign currency
   
2
     
     
2
 
                         
Total current derivative liabilities
(3)
   
45
     
112
     
157
 
                         
Noncurrent Liabilities
   
     
     
 
Commodity
   
5
     
1
     
6
 
Interest rate
   
116
     
     
116
 
                         
Total noncurrent derivative liabilities
(4)
   
121
     
1
     
122
 
                         
Total derivative liabilities
  $
             166
    $
             113
    $
             279
 
                         
(1)
Current derivative assets are presented in other current assets in Dominion Energy’s Consolidated Balance Sheets.
(2)
Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion Energy’s Consolidated Balance Sheets.
 
53

(3)
Current derivative liabilities are presented in other current liabilities in Dominion Energy’s Consolidated Balance Sheets.
(4)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy’s Consolidated Balance Sheets.
The following tables present the gains and losses on Dominion Energy’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income.
Derivatives in cash flow hedging relationships
 
Amount of Gain
(Loss) Recognized
in AOCI on
            Derivatives
(1)
            
 
 
Amount of Gain
(Loss) Reclassified
From AOCI to
            Income            
 
 
Increase
(Decrease) in
Derivatives
Subject to
Regulatory
            Treatment
(2)
            
 
                   
(millions)
 
   
   
 
                         
Three Months Ended June 30, 2019
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Commodity:
   
     
     
 
                         
Operating revenue
 
 
 
 
$
38
 
 
 
 
                         
                         
Total commodity
 
$
35
 
 
$
38
 
 
$
 
                         
                         
Interest rate
(3)
 
 
(142
)
 
 
(13
)
 
 
(131
)
                         
Foreign currency
(4)
 
 
2
 
 
 
4
 
 
 
 
                         
                         
Total
 
$
(105
)
 
$
29
 
 
$
(131
)
                         
                         
Three Months Ended June 30, 2018
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Commodity:
   
     
     
 
                         
Operating revenue
   
    $
(16
)    
 
                         
                         
Total commodity
  $
(39
)   $
(16
)   $
 
                         
                         
Interest rate
(3)
   
9
     
(12
)    
25
 
                         
Foreign currency
(4)
   
(14
)    
(16
)    
 
                         
                         
Total
  $
(44
)   $
(44
)   $
25
 
                         
                         
Six Months Ended June 30, 2019
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Commodity:
   
     
     
 
                         
Operating revenue
 
 
 
 
$
92
 
 
 
 
                         
Purchased gas
 
 
 
 
 
3
 
 
 
 
                         
                         
Total commodity
 
$
101
 
 
$
                         95
 
 
$
                         —
 
                         
                         
Interest rate
(3)
 
 
(226
)
 
 
(23
)
 
 
(215
)
                         
Foreign currency
(4)
 
 
(9
)
 
 
(2
)
 
 
 
                         
                         
Total
 
$
(134
)
 
$
70
 
 
$
(215
)
                         
                         
Six Months Ended June 30, 2018
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Commodity:
 
 
 
 
 
 
 
 
 
                         
Operating revenue
   
    $
(28
)    
 
                         
Purchased gas
   
     
(2
)    
 
                         
Electric fuel and other energy-related purchases
   
     
7
     
 
                         
                         
Total commodity
  $
58
    $
(23
)   $
 
                         
                         
Interest rate
(3)
   
47
     
(24
)    
93
 
                         
Foreign currency
(4)
   
(1
)    
(8
)    
 
                         
                         
Total
  $
                         104
    $
(55
)   $
93
 
                         
(1)
Amounts deferred into AOCI have no associated effect in Dominion Energy’s Consolidated Statements of Income.
(2)
Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income.
(3)
Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in interest and related charges.
(4)
Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in other income.
 
54

Derivatives not designated as hedging instruments
 
Amount of Gain (Loss) Recognized
in Income on Derivatives
(1)
 
             
 
Three Months Ended
   
Six Months Ended
 
             
 
June 30,
   
June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
   
   
   
 
                                 
Derivative type and location of gains (losses):
   
     
     
     
 
                                 
Commodity:
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Operating revenue
 
$
27
 
  $
(9
)  
$
30
 
  $
(3
)
                                 
Purchased gas
 
 
(11
)
   
            4
   
 
(8
)
   
            4
 
                                 
Electric fuel and other energy-related purchases
 
 
(3
)
   
(3
)  
 
(12
)
   
(16
)
                                 
                                 
Total
 
$
             13
 
  $
(8
)  
$
             10
 
  $
(15
)
                                 
(1)
Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion Energy’s Consolidated Statements of Income.
Virginia Power
Balance Sheet Presentation
The tables below present Virginia Power’s derivative asset and liability balances by type of financial instrument, if the gross amounts recognized in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:
                                     
 
 
 
June 30, 2019
   
 
 
 
 
December 31, 2018
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
Gross
Assets Presented
in the
Consolidated
Balance Sheet
(1)
 
 
Financial
Instruments
 
 
Cash
Collateral
Received
 
 
Net
Amounts
 
 
Gross
Assets Presented
in the
Consolidated
Balance Sheet
(1)
   
Financial
Instruments
   
Cash
Collateral
Received
   
Net
 Amounts 
 
                                                 
(millions)
 
   
   
   
   
   
   
   
 
                                                                 
Commodity contracts:
   
     
     
     
     
     
     
     
 
                                                                 
Over-the-counter
 
$
             81
 
 
$
             3
 
 
$
             —
 
 
$
         78
 
  $
             64
    $
             6
    $
             —
    $
         58
 
                                                                 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
 
 
 
 
 
 
 
 
 
 
   
3
     
     
     
3
 
                                                                 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
81
 
 
$
3
 
 
$
 
 
$
78
 
  $
67
    $
6
    $
    $
61
 
                                                                 
(1)
Excludes $
2
 million and $
26
 million of derivative assets at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
                                     
 
 
 
June 30, 2019
   
 
 
   
December 31, 2018
   
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
   
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
Gross
Liabilities
Presented in the
Consolidated
Balance Sheet
(1)
 
 
Financial
Instruments
 
 
Cash
Collateral
Paid
 
 
Net
Amounts
 
 
Gross
Liabilities
Presented in the
Consolidated
Balance Sheet
(1)
   
Financial
Instruments
   
Cash
Collateral
Paid
   
Net
Amounts
 
                                                 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                 
Commodity contracts:
   
     
     
     
     
     
     
     
 
                                                                 
Over-the-counter
 
$
3
 
 
$
3
 
 
$
 
 
$
 
  $
6
    $
6
    $
    $
 
                                                                 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
                                                                 
Over-the-counter
 
 
            332
 
 
 
            —
 
 
 
            —
 
 
 
        332
 
   
        88
     
        —
     
        —
     
        88
 
                                                                 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
335
 
 
$
3
 
 
$
 
 
$
332
 
  $
94
    $
6
    $
    $
88
 
                                                                 
 
55
 

(1)
Excludes $
23
 million and $
9
​​​​​​​ million of derivative liabilities at June 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
Volumes
The following table presents the volume of Virginia Power’s derivative activity at June 30, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of its long and short positions.
 
Current
 
 
Noncurrent
 
             
Natural Gas (bcf):
 
   
 
                 
Fixed price
(1)
 
 
39
 
 
 
22
 
                 
Basis
 
 
141
 
 
 
455
 
                 
Electricity (MWh):
 
 
 
 
 
 
                 
FTRs
 
 
104,772,623
 
 
 
 
                 
Interest rate
(2)
 
$
       850,000,000
 
 
$
     1,200,000,000
 
(1)
Includes options.
(2)
Maturity is determined based on final settlement period.
AOCI
The following table presents selected information related to losses on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at June 30, 2019:
 
AOCI
    
After-Tax
    
 
 
Amounts Expected to be
Reclassified to Earnings
During the Next 12
Months
 After-Tax
 
 
  Maximum Term  
 
                   
(millions)
 
   
   
 
                         
Interest rate
 
$
(30
)
 
$
(1
)
 
 
390
 months
 
                         
                         
Total
 
$
(30
)
 
$
(1
)
 
 
 
                         
The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., interest payments) in earnings, thereby achieving the realization of interest rates contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in interest rates.
 
56

Fair Value and Gains and Losses on Derivative Instruments
The following table presents the fair values of Virginia Power’s derivatives and where they are presented in its Consolidated Balance Sheets:
 
Fair Value –
Derivatives under
Hedge
Accounting
 
 
Fair Value –
Derivatives not under
Hedge
Accounting
 
 
  Total Fair Value  
 
                   
(millions)
 
   
   
 
                   
June 30, 2019
 
   
   
 
                         
ASSETS
   
     
     
 
                         
Current Assets
   
     
     
 
                         
Commodity
 
$
 
 
$
24
 
 
$
24
 
                         
                         
Total current derivative assets
(1)
 
 
 
 
 
24
 
 
 
24
 
                         
                         
Noncurrent Assets
   
     
     
 
                         
Commodity
 
 
 
 
 
59
 
 
 
59
 
                         
                         
Total noncurrent derivative assets
(2)
 
 
 
 
 
59
 
 
 
59
 
                         
                         
Total derivative assets
 
$
 
 
$
83
 
 
$
83
 
                         
                         
LIABILITIES
   
     
     
 
                         
Current Liabilities
   
     
     
 
                         
Commodity
 
$
 
 
$
20
 
 
$
20
 
                         
Interest rate
 
 
104
 
 
 
 
 
 
104
 
                         
                         
Total current derivative liabilities
(3)
 
 
104
 
 
 
20
 
 
 
124
 
                         
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
                         
Commodity
 
 
 
 
 
6
 
 
 
6
 
                         
Interest rate
 
 
228
 
 
 
 
 
 
228
 
                         
                         
Total noncurrent derivatives liabilities
(4)
 
 
228
 
 
 
6
 
 
 
234
 
                         
                         
Total derivative liabilities
 
$
332
 
 
$
26
 
 
$
358
 
                         
                         
December 31, 2018
   
     
     
 
                         
ASSETS
   
     
     
 
                         
Current Assets
   
     
     
 
                         
Commodity
  $
    $
60
    $
60
 
                         
Interest rate
   
3
     
     
3
 
                         
                         
Total current derivative assets
(1)
   
3
     
60
     
63
 
                         
                         
Noncurrent Assets
   
     
     
 
                         
Commodity
   
     
30
     
30
 
                         
                         
Total noncurrent derivative assets
(2)
   
     
30
     
30
 
                         
                         
Total derivative assets
  $
3
    $
90
    $
93
 
                         
                         
LIABILITIES
   
     
     
 
                         
Current Liabilities
   
     
     
 
                         
Commodity
  $
    $
15
    $
15
 
                         
Interest rate
   
10
     
     
10
 
                         
                         
Total current derivative liabilities
(3)
   
10
     
15
     
25
 
                         
                         
Noncurrent Liabilities
   
     
     
 
                         
Interest rate
   
78
     
     
78
 
                         
                         
Total noncurrent derivatives liabilities
(4)
   
78
     
     
78
 
                         
                         
Total derivative liabilities
  $
88
    $
15
    $
103
 
                         
(1)
Current derivative assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.
(2)
Noncurrent derivative assets are presented in other deferred charges and other assets in Virginia Power’s Consolidated Balance Sheets.
(3)
Current derivative liabilities are presented in other current liabilities in Virginia Power’s Consolidated Balance Sheets.
(4)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets.
 
57

The following tables present the gains and losses on Virginia Power’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:
                         
Derivatives in cash flow hedging relationships
 
Amount of Gain
(Loss) Recognized
in AOCI on Derivatives
(1)
 
 
Amount of Gain
(Loss) Reclassified
From AOCI to
Income
 
 
Increase (Decrease)
in Derivatives
Subject to
Regulatory
Treatment
(2)
 
                   
(millions)
 
   
   
 
                         
Three Months Ended June 30, 2019
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Interest rate
(3)
 
$
(15
)
 
$
(1
)
 
$
(133
)
                         
                         
Total
 
$
(15
)
 
$
(1
)
 
$
(133
)
                         
                         
Three Months Ended June 30, 2018
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Interest rate
(3)
  $
2
    $
    $
25
 
                         
                         
Total
  $
2
    $
    $
25
 
                         
                         
Six Months Ended June 30, 2019
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Interest rate
(3)
 
$
(24
)
 
$
(1
)
 
$
(218
)
                         
                         
Total
 
$
(24
)
 
$
(1
)
 
$
(218
)
                         
                         
Six Months Ended June 30, 2018
   
     
     
 
                         
Derivative type and location of gains (losses):
   
     
     
 
                         
Interest rate
(3)
  $
9
    $
    $
93
 
                         
                         
Total
  $
9
    $
    $
93
 
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Amounts deferred into AOCI have no associated effect in Virginia Power’s Consolidated Statements of Income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3)
Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in interest and related charges.
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Derivatives not designated as hedging instruments
 
Amount of Gain (Loss) Recognized
in Income on Derivatives
(1)
 
             
 
Three Months Ended
   
Six Months Ended
 
             
 
June 30,
   
June 30,
 
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
 
                         
(millions)
 
   
   
   
 
                                 
Derivative type and location of gains (losses):
   
     
     
     
 
                                 
Commodity
(2)
 
$
(3
)
  $
(3
)  
$
(12
)
  $
(3
)
                                 
                                 
Total
 
$
(3
)
  $
(3
)  
$
(12
)
  $
(3
)
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power’s Consolidated Statements of Income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Amounts recorded in Virginia Power’s Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.
 
 
 
 
 
 
 
 
 
 
 
 
 
58

Dominion Energy Gas
Balance Sheet Presentation
The tables below present Dominion Energy Gas’ derivative asset and liability balances by type of financial instrument, if the gross amounts recognized
in its Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid:
 
 
                                     
 
 
 
   
June 30, 2019
   
 
   
 
   
December 31, 2018
   
 
 
 
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
Gross Assets
Presented in the
Consolidated
Balance Sheet
 
 
Financial
Instruments
 
 
Cash
Collateral
Received
 
 
Net
Amounts
 
 
Gross Assets
Presented in the
Consolidated
Balance Sheet
   
Financial
Instruments
   
Cash
Collateral
Received
   
Net
 Amounts 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over-the-counter
 
$
2
 
 
$
 
 
$
 
 
$
2
 
 
$
3
 
 
$
 
 
$
 
 
$
3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over-the-counter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over-the-counter
 
 
14
 
 
 
13
 
 
 
 
 
 
1
 
 
 
26
 
 
 
2
 
 
 
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total derivatives, subject to a master
 
netting
or similar arrangement
 
$
16
 
 
$
13
 
 
$
 
 
$
3
 
 
$
31
 
 
$
2
 
 
$
 
 
$
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2019
   
 
 
 
 
 
 
December 31, 2018
   
 
 
 
 
 
 
 
Gross Amounts Not
Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
 
 
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
Gross
Liabilities Presented
in the Consolidated
Balance Sheet
 
 
Financial
Instruments
 
 
Cash
Collateral
Paid
 
 
Net
Amounts
 
 
Gross
Liabilities Presented
in the Consolidated
Balance Sheet
   
Financial
Instruments
   
Cash
Collateral
Paid
   
Net
Amounts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over-the-counter
 
$
77
 
 
$
13
 
 
$
 
 
$
64
 
 
$
17
 
 
$
 
 
$
 
 
$
17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over-the-counter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total derivatives, subject to a master
 
netting
or similar arrangement
 
$
77
 
 
$
13
 
 
$
 
 
$
64
 
 
$
19
 
 
$
2
 
 
$
 
 
$
17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Volumes
The following table presents the volume of Dominion Energy Gas’ derivative activity at June 30, 2019. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of its long and short positions.
                 
 
Current
 
 
Noncurrent
 
             
Natural Gas (bcf):
 
 
 
 
                 
Basis
 
 
1
 
 
 
 
                 
NGLs (Gal)
 
 
18,648,000
 
 
 
 
                 
Interest rate
(1)
 
$
     300,000,000
 
 
$
     1,000,000,000
 
                 
Foreign currency
(1)(2)
 
$
 
 
$
280,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Maturity is determined based on final settlement period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Euro equivalent volumes are
250,000,000
.
 
 
 
 
 
 
 
 
 
 
 
 
 
59

AOCI
The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion Energy Gas’ Consolidated Balance Sheet at June 30, 2019:
 
AOCI
      
After-Tax
      
 
 
Amounts Expected
to be Reclassified to
Earnings During the
  Next 12 Months
 After-
  
Tax
 
 
  Maximum Term  
 
                   
(millions)
 
   
   
 
                         
Commodities:
 
 
 
 
 
 
 
 
 
                         
NGLs
 
$
1
 
 
$
1
 
 
 
9 months
 
                         
Interest rate
 
 
(82
)
 
$
(7
)
 
 
306 months
 
                         
Foreign currency
 
 
7
 
 
 
 
 
 
84 months
 
                         
                         
Total
 
$
(74
)
 
$
(6
)
 
 
 
                         
The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., interest payments) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign currency exchange rates.
 
60

Fair Value and Gains and Losses on Derivative Instruments
The following tables present the fair values of Dominion Energy Gas’ derivatives and where they are presented in its Consolidated Balance Sheets:
 
Fair Value-
Derivatives
      Under Hedge      
Accounting
 
 
 
 
  Fair
 Value-Derivatives
  
Not Under Hedge
Accounting
 
 
 
 
    Total Fair Value    
 
                               
(millions)
 
   
   
   
   
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity
 
$
2
 
 
 
 
 
$
 
 
 
 
 
$
2
 
                                         
Total current derivative assets
(1)
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
2
 
                                         
Noncurrent Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
 
 
14
 
 
 
 
 
 
 
 
 
 
 
 
14
 
                                         
Total noncurrent derivative assets
(2)
 
 
14
 
 
 
 
 
 
 
 
 
 
 
 
14
 
                                         
Total derivative assets
 
$
16
 
 
 
 
 
$
 
 
 
 
 
$
16
 
                                         
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
$
34
 
 
 
 
 
$
 
 
 
 
 
$
34
 
                                         
Total current derivative liabilities
(3)
 
 
34
 
 
 
 
 
 
 
 
 
 
 
 
34
 
                                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
 
43
 
 
 
 
 
 
 
 
 
 
 
 
43
 
                                         
Total noncurrent derivative liabilities
(4)
 
 
43
 
 
 
 
 
 
 
 
 
 
 
 
43
 
                                         
Total derivative liabilities
 
$
77
 
 
 
 
 
$
 
 
 
 
 
$
77
 
                                         
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity
  $
3
     
    $
     
    $
3
 
Interest rate
   
2
     
     
     
     
2
 
                                         
Total current derivative assets
(1)
   
5
     
     
     
     
5
 
                                         
Noncurrent Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
   
26
     
     
     
     
26
 
                                         
Total noncurrent derivative assets
(2)
   
26
     
     
     
     
26
 
                                         
Total derivative assets
  $
31
     
    $
     
    $
31
 
                                         
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
  $
9
     
    $
     
    $
9
 
Foreign currency
   
2
     
     
     
     
2
 
                                         
Total current derivative liabilities
(3)
   
11
     
     
     
     
11
 
                                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
   
8
     
     
     
     
8
 
                                         
Total noncurrent derivative liabilities
(4)
   
8
     
     
     
     
8
 
                                         
Total derivative liabilities
  $
19
     
    $
     
    $
19
 
                                         
(1)
Current derivative assets include $
2
​​​​​​​ million in other current assets at December 31, 2018, with the remainder recorded in current assets of discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets. All current derivative assets are included in current assets of discontinued operations of Dominion Energy Gas’ Consolidated Balance Sheets at June 30, 2019.
(2)
Noncurrent derivatives assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets.
(3)
Current derivative liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
(4)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
 
61

The following table presents the gains and losses on Dominion Energy Gas’ derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:
Derivatives in cash flow hedging relationships
 
Amount of Gain
      (Loss) Recognized in AOCI on      
Derivatives
(1)
 
 
Amount of Gain
      (Loss) Reclassified From AOCI      
to Income
 
                 
(millions)
   
     
 
                 
Three Months Ended June 30, 2019
   
     
 
                 
Derivative Type and Location of Gains (Losses):
   
     
 
                 
Commodity:
   
     
 
                 
Net
i
ncome from discontinued operations
 
 
 
 
$
 
                 
                 
Total commodity
 
$
3
 
 
$
 
                 
                 
Interest rate
(2)
 
 
(36
)
 
 
(2
)
                 
Foreign currency
(3)
 
 
1
 
 
 
4
 
                 
                 
Total
 
$
(32
)
 
$
2
 
                 
                 
Three Months Ended June 30, 2018
 
 
 
 
 
 
                 
Derivative Type and Location of Gains (Losses):
   
     
 
                 
Commodity:
   
     
 
                 
Net
i
ncome from discontinued operations
   
    $
(2
)
                 
                 
Total commodity
  $
(10
)   $
(2
)
                 
                 
Interest rate
(2)
   
(3
)    
 
                 
Foreign currency
(3)
   
(14
)    
(16
)
                 
                 
Total
  $
(27
)   $
(18
)
                 
                 
Six Months Ended June 30, 2019
   
     
 
                 
Derivative Type and Location of Gains (Losses):
   
     
 
                 
Commodity:
   
     
 
                 
Net
i
ncome from discontinued operations
 
 
 
 
$
2
 
                 
                 
Total commodity
 
$
2
 
 
$
2
 
                 
                 
Interest rate
(2)
 
 
(60
)
 
 
(1
)
                 
Foreign currency
(3)
 
 
(10
)
 
 
(2
)
                 
                 
Total
 
$
(68
)
 
$
(1
)
                 
                 
Six Months Ended June 30, 2018
 
 
 
 
 
 
                 
Derivative Type and Location of Gains (Losses):
   
     
 
                 
Commodity:
   
     
 
                 
Net
i
ncome from discontinued operations
   
    $
(5
)
                 
                 
Total commodity
  $
(6
)   $
(5
)
                 
                 
Interest rate
(2)
   
(1
)    
(2
)
                 
Foreign currency
(3)
   
(1
)    
(8
)
                 
                 
Total
  $
(8
)   $
(15
)
                 
(1)
Amounts deferred into AOCI have no associated effect in Dominion Energy Gas’ Consolidated Statements of Income.
(2)
Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in interest and related charges.
(3)
Amounts recorded in Dominion Energy Gas’ Consolidated Statements of Income are classified in other income.
Note 10. Investments
Dominion Energy
Equity and Debt Securities
Rabbi Trust Securities
Equity and fixed income securities and cash equivalents in Dominion Energy’s rabbi trusts and classified as trading totaled $113 million and $111 million at June 30, 2019 and December 31, 2018, respectively.
 
62

Decommissioning Trust Securities
Dominion Energy holds equity and fixed income securities, insurance contracts and cash equivalents in nuclear decommissioning trust funds to fund future decommissioning costs for its nuclear plants. Dominion Energy’s decommissioning trust funds are summarized below:
 
             Amortized             
Cost
 
 
 
 
Total
           Unrealized           
Gains
 
 
 
 
Total
    Unrealized    
Losses
 
 
 
Fair
      Value      
 
                                         
(millions)
 
   
   
   
   
   
 
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
(1)
   
     
     
     
     
   
   
 
U.S.
 
$
1,776
 
 
 
 
 
$
2,120
 
 
 
 
 
$
(21
)
 
 
$
3,875
 
Fixed income securities:
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt instruments
 
 
474
 
 
 
 
 
 
27
 
 
 
 
 
 
(1
)
 
 
 
500
 
Government securities
 
 
1,073
 
 
 
 
 
 
41
 
 
 
 
 
 
(2
)
 
 
 
1,112
 
Common/collective trust funds
 
 
63
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
 
Insurance contracts
 
 
206
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
206
 
Cash equivalents and other
(3)
 
 
11
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
 
                                                     
Total
 
$
3,603
 
 
 
 
 
$
2,188
 
 
 
 
 
$
(24
)
 
(4)
 
$
5,767
 
                                                     
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
(1)
   
     
     
     
     
   
   
 
U.S.
  $
1,741
     
    $
1,640
     
    $
(51
)  
  $
3,330
 
Fixed income securities:
(2)
   
     
     
     
     
   
   
 
Corporate debt instruments
   
435
     
     
5
     
     
(9
)  
   
431
 
Government securities
   
1,092
     
     
17
     
     
(12
)  
   
1,097
 
Common/collective trust funds
   
76
     
     
     
     
   
   
76
 
Cash equivalents and other
   
4
     
     
     
     
   
   
4
 
                                                     
Total
  $
3,348
     
    $
1,662
     
    $
(72
)  
(4)
  $
4,938
 
                                                     
(1)
Unrealized gains and losses on equity securities are included in other income and the nuclear decommissioning trust regulatory liability.
(2)
Unrealized gains and losses on fixed income securities are included in AOCI and the nuclear decommissioning trust regulatory liability
.
(3)
Includes pending sales of securities of $
3
 million at June 30, 2019
.
 
(4)
The fair value of securities in an unrealized loss position was $
208
 million and $
833
 million at June 30, 2019 and December 31, 2018, respectively.
The portion of unrealized gains and losses that relates to equity securities held within Dominion Energy’s nuclear decommissioning trusts is summarized below:
 
        Three Months Ended June 30,        
   
        Six Months Ended June 30,        
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
   
   
   
 
Net gains recognized during the period
 
$
156
 
  $
89
   
$
570
 
  $
24
 
Less: Net gains recognized during the period on securities sold during the period
 
 
(25
)
   
(16
)  
 
(44
)
   
(35
)
                                 
Unrealized gains (losses) recognized during the period on securities still held at June 30, 2019 and 2018
(1)
 
$
131
 
  $
73
   
$
526
 
  $
(11
)
                                 
(1)
Included in other income and the nuclear decommissioning trust regulatory liability.
The fair value of Dominion Energy’s fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds at June 30, 2019 by contractual maturity is as follows:
 
                        Amount                        
 
       
(millions)
 
 
Due in one year or less
 
$
203
 
Due after one year through five years
 
 
397
 
Due after five years through ten years
 
 
387
 
Due after ten years
 
 
688
 
         
Total
 
$
1,675
 
         
 
63

Presented below is selected information regarding Dominion Energy’s equity and fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds.
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
                2019        
 
 
            2018        
   
                2019        
 
 
                2018        
 
                         
(millions)
 
 
 
   
 
 
 
                                 
Proceeds from sales
 
$
376
 
  $
425
   
    $
882
 
  $
844
 
                                 
Realized gains
(1)
 
 
56
 
   
36
   
 
99
 
   
72
 
                                 
Realized losses
(1)
 
 
27
 
   
23
   
 
50
 
   
42
 
(1)
Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability.
Other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds recognized in earnings for Dominion Energy were immaterial for the three and six months ended June 30, 2019 and 2018.
Virginia Power
Virginia Power holds equity and fixed income securities and cash equivalents in nuclear decommissioning trust funds to fund future decommissioning costs for its nuclear plants. Virginia Power’s decommissioning trust funds are summarized below:
 
        Amortized        
Cost
 
 
Total
            Unrealized            
Gains
 
 
Total
    Unrealized    
Losses
 
 
Fair
        Value        
 
                         
(millions)
 
   
   
   
 
                                 
June 30, 2019
   
     
     
     
 
                                 
Equity securities:
(1)
 
 
 
 
 
 
 
 
 
 
 
 
                                 
U.S.
 
$
888
 
 
$
981
 
 
$
(11
)
 
$
1,858
 
                                 
Fixed income securities:
(2)
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Corporate debt instruments
 
 
244
 
 
 
13
 
 
 
 
 
 
257
 
                                 
Government securities
 
 
500
 
 
 
18
 
 
 
(1
)
 
 
517
 
                                 
Common/collective trust funds
 
 
47
 
 
 
 
 
 
 
 
 
47
 
                                 
Cash equivalents and other
(3)
 
 
3
 
 
 
 
 
 
 
 
 
3
 
                                 
                                 
Total
 
$
1,682
 
 
$
1,012
 
 
$
(12
(4)
 
$
2,682
 
                                 
                                 
December 31, 2018
   
     
     
     
 
                                 
Equity securities:
(1)
   
     
     
     
 
                                 
U.S.
  $
858
    $
751
    $
(24
)   $
1,585
 
                                 
Fixed income securities:
(2)
   
     
     
     
 
                                 
Corporate debt instruments
   
224
     
2
     
(5
)    
221
 
                                 
Government securities
   
504
     
7
     
(5
)    
506
 
                                 
Common/collective trust funds
   
51
     
     
     
51
 
                                 
Cash equivalents and other
(3)
   
6
     
     
     
6
 
                                 
                                 
Total
  $
1,643
    $
760
    $
(34
(4)
  $
2,369
 
                                 
(1)
Unrealized gains and losses on equity securities are included in other income and the nuclear decommissioning trust regulatory liability.
(2)
Unrealized gains and losses on fixed income securities are included in AOCI and the nuclear decommissioning trust regulatory liability
.
(3)
Includes pending sales of securities of $
3
 million and $
6
million at June 30, 2019 and December 31, 2018, respectively.
(4)
The fair value of securities in an unrealized loss position was $
97
 million and $
404
​​​​​​​million at June 30, 2019 and December 31, 2018, respectively.
 
64

The portion of unrealized gains and losses that relates to equity securities held within Virginia Power’s nuclear decommissioning trusts is summarized below:
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                         
(millions)
 
 
 
 
 
 
 
 
                                 
Net gains recognized during the period
 
$
70
 
  $
44
   
$
256
 
  $
             12
 
                                 
Less: Net gains recognized during the period on securities sold during the period
 
 
(7
)
   
(8
)  
 
(8
)
   
(23
)
                                 
                                 
Unrealized gains (losses) recognized during the period on securities still held at June 30, 2019 and 2018
(1)
 
$
             63
 
  $
             36
   
$
             248
 
  $
(11
)
                                 
(1)
Included in other income and the nuclear decommissioning trust regulatory liability.
The fair value of Virginia Power’s fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds at June 30, 2019 by contractual maturity is as follows:
       
 
Amount
 
       
(millions)
 
 
         
Due in one year or less
 
$
98
 
         
Due after one year through five years
 
 
154
 
         
Due after five years through ten years
 
 
212
 
         
Due after ten years
 
 
357
 
         
         
Total
 
$
                                 821
 
         
Presented below is selected information regarding Virginia Power’s equity and fixed income securities with readily determinable fair values held in nuclear decommissioning trust funds.
             
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
    2019    
 
 
    2018    
   
    2019    
 
 
    2018    
 
                         
(millions)
 
 
 
   
 
 
 
                                 
Proceeds from sales
 
$
             194
 
  $
             196
   
$
             447
 
  $
             414
 
                                 
Realized gains
(1)
 
 
15
 
   
15
   
 
25
 
   
33
 
                                 
Realized losses
(1)
 
 
3
 
   
7
   
 
12
 
   
12
 
(1)
Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability.
Other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds recognized in earnings for Virginia Power were immaterial for the three and six months ended June 30, 2019 and 2018.
 
65

Equity Method Investments
Dominion Energy 
Atlantic Coast Pipeline
In September 2014, Dominion Energy, along with Duke and Southern Company Gas, announced the formation of Atlantic Coast Pipeline. The Atlantic Coast Pipeline partnership agreement includes provisions to allow Dominion Energy an option to purchase additional ownership interest in Atlantic Coast Pipeline to maintain a leading ownership percentage. As of June 30, 2019, the members hold the following membership interests: Dominion Energy, 48%; Duke, 47%; and Southern Company Gas, 5%.
Atlantic Coast Pipeline is focused on constructing an approximately
600-mile
natural gas pipeline running from West Virginia through Virginia to North Carolina. Subsidiaries and affiliates of all three members plan to be customers of the pipeline under
20-year
contracts. Atlantic Coast Pipeline is considered an equity method investment as Dominion Energy has the ability to exercise significant influence, but not control, over the investee. See Note 15 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019
,
 
for more information.
Dominion Energy recorded contributions of $33 million and $81 million during the three months ended June 30, 2019 and 2018, respectively, and $128 million and $159 million during the six months ended June 30, 2019 and 2018, respectively, to Atlantic Coast Pipeline. At June 30, 2019, Dominion Energy had $11 million of contributions payable to Atlantic Coast Pipeline included within other current liabilities in the Consolidated Balance Sheets.
DETI provides services to Atlantic Coast Pipeline which totaled $26 million and $60 million for the three months ended June 30, 2019 and 2018, respectively, and $57 million and $106 million for the six months ended June 30, 2019 and 2018, respectively, included in operating revenue in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income. Amounts receivable related to these services were $10 million and $13 million at June 30, 2019 and December 31, 2018, respectively, composed entirely of accrued unbilled revenue, included in other receivables in Dominion Energy and Dominion Energy Gas’ Consolidated Balance Sheets.
In October 2017, Dominion Energy entered into a guarantee agreement to support a portion of Atlantic Coast Pipeline’s obligation under its credit facility. See Note 18 for more information.
During the third and fourth quarters of 2018, a FERC stop work order together with delays in obtaining permits necessary for construction along with construction delays due to judicial actions impacted the cost and schedule for the project. As a result, project cost estimates have increased from between $6.0 billion to $6.5 billion to between $7.0 billion to $7.5 billion, excluding financing costs. Atlantic Coast Pipeline expects to achieve a late 2020
in-service
date for at least key segments of the project, while the remainder may extend into early 2021. Alternatively, if it takes longer to resolve the judicial issues, such as through resolution of the appeal to the Supreme Court of the U.S. filed in June 2019, full
in-service
could extend to the end of 2021 with total project cost estimated to increase an additional $250 million, resulting in total project cost estimates of $7.25 billion to $7.75 billion, excluding financing costs. Atlantic Coast Pipeline is also evaluating possible legislative and administrative remedies. Project construction activities, schedules and costs are subject to uncertainty due to permitting and/or work delays (including due to judicial or regulatory action), abnormal weather and other conditions that could result in cost or schedule modifications in the future, a suspension of AFUDC for Atlantic Coast Pipeline and/or impairment charges potentially material to Dominion Energy’s cash flows, financial position and/or results of operations.
Blue Racer
In the first quarter of 2019, Dominion Energy received $151 million of additional consideration, including applicable interest, in connection with the sale of Dominion Energy’s 50% limited partnership interest in Blue Racer in December 2018, as discussed in Note 9 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
Dominion Energy Gas
Iroquois and White River Hub
Dominion Energy Gas’ equity earnings totaled $22 million and $31 million for the six months ended June 30, 2019 and 2018, respectively. Dominion Energy Gas received distributions of $30 million and $31 million for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of Dominion Energy Gas’ investment of $331 million and $339 million, respectively, exceeded its share of underlying equity in net assets by $146 million. The difference reflects equity method goodwill and is not being amortized.
 
66

Note 11. Property, Plant and Equipment
Virginia Power
Acquisitions of Solar Projects
In February 2019, Virginia Power completed the acquisition of a solar development project in Virginia. The facility commenced commercial operations in April 2019, generating 20 MW, at a cost of $37 million, including the initial acquisition cost.
In August 2018, Virginia Power entered into agreements to acquire two solar development projects in North Carolina and Virginia. The first acquisition was completed in March 2019. The project is expected to commence commercial operations by the end of 2020 and cost approximately $130 million once constructed, including the initial acquisition cost. The second acquisition was completed in May 2019. The project is expected to commence commercial operations by the end of 2019 and cost approximately $120 million, including the initial acquisition cost. The projects are expected to generate 155 MW combined.
In September 2017, Virginia Power entered into agreements to acquire two solar development projects in North Carolina. The first acquisition closed in October 2018. The facility commenced commercial operations in December 2018 at a cost of $140 million, including the initial acquisition cost. The second acquisition was completed in June 2019. The project is expected to commence commercial operations by the end of 2019 and cost approximately $140 million, including the initial acquisition cost. The projects are expected to generate approximately 155 MW combined.
In June 2019, Virginia Power entered into an agreement to acquire a solar development project in Virginia. The project is expected to commence commercial operations by the end of 2020 and cost approximately $160 million once constructed, including the initial acquisition cost. The project is expected to generate approximately 88 MW.
In June 2019, Virginia Power completed the acquisition of a solar development project in Virginia. The project is expected to commence commercial operations by the end of 2021 and cost approximately $260 million once constructed, including the initial acquisition cost. The project is expected to generate approximately 150 MW.
Virginia Power anticipates claiming federal investment tax credits on these solar projects.
Dominion Energy Gas
Assignment of Shale Development Rights
In November 2014, Dominion Energy Gas closed an agreement with a natural gas producer to convey over time approximately 24,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. In January 2018, Dominion Energy Gas and the natural gas producer closed on an amendment to the agreement, which included the conveyance of Dominion Energy Gas’ remaining 50% interest in approximately 18,000 acres and the elimination of Dominion Energy Gas’ overriding royalty interest in gas produced from all acreage. In February 2018, Dominion Energy Gas received proceeds of $28 million, resulting in an approximately $28 million ($20 million
after-tax)
gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.
In March 2018, Dominion Energy Gas closed an agreement with a natural gas producer to convey approximately 11,000 acres of Utica and Point Pleasant Shale development rights underneath one of its natural gas storage fields. The agreement provided for a payment to Dominion Energy Gas, subject to customary adjustments, of $16 million. In March 2018, Dominion Energy Gas received cash proceeds of $16 million associated with the conveyance of the acreage, resulting in a $16 million ($12 million
after-tax)
gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.
In June 2018, Dominion Energy Gas closed an amendment to an agreement with a natural gas producer for the elimination of Dominion Energy Gas’ overriding royalty interest in gas produced from approximately 9,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields previously conveyed in December 2013. In June 2018, Dominion Energy Gas received proceeds of $6 million associated with the transaction, resulting in a $6 million ($4 million
after-tax)
gain recorded in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income.
 
67

Note 12. Regulatory Assets and Liabilities
Regulatory assets and liabilities include the following:
 
    June 30, 2019    
 
 
  December 31, 2018  
 
             
(millions)
 
   
 
                 
Dominion Energy
   
     
 
                 
Regulatory assets:
   
     
 
                 
Deferred cost of fuel used in electric generation
(1)
 
$
124
 
  $
174
 
                 
Deferred project costs and DSM programs for gas utilities
(2)
 
 
64
 
   
17
 
                 
Unrecovered gas costs
(3)
 
 
55
 
   
14
 
                 
Deferred rate adjustment clause costs for Virginia electric utility
(4)(5)
 
 
56
 
   
78
 
                 
Deferred nuclear refueling outage costs
(6)
 
 
56
 
   
69
 
                 
NND Project costs
(7)
 
 
138
 
   
 
                 
PJM transmission rates
(8)
 
 
69
 
   
45
 
                 
Other
 
 
183
 
   
99
 
                 
                 
Regulatory assets-current
 
 
745
 
   
496
 
                 
                 
Deferred cost of fuel used in electric generation
(1)
 
 
1
 
   
83
 
                 
Unrecognized pension and other postretirement benefit costs
(9)
 
 
1,360
 
   
1,497
 
                 
Deferred rate adjustment clause costs for Virginia electric utility
(4)(5)(10)
 
 
278
 
   
230
 
                 
Deferred project costs for gas utilities
(2)
 
 
451
 
   
335
 
                 
PJM transmission rates
(8)
 
 
169
 
   
192
 
                 
Interest rate hedges
(11)
 
 
706
 
   
184
 
                 
AROs and related funding
(12)
 
 
340
 
   
 
                 
Cost of reacquired debt
(13)(14)
 
 
203
 
   
3
 
                 
NND Project costs
(7)
 
 
2,572
 
   
 
                 
Ash pond and landfill closure costs
(15)
 
 
968
 
   
27
 
                 
Other
 
 
515
 
   
125
 
                 
                 
Regulatory assets-noncurrent
 
 
7,563
 
   
2,676
 
                 
                 
Total regulatory assets
 
$
8,308
 
  $
3,172
 
                 
                 
Regulatory liabilities:
 
 
 
   
 
                 
Provision for future cost of removal and AROs
(16)
 
$
117
 
  $
117
 
                 
Reserve for refunds and rate credits to electric utility customers
(17)
 
 
136
 
   
71
 
                 
Cost-of-service
impact of 2017 Tax Reform Act
(18)
 
 
13
 
   
104
 
                 
Income taxes refundable through future rates
(19)
 
 
130
 
   
 
                 
Monetization of guarantee settlement
(20)
 
 
67
 
   
 
                 
Other
 
 
60
 
   
64
 
                 
                 
Regulatory liabilities-current
 
 
523
 
   
356
 
                 
                 
Income taxes refundable through future rates
(19)
 
 
4,937
 
   
4,071
 
                 
Provision for future cost of removal and AROs
(16)
 
 
2,229
 
   
1,409
 
                 
Nuclear decommissioning trust
(21)
 
 
1,314
 
   
1,070
 
                 
Monetization of guarantee settlement
(20)
 
 
1,003
 
   
 
                 
Reserve for refunds and rate credits to electric utility customers
(17)
 
 
813
 
   
 
                 
Overrecovered other postretirement benefit costs
(22)
 
 
139
 
   
120
 
                 
Other
 
 
373
 
   
170
 
                 
                 
Regulatory liabilities-noncurrent
 
 
10,808
 
   
6,840
 
                 
                 
Total regulatory liabilities
 
$
11,331
 
  $
7,196
 
                 
(1)
Reflects deferred fuel expenses for the Virginia, North Carolina and South Carolina jurisdictions of Dominion Energy’s electric generation operations.
(2)
Primarily reflects amounts expected to be collected from or owed to gas customers in Dominion Energy’s service territories associated with current and prospective rider projects, including CEP, PIR, and pipeline integrity management. See Note 13 for more information.
(3)
Reflects unrecovered or overrecovered gas costs at regulated gas operations, which are recovered or refunded through filings with the applicable regulatory authority.
(4)
Reflects deferrals under Virginia Power’s electric transmission FERC formula rate and the deferral of costs associated with certain current and prospective rider projects, net of income taxes refundable from the 2017 Tax Reform Act for Virginia Power. See Note 13 for more information.
 
68

(5)
As a result of actions from the Virginia Commission in the first quarter of 2019 regarding the ratemaking treatment of excess deferred taxes from the adoption of the 2017 Tax Reform Act for all existing rate adjustment clauses, Virginia Power recorded a $29 million ($22 million
after-tax)
charge in operating revenue in the Consolidated Statements of Income for amounts which are probable of being returned to customers.
(6)
Legislation enacted in Virginia in April 2014 requires Virginia Power to defer operation and maintenance costs incurred in connection with the refueling of any nuclear-powered generating plant. These deferred costs will be amortized over the refueling cycle, not to exceed 18 months.
(7)
Reflects expenditures by DESC associated with the NND Project, which pursuant to the SCANA Merger Approval Order, will be recovered from DESC electric service customers over a
20-year
period ending in 2039. See Note 3 for more information.
(8)
Reflects amounts to be recovered through retail rates in Virginia for payments Virginia Power will make to PJM over a ten-year period ending 2028 under the terms of a FERC settlement agreement in May 2018 resolving a PJM cost allocation matter.
(9)
Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy’s rate-regulated subsidiaries.
(10)
During the first quarter of 2019, Virginia Power recorded a charge of $17 million ($13 million
after-tax)
to
write-off
the balance of a regulatory asset for which it is no longer seeking recovery.
(11)
Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 26 years.
(12)
Represents deferred depreciation and accretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties. The AROs primarily relate to DESC’s electric generating facilities, including V.C. Summer nuclear power station, and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 106 years.
(13)
Costs of the reacquisition of debt are deferred and amortized as interest expense over the
would-be
remaining life of the reacquired debt. The reacquired debt costs had a weighted-average life of approximately 30 years as of June 30, 2019.
(14)
In March 2019, DESC purchased certain of its first mortgage bonds having an aggregate purchase price of $1.2 billion, as discussed in Note 17. As a result of this transaction, Dominion Energy incurred costs, including
write-off
of unamortized discount, premium, and debt issuance costs, of $187 million.
(15)
Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCRs to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. See Note 18 for additional information.
(16)
Rates charged to customers by Dominion Energy’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(17)
Reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited over an estimated 11-year period in connection with the SCANA Merger Approval Order and Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers in Virginia. See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K, as updated in Current Report on Form 8-K, filed November 18, 2019, for the year ended December 31, 2018 and Note 3 in this report for more information.
(18)
Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at the Companies’ regulated electric generation and electric and natural gas distribution operations. See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
,
 as updated in 
Current Report on Form 8-K, filed November 18, 2019, 
and Note 13 in this report for more information.
(19)
Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(20)
Reflects amounts to be refunded to DESC electric service customers over a
20-year
period ending in 2039 associated with the monetization of a bankruptcy settlement agreement. See Note 3 for additional information.
(21)
Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon, as applicable) for the future decommissioning of Dominion Energy’s utility nuclear generation stations, in excess of the related AROs.
(22)
Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred.
 
69

 
June 30, 2019
 
 
  December 31, 2018  
 
(millions)
 
 
 
 
Virginia Power
 
 
 
 
 
 
Regulatory assets:
   
     
 
  Deferred cost of fuel used in electric generation
(1)
 
$
111
 
  $
174
 
  Deferred rate adjustment clause costs
(2)(3)
 
 
56
 
   
78
 
  Deferred nuclear refueling outage costs
(4)
 
 
56
 
   
69
 
  PJM transmission rates
(5)
 
 
69
 
   
45
 
  Other
 
 
51
 
   
58
 
                 
Regulatory assets-current
(6)
 
 
343
 
   
424
 
                 
  Deferred rate adjustment clause costs
(2)(3)(7)
 
 
278
 
   
230
 
  PJM transmission rates
(5)
 
 
169
 
   
192
 
  Interest rate hedges
(8)
 
 
367
 
   
151
 
  Deferred cost of fuel used in electric generation
(1)
 
 
1
 
   
83
 
  Ash pond and landfill closure costs
(9)
 
 
968
 
   
27
 
  Other
 
 
89
 
   
54
 
                 
Regulatory assets-noncurrent
 
 
1,872
 
   
737
 
                 
  Total regulatory assets
 
$
2,215
 
  $
1,161
 
                 
Regulatory liabilities:
 
 
 
   
 
  Provision for future cost of removal
(10)
 
$
92
 
  $
92
 
  
Cost-of-service
impact of 2017 Tax Reform Act
(11)
 
 
10
 
   
95
 
  Reserve for rate credits to electric utility customers
(12)
 
 
 
   
71
 
  Income taxes refundable through future rates
(13)
 
 
74
 
   
 
  Other
 
 
12
 
   
41
 
                 
Regulatory liabilities-current
 
 
188
 
   
299
 
                 
  Income taxes refundable through future rates
(13)
 
 
2,413
 
   
2,579
 
  Nuclear decommissioning trust
(14)
 
 
1,314
 
   
1,070
 
  Provision for future cost of removal
(10)
 
 
969
 
   
940
 
  Other
 
 
116
 
   
58
 
                 
Regulatory liabilities-noncurrent
 
 
4,812
 
   
4,647
 
                 
  Total regulatory liabilities
 
$
                 5,000
 
  $
4,946
 
                 
(1)
Reflects deferred fuel expenses for the Virginia and North Carolina jurisdictions of Virginia Power’s generation operations.
(2)
Reflects deferrals under Virginia Power’s electric transmission FERC formula rate and the deferral of costs associated with certain current and prospective rider projects, net of income taxes refundable from the 2017 Tax Reform Act for Virginia Power. See Note 13 for more information.
(3)
As a result of actions from the Virginia Commission in the first quarter of 2019 regarding the ratemaking treatment of excess deferred taxes from the adoption of the 2017 Tax Reform Act for all existing rate adjustment clauses, Virginia Power recorded a $29 million ($22 million
after-tax)
charge in operating revenue in the Consolidated Statements of Income for amounts which are probable of being returned to customers.
(4)
Legislation enacted in Virginia in April 2014 requires Virginia Power to defer operation and maintenance costs incurred in connection with the refueling of any nuclear-powered generating plant. These deferred costs will be amortized over the refueling cycle, not to exceed 18 months.
(5)
Reflects amounts to be recovered through retail rates in Virginia for payments Virginia Power will make to PJM over a
ten-year
period ending 2028 under the terms of a FERC settlement agreement in May 2018 resolving a PJM cost allocation matter.
(6)
Current regulatory assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.
(7)
During the first quarter of 2019, Virginia Power recorded a charge of $17 million ($13 million
after-tax)
to
write-off
the balance of a regulatory asset for which it is no longer seeking recovery.
(8)
Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted-average useful life of approximately 22 years.
(9)
Primarily reflects legislation enacted in Virginia in March 2019 which requires any CCR unit located at certain Virginia Power stations to be closed by removing the CCR to an approved landfill or through recycling for beneficial reuse. Subject to approval by the Virginia Commission, amounts are expected to be collected over a period between 15 and 18 years commencing no earlier than 2021. See Note 18 for additional information.
(10)
Rates charged to customers by Virginia Power’s regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(11)
Balance refundable to customers related to the decrease in revenue requirements for recovery of income taxes at regulated electric generation and distribution operations. See Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 13 in this report for more information.
(12)
Charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers. See Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, for more information.
 
70

(13)
Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(14)
Primarily reflects a regulatory liability representing amounts collected from Virginia jurisdictional customers and placed in external trusts (including income, losses and changes in fair value thereon) for the future decommissioning of Virginia Power’s utility nuclear generation stations, in excess of the related AROs.
 
  June 30, 2019  
 
 
  December 31, 2018  
 
(millions)
 
 
 
 
Dominion Energy Gas
 
 
 
 
 
 
Regulatory assets:
 
 
 
   
 
  Unrecovered gas costs
(1)
 
$
1
 
  $
1
 
  Other
 
 
8
 
   
7
 
                 
Regulatory assets-current
(2)
 
 
9
 
   
8
 
                 
  Unrecognized pension and other postretirement benefit costs
(3)
 
 
4
 
   
15
 
  Interest rate hedges
(4)
 
 
32
 
   
33
 
  Other
 
 
7
 
   
4
 
                 
Regulatory assets-noncurrent
(5)
 
 
43
 
   
52
 
                 
Total regulatory assets
 
$
52
 
  $
60
 
                 
Regulatory liabilities:
 
 
 
   
 
  Provision for future cost of removal and AROs
(6)
 
$
10
 
  $
9
 
  Overrecovered gas costs
(1)
 
 
8
 
   
7
 
  Other
 
 
14
 
   
8
 
                 
Regulatory liabilities-current
(7)
 
 
32
 
   
24
 
                 
  Income taxes refundable through future rates
(8)
 
 
568
 
   
530
 
  Provision for future cost of removal and AROs
(6)
 
 
110
 
   
113
 
  Overrecovered other postretirement benefit costs
(9)
 
 
118
 
   
106
 
  Other
 
 
14
 
   
16
 
                 
Regulatory liabilities-noncurrent
 
 
810
 
   
765
 
                 
Total regulatory liabilities
 
$
                 842
 
  $
789
 
                 
(1)
Reflects unrecovered or overrecovered gas costs at regulated gas operations, which are recovered or refunded through filings with the applicable regulatory authority.
(2)
Current regulatory assets are presented in other current assets in Dominion Energy Gas’ Consolidated Balance Sheets.
(3)
Represents unrecognized pension and other postretirement employee benefit costs expected to be recovered or refunded through future rates generally over the expected remaining service period of plan participants by certain of Dominion Energy Gas’ rate-regulated subsidiaries.
(4)
Reflects interest rate hedges recoverable from or refundable to customers. Certain of these instruments are settled and any related payments are being amortized into interest expense over the life of the related debt, which has a weighted average useful life of approximately 30 years.
(5)
Noncurrent regulatory assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets.
(6)
Rates charged to customers by Dominion Energy Gas’ regulated businesses include a provision for the cost of future activities to remove assets that are expected to be incurred at the time of retirement.
(7)
Current regulatory liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
(8)
Amounts recorded to pass the effect of reduced income taxes from the 2017 Tax Reform Act to customers in future periods, which will reverse at the weighted average tax rate that was used to build the reserves over the remaining book life of the property​​​​​​​, net of amounts to be recovered through future rates to pay income taxes that become payable when rate revenue is provided to recover AFUDC equity.
(9)
Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred.
At June 30, 2019, Dominion Energy, Virginia Power and Dominion Energy Gas’ regulatory assets include $2.3 billion, $1.3 billion and $45 million, respectively, on which they do not expect to earn a return during the applicable recovery period. With the exception of certain items discussed above, the majority of these expenditures are expected to be recovered within the next
two years
.
 
71

Note 13. Regulatory Matters
Regulatory Matters Involving Potential Loss Contingencies
As a result of issues generated in the ordinary course of business, the Companies are involved in various regulatory matters. Certain regulatory matters may ultimately result in a loss; however, as such matters are in an initial procedural phase, involve uncertainty as to the outcome of pending reviews or orders, and/or involve significant factual issues that need to be resolved, it is not possible for the Companies to estimate a range of possible loss. For regulatory matters that the Companies cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the regulatory process such that the Companies are able to estimate a range of possible loss. For regulatory matters that the Companies are able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any estimated range is based on currently available information, involves elements of judgment and significant uncertainties and may not represent the Companies’ maximum possible loss exposure. The circumstances of such regulatory matters will change from time to time and actual results may vary significantly from the current estimate. For current matters not specifically reported below, management does not anticipate that the outcome from such matters would have a material effect on the Companies’ financial position, liquidity or results of operations.
FERC - Electric
Under the Federal Power Act, FERC regulates wholesale sales and transmission of electricity in interstate commerce by public utilities. Virginia Power purchases and, under its market based rate authority, sells electricity in the PJM wholesale market and to wholesale purchasers in Virginia and North Carolina. DESC sells electricity to wholesale purchasers in its balancing authority area under its electric cost based tariff and to wholesale purchasers outside of its balancing authority area under its market based rate authority. Dominion Energy’s merchant generators sell electricity in the PJM, CAISO and
ISO-NE
wholesale markets, and to wholesale purchasers in the states of Virginia, North Carolina, Indiana, Connecticut, Tennessee, Georgia, California, South Carolina and Utah, under Dominion Energy’s market-based sales tariffs authorized by FERC or pursuant to FERC authority to sell as a qualified facility. In addition, Virginia Power has FERC approval of a tariff to sell wholesale power at capped rates based on its embedded cost of generation. This cost-based sales tariff could be used to sell to loads within or outside Virginia Power’s service territory. Any such sales would be voluntary.
Rates
In April 2008, FERC granted an application for Virginia Power’s electric transmission operations to establish a forward-looking formula rate mechanism that updates transmission rates on an annual basis and approved an ROE effective as of January 1, 2008. The formula rate is designed to recover the expected revenue requirement for each calendar year and is updated based on actual costs. The FERC-approved formula method, which is based on projected costs, allows Virginia Power to earn a current return on its investment in electric transmission infrastructure.
In March 2010, ODEC and North Carolina Electric Membership Corporation filed a complaint with FERC against Virginia Power claiming, among other issues, that the incremental costs of undergrounding certain transmission line projects were unjust, unreasonable and unduly discriminatory or preferential and should be excluded from Virginia Power’s transmission formula rate. A settlement of the other issues raised in the complaint was approved by FERC in May 2012.
In March 2014, FERC issued an order excluding from Virginia Power’s transmission rates for wholesale transmission customers located outside Virginia the incremental costs of undergrounding certain transmission line projects. FERC found it is not just and reasonable for
non-Virginia
wholesale transmission customers to be allocated the incremental costs of undergrounding the facilities because the projects are a direct result of Virginia legislation and Virginia Commission pilot programs intended to benefit the citizens of Virginia. The order is retroactively effective as of March 2010 and will cause the reallocation of the costs charged to wholesale transmission customers with loads outside Virginia to wholesale transmission customers with loads in Virginia. FERC determined that there was not sufficient evidence on the record to determine the magnitude of the underground increment and held a hearing to determine the appropriate amount of undergrounding cost to be allocated to each wholesale transmission customer in Virginia.
In October 2017, FERC issued an order determining the calculation of the incremental costs of undergrounding the transmission projects and affirming that the costs are to be recovered from the wholesale transmission customers with loads located in Virginia. FERC directed Virginia Power to rebill all wholesale transmission customers retroactively to March 2010 within 30 days of when the proceeding becomes final and no longer subject to rehearing. In November 2017, Virginia Power, North Carolina Electric Membership Corporation and the wholesale transmission customers filed petitions for rehearing. In July 2018, FERC denied the rehearing requests related to the October 2017 order determining the calculation of the undergrounding costs. Several parties have appealed FERC’s decision to the U.S. Court of Appeals for the D.C. Circuit. This matter is pending. While Virginia Power cannot predict the outcome of the matter, it is not expected to have a material effect on results of operations.
In January 2019, FERC issued an order denying PJM’s request to waive certain provisions of the PJM Tariff regarding the liquidation of a portfolio of FTRs owned by GreenHat who had defaulted on its financial obligations. As a result of FERC’s order, PJM is required to use the existing tariff provisions to liquidate GreenHat’s FTR portfolio and allocate the resulting costs to PJM members. In February 2019, PJM filed a request for clarification and rehearing with FERC. Also in February 2019, Virginia Power and certain other PJM members filed a request for rehearing with FERC. In June 2019, FERC established a hearing and settlement proceedings to address the issues raised in PJM’s request for clarification and rehearing. While the impacts of this order could be material to Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory framework in Virginia provides rate recovery mechanisms that could substantially mitigate any such impacts.
 
72

FERC – Gas
DETI
In July 2017, FERC audit staff communicated to DETI that it had substantially completed an audit of DETI’s compliance with the accounting and reporting requirements of FERC’s Uniform System of Accounts and provided a description of matters and preliminary recommendations. In November 2017, the FERC audit staff issued its audit report which could have the potential to result in adjustments which could be material to Dominion Energy and Dominion Energy Gas’ results of operations. In December 2017, DETI provided its response to the audit report. DETI recognized a charge of $129 million ($94 million
after-tax)
recorded primarily within impairment of assets and other charges in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income during the second quarter of 2018 for a disallowance of plant, originally established beginning in 2012, in anticipation of resolution of one matter with FERC. DETI reached resolution of certain matters with FERC in the fourth quarter of 2018. Pending final resolution of the audit process and a determination by FERC, management is unable to estimate the potential impact of the remaining finding and no amounts have been recognized.
2017 Tax Reform Act
Other than the items discussed below, which are pending or have been resolved during the period, there have been no changes to the 2017 Tax Reform Act matters discussed in Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
In January 2019, Virginia Power filed updated testimony in response to the Virginia Commission’s September 2018 order with a proposed annual revenue reduction of approximately $171 million. Additionally, Virginia Power proposed to issue a
one-time
bill credit to customers within 90 days of this effective date, to
true-up
the difference between the final revenue reduction for the period January 1, 2018 through March 31, 2019 and the $125 million interim rate reduction implemented on July 1, 2018. In March 2019, the Virginia Commission issued an order approving an annual revenue reduction of approximately $183 million effective April 2019 and ordered Virginia Power to implement the
one-time
customer credit on or before July 1, 2019. In the second quarter of 2019, Virginia Power refunded to customers $132 million.
In October 2018, the North Carolina Commission issued an order requesting companies file to reduce base rates expeditiously. Virginia Power made its compliance filing in October 2018 and submitted an annual base rate revenue decrease of approximately $14 million effective in early 2019. Virginia Power also proposed to issue a
one-time
bill credit in early 2019 for its 2018 tax savings collected provisionally from customers. The order allowed for the disposition of excess deferred income taxes to be deferred for consideration until the utilities’ next base rate case, but no longer than 3 years, and initiated a quarterly reporting requirement for such deferred amounts. In March 2019, the North Carolina Commission issued an order approving Virginia Power’s proposed annual base rate revenue decrease and
one-time
bill credit. In the second quarter of 2019, Virginia Power refunded to customers $13 million.
In March 2019, Questar Gas filed with the Utah and Wyoming Commissions as to the impact of excess deferred income taxes resulting from the 2017 Tax Reform Act. Questar Gas proposed to return the 2018 amortization of excess deferred income taxes to customers and to incorporate the remaining excess deferred income tax impact in its next general rate cases in each jurisdiction. In May 2019, the Utah Commission issued an order approving Questar Gas’ proposal to refund the 2018 amortization of excess deferred income taxes over twelve months beginning in June 2019. The matter with the Wyoming Commission is pending.
In October 2018, the Ohio Commission issued an order requiring rate-regulated utilities to file an application reflecting the impact of the 2017 Tax Reform Act on current rates by January 1, 2019. In December 2018, East Ohio filed its application proposing an approach to establishing rates and charges by and through which to return tax reform benefits to its customers. This case is pending.
In March 2018, FERC announced actions to address the income tax allowance component of regulated entities’
cost-of-service
rates as a result of the 2017 Tax Reform Act. FERC required all interstate natural gas pipelines to make a
one-time
informational filing with FERC on Form
501-G
to provide financial information to allow FERC and other interested parties to analyze the impacts of the changes in tax law. The actions also included the reversal of FERC’s policy allowing master limited partnerships to recover an income tax allowance in
cost-of-service
rates and requiring other pass-through entities to justify the inclusion of an income tax allowance.
During 2018, Dominion Energy’s FERC-regulated pipelines, including those accounted for as equity method investments, filed the Form
501-G
with FERC. Dominion Energy Overthrust Pipeline, LLC, White River Hub, Dominion Energy Questar Pipeline, DETI, DECG, Cove Point and Iroquois have reached resolution through a FERC waiver or FERC terminating the
501-G
proceeding, or through settlement, which did not result in a material impact to results of operations, financial condition and/or cash flows of Dominion Energy or Dominion Energy Gas.
 
73

Other Regulatory Matters
Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019,
 
or Note 13 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form
10-Q
for the quarter ended March 31, 2019
, as updated in Current Report on Form 8-K, filed November 18, 2019.
Virginia Regulation
Virginia Fuel Expenses
In May 2019, Virginia Power filed its annual fuel factor with the Virginia Commission to recover an estimated $1.5 billion in Virginia jurisdictional projected fuel expenses for the rate year beginning July 1, 2019 and the projected June 30, 2019 underrecovered balance of $124 million. Virginia Power’s proposed fuel rate represented a fuel revenue decrease of $192 million when applied to projected kilowatt-hour sales for the period July 1, 2019 to June 30, 2020. Subsequently in May 2019, Virginia Power revised its fuel factor filing to reduce the projected June 30, 2019 underrecovered balance to $107 million and a fuel revenue decrease of $254 million. This matter is pending.
Solar Facility Projects
In July 2019, Virginia Power filed an application with the Virginia Commission for a CPCN to construct Sadler, which is estimated to cost approximately $146 million, excluding financing costs. Sadler is expected to commence commercial operations, subject to regulatory approvals associated with the project, in the fourth quarter of 2020. Virginia Power also applied for approval of Rider
US-4
associated with this project with a proposed $9 million total revenue requirement for the rate year beginning June 1, 2020. These matters are pending.
Rate Adjustment Clauses
The Virginia Commission previously approved Rider T1 concerning transmission rates. In May 2019, Virginia Power proposed a $920 million total revenue requirement consisting of $474 million for the transmission component of Virginia Power’s base rates and $446 million for Rider T1 for the rate year beginning September 1, 2019. This total revenue requirement represents a $271 million increase versus the revenues to be produced during the rate year under current rates. In July 2019, the Virginia Commission approved the filing.
Additional significant riders associated with various Virginia Power projects are as follows:
Rider Name
 
Application Date            
 
 
Approval Date    
 
 
Rate Year Beginning    
 
 
          Total Revenue
Requirement
(millions)
 
 
      Increase (Decrease) Over
Previous Year
(millions)
 
Rider BW
   
October 2018
     
July 2019
     
September 2019
    $
119
    $
3
 
Rider
US-2
   
October 2018
     
July 2019
     
September 2019
     
15
     
2
 
Rider S
   
May 2019
     
Pending
     
April 2020
     
206
     
(9
)
Rider GV
   
May 2019
     
Pending
     
April 2020
     
137
     
17
 
Rider W
   
May 2019
     
Pending
     
April 2020
     
113
     
8
 
Rider R
   
May 2019
     
Pending
     
April 2020
     
49
     
(8
)
Rider B
   
May 2019
     
Pending
     
April 2020
     
32
     
(6
)
Rider
US-3
   
July 2019
     
Pending
     
June 2020
     
31
     
21
 
Electric Transmission Projects
In November 2013, the Virginia Commission issued an order granting Virginia Power a CPCN to construct approximately 7 miles of new overhead 500 kV transmission line from the existing Surry switching station in Surry County to a new Skiffes Creek switching station in James City County, and approximately 20 miles of new 230 kV transmission line in James City County, York County, and the City of Newport News from the proposed new Skiffes Creek switching station to Virginia Power’s existing Whealton substation in the City of Hampton. In February 2019, the transmission line project was placed into service. In March 2019, the U.S. Court of Appeals for the D.C. Circuit issued an order vacating the permit from the U.S. Army Corps of Engineers issued in July 2017 and ordered the U.S. Army Corps of Engineers to do a full environmental impact study of the project. In April 2019, Virginia Power and the U.S. Army Corps of Engineers filed petitions for rehearing with the U.S. Court of Appeals for the D.C. Circuit, asking that the permit from the U.S. Army Corps of Engineers remain in effect while an environmental impact study is performed. In May 2019, the U.S. Court of Appeals for the D.C. Circuit denied the request for rehearing and ordered the U.S. District Court for the D.C. Circuit to consider and issue a ruling on whether the permit should be vacated during the U.S. Army Corps of Engineers’ preparation of an environmental impact statement. This matter is pending.
 
74

Additional Virginia Power electric transmission projects approved and applied for are as follows:
Description and Location
of Project
 
Application
Date                            
 
 
Approval
Date                            
 
 
Type of
    Line    
 
 
Miles of
    Lines    
 
 
Cost Estimate
    (millions)    
 
Build a new substation and connect three existing transmission lines thereto in Fluvanna County, Virginia
   
October 2018
     
June 2019
     
230 kV
     
<1
    $
30
 
Rebuild and operate between Suffolk and the Virginia/North Carolina state line
   
May 2019
     
Pending
     
230 kV
     
11
     
20
 
South Carolina Regulation
In June 2019, DESC filed with the South Carolina Commission its monitoring report for the
12-month
period ended March 31, 2019 with a total revenue requirement of $437 million. This represents a $7 million overall increase to its natural gas rates under the terms of the Natural Gas Rate Stabilization Act effective for the rate year beginning November 2019. This matter is pending.
Ohio Regulation
PIPP Plus Program
Under the Ohio PIPP Plus Program, eligible customers can make reduced payments based on their ability to pay their bill. The difference between the customer’s total bill and the PIPP amount is deferred and collected under the PIPP Rider in accordance with the rules of the Ohio Commission. In July 2019, East Ohio’s annual update of the PIPP rider, filed in May 2019 with the Ohio Commission, was automatically approved after a
45-day
waiting period from the date of filing. The revised rider rate reflects recovery over the twelve-month period from July 2019 through June 2020 of projected deferred program costs of approximately $12 million from April 2019 through June 2020, net of recovery for under-recovery of accumulated arrearages of approximately $8 million as of March 31, 2019.
UEX Rider
East Ohio has approval for a UEX Rider through which it recovers the bad debt expense of most customers not participating in the PIPP Plus Program. The UEX Rider is adjusted annually to achieve dollar for dollar recovery of East Ohio’s actual write-offs of uncollectible amounts. In May 2019, East Ohio filed an application with the Ohio Commission requesting approval of its UEX Rider to reflect recovery of under-recovered accumulated bad debt expense of approximately $3 million as of March 31, 2019, and recovery of prospective net bad debt expense projected to total approximately $15 million for the twelve-month period from April 2019 to March 2020. This matter is pending.
West Virginia Regulation
In May 2019, Hope filed a PREP application with the Public Service Commission of West Virginia requesting approval to recover PREP costs related to $29 million and $39 million of projected capital investment for 2019 and 2020, respectively. The application also includes a
true-up
of PREP costs related to the 2018 actual capital investment of $30 million and sets forth $10 million of annual PREP costs to be recovered in proposed rates effective November 1, 2019. This matter is pending.
Utah Regulation
In July 2019, Questar Gas filed its base rate case and schedules with the Utah Commission. Questar Gas proposed a
non-fuel,
base rate increase of $19 million effective March 2020. The base rate increase was proposed to recover the significant investment in distribution infrastructure for the benefit of Utah customers. Questar Gas presented an earned return of 9.05% based upon a fully-adjusted test period, compared to its authorized 9.85% return, and proposed a 10.5% ROE. This matter is pending.
FERC – Gas
Cove Point
In June 2015, Cove Point executed
two
binding precedent agreements for the approximately $150 million Eastern Market Access Project. In January 2018, Cove Point received FERC authorization to construct and operate the project facilities. In October 2018, Cove Point announced it was evaluating alternatives to a proposed Charles County, Maryland compressor station that was initially part of this project and in December 2018, after working with project customers for alternative solutions, decided to not pursue further construction at this location resulting in a revised project estimate of approximately $45 million and a
write-off
of $37 million ($28 million
after-tax).
In May 2019, Cove Point filed an application for an amendment to vacate its FERC authorization for the Charles County, Maryland compressor station and revised project scope expected to be placed in service the second half of 2019.
 
75

DETI
In January 2018, DETI filed an application to request FERC authorization to construct and operate certain facilities located in Ohio and Pennsylvania for the Sweden Valley project. In June 2019, DETI withdrew its application for the project due to certain regulatory delays. As a result of the project abandonment, during the second quarter of 2019, DETI recorded a charge of $13 million ($10 million
after-tax),
included in impairment of assets and other charges in Dominion Energy and Dominion Energy Gas’ Consolidated Statements of Income.
Note 14. Asset Retirement Obligations
AROs represent obligations that result from laws, statutes, contracts and regulations related to the eventual retirement of certain of the Companies’ long-lived assets. Dominion Energy and Virginia Power’s AROs are primarily associated with the decommissioning of their nuclear generation facilities and ash pond and landfill closures. Dominion Energy Gas’ AROs primarily include plugging and abandonment of gas and oil wells and the interim retirement of natural gas gathering, transmission, distribution and storage pipeline components.
The Companies have also identified, but not recognized, AROs related to the retirement of
the 
Cove Point LNG
F
acility, Dominion Energy and Dominion Energy Gas’ storage wells in their underground natural gas storage network, certain Virginia Power electric transmission and distribution assets located on property with easements, rights of way, franchises and lease agreements, Virginia Power’s hydroelectric generation facilities and the abatement of certain asbestos not expected to be disturbed in Dominion Energy and Virginia Power’s generation facilities. The Companies currently do not have sufficient information to estimate a reasonable range of expected retirement dates for any of these assets since the economic lives of these assets can be extended indefinitely through regular repair and maintenance and they currently have no plans to retire or dispose of any of these assets. As a result, a settlement date is not determinable for these assets and AROs for these assets will not be reflected in the Consolidated Financial Statements until sufficient information becomes available to determine a reasonable estimate of the fair value of the activities to be performed. The Companies continue to monitor operational and strategic developments to identify if sufficient information exists to reasonably estimate a retirement date for these assets. The changes to AROs during 2019 were as follows:
 
                            Amount                            
 
(millions)
 
 
Dominion Energy
   
 
AROs at December 31, 2018
(1)
  $
 2,532
 
Obligations incurred during the period
(2)
 
 
2,395
 
Obligations settled during the period
 
 
(56
)
AROs acquired in the SCANA Combination
 
 
577
 
Revisions in estimated cash flows
(2)
 
 
(228
)
Accretion
 
 
83
 
         
AROs at June 30, 2019
(1)
  $
 
5,303
 
         
Virginia Power
 
 
 
AROs at December 31, 2018
(3)
  $
 
1,445
 
Obligations incurred during the period
(2)
 
 
2,394
 
Obligations settled during the period
 
 
(41
)
Revisions in estimated cash flows
(2)
 
 
(202
)
Accretion
 
 
55
 
         
AROs at June 30, 2019
(3)
  $
 
3,651
 
         
Dominion Energy Gas
 
 
 
AROs at December 31, 2018
(4)
  $
 
88
 
Obligations settled during the period
 
 
(2
)
Accretion
 
 
2
 
         
AROs at June 30, 2019
(4)
  $
 
                            88
 
         
(1)
Includes $
282
 million and $
319
 million reported in other current liabilities at December 31, 2018 and June 30, 2019, respectively.
(2)
Primarily related to future ash pond and landfill closure costs at certain utility generation facilities. See Note 18 for further information.
(3)
Includes $
245
 million and $
262
 million reported in other current liabilities at December 31, 2018 and June 30, 2019, respectively.
(4)
Includes $
76
 million and $
78
 million reported in other deferred credits and other liabilities, with the remainder recorded in other current liabilities, at December 31, 2018 and June 30, 2019, respectively.
 
76

Dominion Energy and Virginia Power have established trusts dedicated to funding the future decommissioning​​​​​​​ of their nuclear plants. At June 30, 2019 and December 31, 2018, the aggregate fair value of Dominion Energy’s trusts, consisting primarily of equity and debt securities, totaled $
5.8
 billion and $
4.9
 billion, respectively. At June 30, 2019 and December 31, 2018, the aggregate fair value of Virginia Power’s trusts, consisting primarily of debt and equity securities, totaled $
2.7
 billion and $2.4 billion, respectively.
Note 15. Leases
At June 30, 2019, the Companies had the following lease assets and liabilities recorded in the Consolidated Balance Sheets:
 
                            June 30, 2019                            
 
(millions)
 
 
Dominion Energy
 
 
 
Lease assets:
   
 
Operating lease assets
 
$
468
 
Finance lease assets
(1)
 
 
87
 
         
Total lease assets
 
$
555
 
         
Lease liabilities:
   
 
Operating lease liabilities
(2)
 
$
59
 
Finance lease liabilities
(3)
 
 
15
 
         
Total lease liabilities - current
 
 
74
 
         
Operating lease liabilities
 
 
404
 
Finance lease liabilities
(4)
 
 
72
 
         
Total lease liabilities - noncurrent
 
 
476
 
         
Total lease liabilities
 
$
550
 
         
Virginia Power
 
 
 
Operating lease assets
 
$
191
 
Finance lease assets
(1)
 
 
11
 
         
Total lease assets
 
$
202
 
         
Lease liabilities:
   
 
Operating lease liabilities
(2)
 
$
31
 
Finance lease liabilities
(3)
 
 
2
 
         
Total lease liabilities - current
 
 
33
 
         
Operating lease liabilities
 
 
158
 
Finance lease liabilities
(4)
 
 
8
 
         
Total lease liabilities - noncurrent
 
 
166
 
         
Total lease liabilities
 
$
199
 
         
Dominion Energy Gas
 
 
 
Operating lease assets
 
$
39
 
Finance lease assets
(1)
 
 
3
 
         
Total lease assets
(5)
 
$
42
 
         
Lease liabilities:
   
 
Operating lease liabilities
(2)
 
$
6
 
Finance lease liabilities
(3)
 
 
 
         
Total lease liabilities - current
 
 
6
 
         
Operating lease liabilities
 
 
32
 
Finance lease liabilities
(4)
 
 
3
 
         
Total lease liabilities - noncurrent
 
 
35
 
         
Total lease liabilities
(5)
 
$
                             41
 
         
 
77

(1)
Included in property, plant and equipment in the Companies’ Consolidated Balance Sheets, net of $
32
 million, $
2
million and $
1
million of accumulated amortization at Dominion Energy, Virginia Power and Dominion Energy Gas, respectively, at June 30, 2019.
(2)
Included in other current liabilities in the Companies’ Consolidated Balance Sheets.
(3)
Included in securities due within one year in the Companies’ Consolidated Balance Sheets.
(4)
Included in long-term debt in the Companies’ Consolidated Balance Sheets.
(5)
Excludes $
24
 million of lease assets recorded in assets of discontinued operations and $
25
 million of lease liabilities recorded in liabilities of discontinued operations.
In addition to the amounts disclosed above, Dominion Energy’s Consolidated Balance Sheet at June 30, 2019 includes property, plant and equipment and accumulated depreciation of $2.8 billion and $318 million, respectively, related to facilities subject to power purchase agreements under which Dominion Energy is the lessor.
For the three and six months ended June 30, 2019, total lease cost associated with the Companies’ lessee leasing arrangements consisted of the following:
 
          Three Months Ended          
June 30, 2019
 
 
          Six Months Ended          
June 30, 2019
 
(millions)
 
 
 
 
Dominion Energy
 
 
 
 
 
 
Finance lease cost:
   
     
 
Amortization
 
$
4
 
 
$
7
 
Interest
 
 
1
 
 
 
2
 
Operating lease cost
 
 
19
 
 
 
44
 
Short-term lease cost
 
 
7
 
 
 
13
 
Variable lease cost
 
 
1
 
 
 
3
 
                 
Total lease cost
 
$
32
 
 
$
69
 
                 
Virginia Power
 
 
 
 
 
 
Operating lease cost
 
$
11
 
 
$
21
 
Short-term lease cost
 
 
2
 
 
 
4
 
Variable lease cost
 
 
 
 
 
1
 
                 
Total lease cost
 
$
13
 
 
$
26
 
                 
Dominion Energy Gas
 
 
 
 
 
 
Operating lease cost
 
$
1
 
 
$
3
 
Short-term lease cost
 
 
2
 
 
 
3
 
                 
Total lease cost
 
$
                                 3
 
 
$
                             6
 
                 
For the six months ended June 30, 2019, cash paid for amounts included in the measurement of lease liabilities consisted of the following amounts, included in the Companies’ Consolidated Statements of Cash Flows:
 
Six Months Ended
                    June 30, 2019                    
 
(millions)
 
 
Dominion Energy
 
 
 
Operating cash flows for finance leases
 
$
                                     2
 
Operating cash flows for operating leases
 
 
61
 
Financing cash flows for finance leases
 
 
6
 
Virginia Power
 
 
 
Operating cash flows for operating leases
 
 
26
 
Dominion Energy Gas
 
 
 
Operating cash flows for operating leases
 
 
6
 
In addition to the amounts disclosed above, Dominion Energy’s Consolidated Statement of Income for the three and six months ended June 30, 2019 includes $53 million and $82 million, respectively, of rental revenue included in operating revenue and $24 million and $47 million, respectively, of depreciation expense, included in depreciation, depletion and amortization, related to facilities subject to power purchase agreements under which Dominion Energy is the lessor.
 
78

At June 30, 2019, the weighted average remaining lease term and weighted discount rate for the Companies’ finance and operating leases were as follows:
 
                            June 30, 2019                            
 
Dominion Energy
 
 
 
Weighted average remaining lease term - finance leases
 
 
7 years
 
Weighted average remaining lease term - operating leases
 
 
21 years
 
Weighted average discount rate - finance leases
 
 
4.68%
 
Weighted average discount rate - operating leases
 
 
4.61%
 
Virginia Power
 
 
 
Weighted average remaining lease term - finance leases
 
 
6 years
 
Weighted average remaining lease term - operating leases
 
 
17 years
 
Weighted average discount rate - finance leases
 
 
4.93%
 
Weighted average discount rate - operating leases
 
 
4.51%
 
Dominion Energy Gas
 
 
 
Weighted average remaining lease term - finance leases
 
 
6 years
 
Weighted average remaining lease term - operating leases
 
 
9 years
 
Weighted average discount rate - finance leases
 
 
4.85%
 
Weighted average discount rate - operating leases
 
 
4.43%
 
The Companies’ lease liabilities have the following scheduled maturities:
Maturity of Lease Liabilities
 
Dominion Energy
   
Virginia Power
   
Dominion Energy Gas
(1)
 
(millions)
 
    Operating    
   
      Finance      
   
    Operating    
   
      Finance      
   
    Operating    
   
      Finance      
 
2019
  $
35
    $
10
    $
17
    $
1
    $
8
    $
1
 
2020
   
67
     
18
     
33
     
2
     
13
     
1
 
2021
   
59
     
16
     
29
     
2
     
11
     
1
 
2022
   
49
     
14
     
23
     
2
     
9
     
1
 
2023
   
39
     
11
     
18
     
2
     
6
     
1
 
After 2023
   
531
     
35
     
160
     
3
     
25
     
2
 
                                                 
Total undiscounted lease payments
   
780
     
104
     
280
     
12
     
72
     
7
 
                                                 
Present value adjustment
   
(317
)    
(17
)    
(91
)    
(2
)    
(13
)    
(1
)
                                                 
Present value of lease liabilities
  $
         463
    $
         87
    $
         189
    $
         10
    $
         59
    $
         6
 
                                                 
 
(1)
Includes amounts reflected in discontinued operations.
Future Leasing Arrangement
In July 2016, Dominion Energy signed an agreement with a lessor to construct and lease a new corporate office property in Richmond, Virginia. The lessor is providing equity and has obtained financing commitments from debt investors, totaling $365 million, to fund the estimated project costs. The project is expected to be substantially completed in the third quarter of 2019. Dominion Energy has been appointed to act as the construction agent for the lessor, during which time Dominion Energy will request cash draws from the lessor and debt investors to fund all project costs, which totaled $340 million at June 30, 2019. If the project is terminated under certain events of default, Dominion Energy could be required to pay up to 89.9% of the then funded amount. For specific full recourse events, Dominion Energy could be required to pay up to 100% of the then funded amount.
The five-year lease term will commence once construction is substantially complete and the facility is able to be occupied. Upon its commencement, the lease for the facility will be classified as a finance lease. At the end of the initial lease term, Dominion Energy can (i) extend the term of the lease for an additional
five years
, subject to the approval of the participants, at current market terms, (ii) purchase the property for an amount equal to the project costs or, (iii) subject to certain terms and conditions, sell the property on behalf of the lessor to a third party using commercially reasonable efforts to obtain the highest cash purchase price for the property. If the project is sold and the proceeds from the sale are insufficient to repay the investors for the project costs, Dominion Energy may be required to make a payment to the lessor, up to 87% of project costs, for the difference between the project costs and sale proceeds.
 
79

Note 16. Variable Interest Entities
There have been no significant changes regarding the entities the Companies consider VIEs as described in Note 15 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
Dominion Energy
At June 30, 2019 and December 31, 2018, Dominion Energy’s securities due within one year includes $32 million and $31 million, respectively, and long-term debt includes $290 million and $299 million, respectively, of debt issued by SBL Holdco, a VIE, net of issuance costs, that is nonrecourse to Dominion Energy and is secured by SBL Holdco’s interest in certain merchant solar facilities.
Virginia Power
Virginia Power had a long-term power and capacity contract with
one
non-utility
generator with an aggregate summer generation capacity of approximately 218 MW. In May 2019, Virginia Power entered into an agreement and paid $135 million to terminate the remaining contract with the
non-utility
generator, effective April 2019. A $135 million ($100 million
after-tax)
charge was recorded in impairment of assets and other charges in Virginia Power’s Consolidated Statements of Income for the three and six months ended June 30, 2019. Virginia Power paid $12 million for electric capacity and $5 million for electric energy to the
non-utility
generator in the three months ended June 30, 2018. Virginia Power paid $13 million and $25 million for electric capacity and $1 million and $10 million for electric energy to the
non-utility
generator in the six months ended June 30, 2019 and 2018, respectively.
Dominion Energy Gas
Dominion Energy Gas purchased shared services from DECGS and DEQPS of $5 million and $11 million for the three months ended June 30, 2019, $5 million and $8 million for the three months ended June 30, 2018, $9 million and $20 million for the six months ended June 30, 2019 and $9 million and $15 million for the six months ended June 30, 2018, respectively. Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DECGS and DEQPS of $12 million
 and $6
mil
lion 
at June 30, 2019 and December 31, 2018, respectively.
Virginia Power and Dominion Energy Gas
Virginia Power and Dominion Energy Gas purchased shared services from DES, an affiliated VIE, of $129 million and $39 million for the three months ended June 30, 2019, $83 million and $26 million for the three months ended June 30, 2018, $218 million and $67 million for the six months ended June 30, 2019 and $172 million and $54 million for the six months ended June 30, 2018, respectively. Virginia Power and Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DES of $92 million and $30 million, respectively, at June 30, 2019, and $107 million and $44 million, respectively, at December 31, 2018, recorded in payables to affiliates, and $19 million and $18 million, recorded in current liabilities of discontinued operations, respectively
Note 17. Significant Financing Transactions
Credit Facilities and Short-term Debt
The Companies use short-term debt to fund working capital requirements and as a bridge to long-term debt financings. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations. In addition, Dominion Energy utilizes cash and letters of credit to fund collateral requirements. Collateral requirements are impacted by commodity prices, hedging levels, Dominion Energy’s credit ratings and the credit quality of its counterparties.
Dominion Energy
At June 30, 2019, Dominion Energy’s commercial paper and letters of credit outstanding, as well as its capacity available under the credit facility, were as follows:
 
    Facility     
Limit
 
 
 Outstanding 
Commercial
Paper
 
 
 Outstanding 
Letters of
Credit
 
 
Facility
Capacity
  Available  
 
(millions)
 
 
 
 
 
 
 
 
Joint revolving credit facility
(1)
 
$
6,000
 
 
$
2,526
 
 
$
91
 
 
$
3,383
 
 
80

(1)
This credit facility matures in March 2023 and can be used by the borrowers under the 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.
In addition to the credit facility mentioned above, Dominion Energy also has a credit facility with a maturity date in June 2020 which allows Dominion Energy to issue up to approximately $21 million in letters of credit. At June 30, 2019, Dominion Energy had $11 million in letters of credit outstanding under this agreement.
In March 2019, DESC’s existing $700 million credit facility was terminated and DESC was added as a borrower to the joint revolving credit facility discussed above with Dominion Energy, Virginia Power, Dominion Energy Gas and Questar Gas. At June 30, 2019, the
sub-limit
for DESC was $500 million.
South Carolina Fuel Company, Inc.’s existing credit facility was terminated in February 2019. SCANA and PSNC’s existing credit facilities were terminated in March 2019. Liquidity needs for these entities may be satisfied through short-term intercompany borrowings from Dominion Energy.
In addition to the credit facilities mentioned above, SBL Holdco has $30 million of credit facilities which had an original stated maturity date of December 2017 with automatic
one-year
renewals through the maturity of the SBL Holdco term loan agreement in 2023. Dominion Solar Projects III, Inc. has $25 million of credit facilities which had an original stated maturity date of May 2018 with automatic
one-year
renewals through the maturity of the Dominion Solar Projects III, Inc. term loan agreement in 2024. At June 30, 2019, no amounts were outstanding under either of these facilities.
In February 2019, Dominion Energy Midstream terminated its $500 million revolving credit facility subsequent to repaying the outstanding balance of $73 million, plus accrued interest.
Virginia Power
Virginia Power’s short-term financing is supported through its access as
co-borrower
to the joint revolving credit facility. This credit facility can be used for working capital, as support for the combined commercial paper programs of the borrowers under the credit facility and for other general corporate purposes.
At June 30, 2019, Virginia Power’s share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, Dominion Energy Gas, Questar Gas and DESC was as follows:
 
      Facility      
Limit
(1)
 
 
Outstanding
  Commercial  
Paper
 
 
  Outstanding  
Letters of
Credit
 
(millions)
 
 
 
 
 
 
Joint revolving credit facility
(1)
 
$
6,000
 
 
$
1,300
 
 
$
6
 
(1)
The full amount of the facility is available to Virginia Power, less any amounts outstanding to
co-borrowers
Dominion Energy, Dominion Energy Gas, Questar Gas and DESC. The
sub-limit
for Virginia Power is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At June 30, 2019, the
sub-limit
for Virginia Power was $1.5 billion. If Virginia Power has liquidity needs in excess of its
sub-limit,
the
sub-limit
may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $2.0 billion (or the
sub-limit,
whichever is less) of letters of credit.
Dominion Energy Gas
Dominion Energy Gas’ short-term financing is supported through its access as
co-borrower
to the joint revolving credit facility. This credit facility can be used for working capital, as support for the combined commercial paper programs of the borrowers under the credit facility and for other general corporate purposes.
At June 30, 2019, Dominion Energy Gas’ share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, Virginia Power, Questar Gas and DESC was as follows:
 
      Facility      
Limit
(1)
 
 
Outstanding
  Commercial  
Paper
 
 
  Outstanding  
Letters of
Credit
 
(millions)
 
 
 
 
 
 
Joint revolving credit facility
(1)
 
$
1,500
 
 
$
250
 
 
$
 
(1)
A maximum of $1.5 billion of the facility is available to Dominion Energy Gas, assuming adequate capacity is available after giving effect to uses by
co-borrowers
Dominion Energy, Virginia Power, Questar Gas and DESC. The
sub-limit
for Dominion Energy Gas is set within the facility limit but can be changed at the option of the borrowers under the credit facility multiple times per year. At June 30, 2019, the
sub-limit
 
81

 
for Dominion Energy Gas was $750 million. If Dominion Energy Gas has liquidity needs in excess of its
sub-limit,
the
sub-limit
may be changed or such needs may be satisfied through short-term intercompany borrowings from Dominion Energy. This credit facility matures in March 2023 and can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the
sub-limit,
whichever is less) of letters of credit.
In February 2019, Dominion Energy Midstream terminated its $500 million revolving credit facility subsequent to repaying the outstanding balance of $73 million, plus accrued interest.
Long-term Debt
Unless otherwise noted, the proceeds of long-term debt issuances were used for general corporate purposes and/or to repay short-term debt.
In February 2019, Dominion Energy Midstream repaid its $300 million variable rate term loan agreement due in December 2019 at the principal outstanding plus accrued interest.
In February and March 2019, DESC purchased certain of its first mortgage bonds having an aggregate purchase price of $1.2 billion pursuant to tender offers. Also in March 2019, SCANA purchased certain of its medium term notes having an aggregate purchase price of $300 million pursuant to a tender offer. Both DESC tender offers and the SCANA tender offer expired in the first quarter of 2019.
In March 2019, Dominion Energy issued $400 million of 4.60% senior notes that mature in 2049.
In March 2019, Dominion Energy issued an additional $200 million of its 4.25% senior notes that mature in 2028.
In May 2019, Virginia Power redeemed its $40 million 5.0% Economic Development Authority of the County of Chesterfield Pollution Control Refunding Revenue Bonds, Series 2009A, due in 2023 at the principal outstanding plus accrued interest.
In May 2019, GENCO redeemed its 5.49% senior secured notes due in 2024 at the remaining principal outstanding of $33 million plus accrued interest. In June 2019, the first mortgage lien on an electric generating facility that previously secured these notes was released.
In May 2019, Virginia Power remarketed four series of
tax-exempt
bonds, with an aggregate outstanding principal of $198 million to new investors. One of the bonds will bear interest at a coupon rate of 1.8% until April 2022, after which it will bear interest at a market rate to be determined at that time. Three of the bonds will bear interest at a coupon rate of 1.9% until June 2023, after which they will bear interest at a market rate to be determined at that time.
In June 2019, Dominion Energy purchased and cancelled $12 million and $13 million of its June 2006 hybrids and September 2006 hybrids, respectively. All purchases were conducted in compliance with the applicable replacement capital covenant.
In July 2019, Virginia Power issued $500 million of 2.875% senior notes that mature in 2029.
Remarketable Subordinated Notes
In June 2019, Dominion Energy successfully remarketed its $700 million 2016 Series
A-1
2.0% RSNs due 2021 and $700 million 2016 Series
A-2
2.0% RSNs due 2024 pursuant to the terms of the 2016 Equity Units. In connection with the remarketing, the interest rates on the Series
A-1
and Series
A-2
notes were reset to 2.715% and 3.071%, respectively, payable on a semi-annual basis, and Dominion Energy ceased to have the ability to redeem the notes at its option or defer interest payments. At June 30, 2019, the securities are included in junior subordinated notes in Dominion Energy’s Consolidated Balance Sheets. Dominion Energy did not receive any proceeds from the remarketing. Remarketing proceeds belong to the investors holding the related 2016 Equity Units and were used to purchase a portfolio of treasury securities. Upon maturity of the portfolio, the proceeds will be applied on behalf of investors at the settlement date of the related stock purchase contracts in August 2019 to pay the purchase price to Dominion Energy for issuance of shares of its common stock. 
Noncontrolling Interest in Dominion Energy Midstream
In June 2018, Dominion Energy, as general partner, exercised an incentive distribution right reset as defined in Dominion Energy Midstream’s partnership agreement and received 26.7 million common units representing limited partner interests in Dominion Energy Midstream. As a result of the increase in its ownership interest in Dominion Energy Midstream, Dominion Energy recorded a decrease in noncontrolling interest, and a corresponding increase in shareholders’ equity, of $375 million reflecting the change in the carrying value of the interest in the net assets of Dominion Energy Midstream held by others.
In January 2019, Dominion Energy and Dominion Energy Midstream closed on an agreement and plan of merger pursuant to which Dominion Energy acquired each outstanding common unit representing limited partner interests in Dominion Energy Midstream not already owned by Dominion Energy through the issuance of 22.5 million shares of common stock valued at $1.6 billion. Under the terms of the agreement and plan of merger, each publicly held outstanding common unit representing limited partner interests in
 
82

Dominion Energy Midstream was converted into the right to receive 0.2492 shares of Dominion Energy common stock. Immediately prior to the closing, each Series A Preferred Unit representing limited partner interests in Dominion Energy Midstream was converted into common units representing limited partner interests in Dominion Energy Midstream in accordance with the terms of Dominion Energy Midstream’s partnership agreement. The merger was accounted for by Dominion Energy following the guidance for a change in a parent company’s ownership interest in a consolidated subsidiary. Because Dominion Energy controls Dominion Energy Midstream both before and after the merger, the changes in Dominion Energy’s ownership interest in Dominion Energy Midstream were accounted for as an equity transaction and no gain or loss was recognized. In connection with the merger, Dominion Energy recognized $40 million of income taxes in equity primarily attributable to establishing additional regulatory liabilities related to excess deferred income taxes and changes in state income taxes.
Subsequent to this activity, as a result of the Dominion Energy Gas Restructuring, Dominion Energy Gas is considered to have acquired all of the outstanding partnership interests of Dominion Energy Midstream and Dominion Energy Midstream became a wholly-owned subsidiary of Dominion Energy Gas.
2019 Corporate Units
In June 2019, Dominion Energy issued $1.6 billion of 2019 Equity Units, initially in the form of 2019 Series A Corporate Units. The Corporate Units are listed on the NYSE under the symbol DCUE. The net proceeds were used for general corporate purposes and to repay short-term debt, including commercial paper.
Each 2019 Series A Corporate Unit consists of a stock purchase contract and a 1/10, or 10%, undivided beneficial ownership interest in one share of Series A Preferred Stock. Beginning in June 2022, the Series A Preferred Stock is convertible at the option of the holder into Dominion Energy common stock under a formula based upon the average closing price of Dominion Energy common stock prior to the conversion date. The Series A Preferred Stock is redeemable in cash by Dominion Energy beginning September 2022 at the liquidation preference. Settlement of any conversion is payable in cash, common stock or a combination thereof, at Dominion Energy’s election.
The stock purchase contracts obligate the holders to purchase shares of Dominion Energy common stock in June 2022. The purchase price to be paid under the stock purchase contracts is $100 per Corporate Unit and the number of shares to be purchased will be determined under a formula based upon the average closing price of Dominion Energy common stock near the settlement date. The Series A Preferred Stock was pledged upon issuance as collateral to secure the purchase of common stock under the related stock purchase contracts.
Dominion Energy pays cumulative dividends on the Series A Preferred Stock and quarterly contract adjustment payments on the stock purchase contracts, at the rates described below. Dominion Energy may elect to pay such dividends and/or payments in cash, shares of Dominion Energy common stock or a combination of cash and shares of Dominion Energy common stock. Dominion Energy may defer the contract adjustment payments for one or more consecutive periods but generally not beyond the purchase contract settlement date. If payments are deferred, Dominion Energy may not make any distributions related to its capital stock, including dividends, redemptions, repurchases or liquidation payments. Also, during the deferral period, Dominion Energy may not make any payments on or redeem, repay or repurchase any debt securities that are equal in right of payment with, or subordinated to, the contract adjustment payments or make any payment on any guarantee of a security of a subsidiary if the guarantee ranks equal or junior to the contract adjustment payments. Unless all accumulated and unpaid dividends on the Series A Preferred Stock have been declared and paid, Dominion Energy may not make any distributions on any of its capital stock ranking equal or junior to the Series A Preferred Stock as to dividends or upon liquidation, as applicable, including dividends, redemptions, repurchases or liquidation payments. In such circumstances, Dominion Energy also may not make any contract adjustment payments or other similar types of payments, subject to certain exceptions.
Dominion Energy has recorded the present value of the stock purchase contract payments as a liability offset to common stock. Stock purchase contract payments are recorded against this liability. Accretion of the stock purchase contract liability is recorded as imputed interest expense. In calculating diluted EPS, Dominion Energy applies the treasury stock method to the stock purchase contracts and the
if-converted
method to the Series A Preferred Stock. Under the terms of the stock purchase contracts, assuming no anti-dilution or other adjustments, the maximum number of shares of common stock Dominion Energy will issue in June 2022 is 21.8 million.
Selected information about Dominion Energy’s 2019 Equity Units is presented below:
Issuance Date    
 
Units Issued      
 
Total Net
Proceeds
(1)
        
 
 
Total Preferred     
Stock
 
 
Cumulative
Dividend Rate    
 
 
Stock Purchase  
Contract
Annual Rate
 
 
Stock Purchase    
Contract
Liability
 
 
Stock Purchase
Contract
Settlement Date     
(millions except interest rates)
 
 
 
 
 
 
 
 
 
 
 
6/14/2019
 
16
  $
1,582
    $
1,610
     
1.75
%    
5.5
%   $
250
   
6/1/2022
 
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(1)
Issuance costs of $28 million were recorded as a reduction to preferred stock ($14 million) and common stock ($14 million) in the Consolidated Balance Sheets.
Issuance of Common Stock
See Note 3 to the Consolidated Financial Statements for information on the issuance of Dominion Energy common stock in January 2019 in connection with the SCANA Combination. Also in January 2019, Dominion Energy acquired all outstanding partnership interests of Dominion Energy Midstream not owned by Dominion Energy through the issuance of common stock as noted above.
At-the-Market
Program
Dominion Energy has an
at-the-market
program pursuant to which it may offer common stock as discussed in Note 19 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
In the first quarter of 2019, Dominion Energy issued 2.1 million shares and received cash proceeds of $154 million, net of fees and commissions paid of $2 million. Following these issuances, Dominion Energy has the ability to issue $645 million of securities under its existing
at-the-market
program.
Forward Sales Agreements
Dominion Energy entered in March 2018, and closed in April 2018, separate forward sale agreements with Goldman Sachs & Co. LLC and Credit Suisse Capital LLC, as forward purchasers, and an underwriting agreement with Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. LLC, as representatives of the several underwriters named therein, relating to an aggregate of 20 million shares of Dominion Energy common stock. The underwriting agreement granted the underwriters a
30-day
option to purchase up to an additional
three
million shares of Dominion Energy common stock, which the underwriters exercised with respect to approximately 2.1 million shares in April 2018. Dominion Energy entered into separate forward sale agreements with the forward purchasers with respect to the additional shares. In December 2018, Dominion Energy received proceeds of $1.4 billion (after deducting underwriting discounts, but before deducting expenses, and subject to forward price adjustments under the forward sale agreements) upon the physical settlement of 22.1 million shares.
Dividend Restrictions
At June 30, 2019, DESC’s retained earnings are below the balance established by the Federal Power Act as a reserve on earnings attributable to hydroelectric generation plants. As a result, DESC is prohibited from the payment of dividends without regulatory approval until the balance of its retained earnings increases. There have been no other significant changes to dividend restrictions affecting the Companies described in Note 20 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
Note 18. Commitments and Contingencies
As a result of issues generated in the ordinary course of business, the Companies are involved in legal proceedings before various courts and are periodically subject to governmental examinations (including by regulatory authorities), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for the Companies to estimate a range of possible loss. For such matters that the Companies cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that the Companies are able to estimate a range of possible loss. For legal proceedings and governmental examinations that the Companies are able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent the Companies’ maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on the Companies’ financial position, liquidity or results of operations.
Environmental Matters
The Companies are subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.
 
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Air
CAA
The CAA, as amended, is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation’s air quality. At a minimum, states are required to establish regulatory programs to address all requirements of the CAA. However, states may choose to develop regulatory programs that are more restrictive. Many of the Companies’ facilities are subject to the CAA’s permitting and other requirements.
MATS
In February 2019, the EPA published a proposed rule to reverse its previous finding that it is appropriate and necessary to regulate toxic emissions from power plants. However, the emissions standards and other requirements of the MATS rule would remain in place as the EPA is not proposing to remove coal and oil fired power plants from the list of sources that are regulated under MATS. Although litigation of the MATS rule and the outcome of the EPA’s rulemaking are still pending, the regulation remains in effect and Virginia Power is complying with the applicable requirements of the rule and does not expect any adverse impacts to its operations at this time.
Ozone Standards
The EPA published final
non-attainment
designations for the October 2015 ozone standard in June 2018. States have until August 2021 to develop plans to address the new standard. Until the states have developed implementation plans for the standard, the Companies are unable to predict whether or to what extent the new rules will ultimately require additional controls. The expenditures required to implement additional controls could have a material impact on the Companies’ results of operations and cash flows.
Oil and Gas NSPS
In August 2012, the EPA issued an NSPS impacting new and modified facilities in the natural gas production and gathering sectors and made revisions to the NSPS for natural gas processing and transmission facilities. These rules establish equipment performance specifications and emissions standards for control of VOC emissions for natural gas production wells, tanks, pneumatic controllers, and compressors in the upstream sector. In June 2016, the EPA issued a new NSPS regulation, for the oil and natural gas sector, to regulate methane and VOC emissions from new and modified facilities in transmission and storage, gathering and boosting, production and processing facilities. All projects which commenced construction after September 2015 are required to comply with this regulation. In October 2018, the EPA published a proposed rule reconsidering and amending portions of the 2016 rule, including but not limited to, the fugitive emissions requirements at well sites and compressor stations. Until the proposed rule is final, Dominion Energy and Dominion Energy Gas are implementing the 2016 regulation. Dominion Energy and Dominion Energy Gas are still evaluating whether potential impacts on results of operations, financial condition and/or cash flows related to this matter will be material.
ACE Rule
In July 2019, the EPA published the ACE Rule, which repeals and replaces the Clean Power Plan. The final ACE Rule only applies to coal-fired steam electric generating units greater than or equal to 25 MW. The rule includes unit-specific performance standards based on the degree of emission reduction levels achievable from unit efficiency improvements to be determined by the permitting agency. The ACE Rule requires states to develop plans by July 2022 to implement these performance standards, which plans must be approved by the EPA. While the impacts of this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.
GHG Regulation
Carbon Regulations
In August 2016, the EPA issued a draft rule proposing to reaffirm that a source’s obligation to obtain a PSD or Title V permit for GHGs is triggered only if such permitting requirements are first triggered by
non-GHG,
or conventional, pollutants that are regulated by the New Source Review program, and to set a significant emissions rate at 75,000 tons per year of CO
2
equivalent emissions under which a source would not be required to apply BACT for its GHG emissions. Until the EPA ultimately takes final action on this rulemaking, the Companies cannot predict the impact to their results of operations, financial condition and/or cash flows.
In addition, the EPA continues to evaluate its policy regarding the consideration of CO
2
emissions from biomass projects when determining whether a stationary source meets the PSD and Title V applicability thresholds, including those for the application of BACT. It is unclear how the final policy will affect Virginia Power’s Altavista, Hopewell and Southampton power stations which were converted
 
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from coal to biomass under the prior biomass deferral policy; however, the expenditures to comply with any new requirements could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows.
State Regulations
In May 2019, VDEQ issued a final rule establishing a state carbon regulation program with a 28 million ton initial state-wide carbon cap in 2020. The cap is reduced by approximately three percent per year through 2030, resulting in an ultimate cap of 20 million tons. The final rule includes a provision that allows for delayed VDEQ implementation and possible adjustments to the baseline cap. While the impacts of this program could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory framework in Virginia provides rate recovery mechanisms that could substantially mitigate any such impact.
Water
The CWA, as amended, is a comprehensive program requiring a broad range of regulatory tools including a permit program to authorize and regulate discharges to surface waters with strong enforcement mechanisms. The Companies must comply with applicable aspects of the CWA programs at their operating facilities.
In October 2014, the final regulations under Section 316(b) of the CWA that govern existing facilities and new units at existing facilities that employ a cooling water intake structure and that have flow levels exceeding a minimum threshold became effective. The rule establishes a national standard for impingement based on seven compliance options, but forgoes the creation of a single technology standard for entrainment. Instead, the EPA has delegated entrainment technology decisions to state regulators. State regulators are to make
case-by-case
entrainment technology determinations after an examination of five mandatory facility-specific factors, including a social cost-benefit test, and six optional facility-specific factors. The rule governs all electric generating stations with water withdrawals above two​​​​​​​ MGD, with a heightened entrainment analysis for those facilities over 125 MGD. Dominion Energy and Virginia Power currently have 14 and eight facilities, respectively, that may be subject to the final regulations. Dominion Energy anticipates that it may have to install impingement control technologies at certain of these stations that have once-through cooling systems. Dominion Energy and Virginia Power are currently evaluating the need or potential for entrainment controls under the final rule as these decisions will be made on a
case-by-case
basis after a thorough review of detailed biological, technology, cost and benefit studies. While the impacts of this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.
In September 2015, the EPA released a final rule to revise the Effluent Limitations Guidelines for the Steam Electric Power Generating Category. The final rule establishes updated standards for wastewater discharges that apply primarily at coal and oil steam generating stations. Affected facilities are required to convert from wet to dry or closed cycle coal ash management, improve existing wastewater treatment systems and/or install new wastewater treatment technologies in order to meet the new discharge limits. In April 2017, the EPA granted two separate petitions for reconsideration of the Effluent Limitations Guidelines final rule and stayed future compliance dates in the rule. Also in April 2017, the U.S. Court of Appeals for the Fifth Circuit granted the U.S.’s request for a stay of the pending consolidated litigation challenging the rule while the EPA addresses the petitions for reconsideration. In September 2017, the EPA signed a rule to postpone the earliest compliance dates for certain waste streams regulations in the Effluent Limitations Guidelines final rule from November 2018 to November 2020; however, the latest date for compliance for these regulations remains December 2023. The EPA is proposing to complete new rulemaking for these waste streams. While the impacts of this rule could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows, the existing regulatory frameworks in South Carolina and Virginia provide rate recovery mechanisms that could substantially mitigate any such impacts for the regulated electric utilities.
Waste Management and Remediation
The CERCLA, as amended, provides for immediate response and removal actions coordinated by the EPA in the event of threatened releases of hazardous substances into the environment and authorizes the U.S. government either to clean up sites at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Under the CERCLA, as amended, generators and transporters of hazardous substances, as well as past and present owners and operators of contaminated sites, can be jointly, severally and strictly liable for the cost of cleanup. These potentially responsible parties can be ordered to perform a cleanup, be sued for costs associated with an
EPA-directed
cleanup, voluntarily settle with the U.S. government concerning their liability for cleanup costs, or voluntarily begin a site investigation and site remediation under state oversight.
From time to time, Dominion Energy, Virginia Power or Dominion Energy Gas may be identified as a potentially responsible party to a Superfund site. The EPA (or a state) can either allow such a party to conduct and pay for a remedial investigation, feasibility study and remedial action or conduct the remedial investigation and action itself and then seek reimbursement from the potentially responsible parties. These parties can also bring contribution actions against each other and seek reimbursement from their insurance companies. As a result, Dominion Energy, Virginia Power or Dominion Energy Gas may be responsible for the costs of remedial
 
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investigation and actions under the Superfund law or other laws or regulations regarding the remediation of waste. The Companies do not believe these matters will have a material effect on results of operations, financial condition and/or cash flows.
Dominion Energy has determined that it is associated with 22 former manufactured gas plant sites, three of which pertain to Virginia Power and 12 of which pertain to the discontinued operations of Dominion Energy Gas. Studies conducted by other utilities at their former manufactured gas plant sites have indicated that those sites contain coal tar and other potentially harmful materials. Except as disclosed below, none of the former sites with which the Companies are associated is under investigation by any state or federal environmental agency. At one of the former sites, Dominion Energy is conducting a state-approved post closure groundwater monitoring program and an environmental land use restriction has been recorded. In addition, a Virginia Power site has been accepted into a state-based voluntary remediation program. In June 2018, Virginia Power submitted a proposed remedial action plan to remove material from this site at an estimated cost of $18 million. Pending VDEQ approval, Virginia Power expects to begin remedial work at this site in late 2019. As a result, in June 2018, Virginia Power recorded a charge of $16 million ($12 million
after-tax)
in other operations and maintenance expense in the Consolidated Statements of Income. The four sites Dominion Energy acquired in the SCANA Combination associated with DESC are in various states of investigation, remediation and monitoring under work plans approved by, or under review by, the SCDHEC or the EPA. Dominion Energy anticipates that activities at these sites will continue through 2020 at an estimated cost of $10 million. In September 2018, DESC submitted an updated remediation work plan at one site to SCDHEC, which if approved, would increase costs by approximately $8 million. DESC expects to recover costs arising from the remediation work at all four​​​​​​​ sites through rate recovery mechanisms. Due to the uncertainty surrounding the other sites, the Companies are unable to make an estimate of the potential financial statement impacts.
See below for discussion on ash pond and landfill closure costs.
Other Legal Matters
The Companies are defendants in a number of lawsuits and claims involving unrelated incidents of property damage and personal injury. Due to the uncertainty surrounding these matters, the Companies are unable to make an estimate of the potential financial statement impacts; however, they could have a material impact on results of operations, financial condition and/or cash flows.
SCANA Legal Proceedings
The following describes certain legal proceedings involving Dominion Energy, SCANA or DESC relating to events occurring before closing of the SCANA Combination. Dominion Energy intends to vigorously contest the lawsuits, claims and assessments which have been filed or initiated against SCANA and DESC. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material. For certain of these matters, and unless otherwise noted therein, Dominion Energy is unable to estimate a reasonable range of possible loss and the related financial statement impacts, but for any such matter there could be a material impact to its results of operations, financial condition and/or cash flows. For the matters for which Dominion Energy is able to reasonably estimate a probable loss, Dominion Energy’s Consolidated Balance Sheets include reserves of $291 million included within other current liabilities at June 30, 2019. During the three and six months ended June 30, 2019, Dominion Energy’s Consolidated Statements of Income include charges of $100 million ($75 million
after-tax)
and $278 million ($208 million
after-tax),
respectively, included within impairment of assets and other charges.
Ratepayer Class Actions
In May 2018, a consolidated complaint against DESC, SCANA and the State of South Carolina was filed in the State Court of Common Pleas in Hampton County, South Carolina (the DESC Ratepayer Case). In September 2018, the court certified this case as a class action. The plaintiffs allege, among other things, that DESC was negligent and unjustly enriched, breached alleged fiduciary and contractual duties and committed fraud and misrepresentation in failing to properly manage the NND Project, and that DESC committed unfair trade practices and violated state anti-trust laws. The plaintiffs sought a declaratory judgment that DESC may not charge its customers for any past or continuing costs of the NND Project, sought to have SCANA and DESC’s assets frozen and all monies recovered from Toshiba Corporation and other sources be placed in a constructive trust for the benefit of ratepayers and sought specific performance of the alleged implied contract to construct the NND Project.
In December 2018, the State Court of Common Pleas in Hampton County entered an order granting preliminary approval of a class action settlement and a stay of
pre-trial
proceedings in the DESC Ratepayer Case. The settlement agreement, contingent upon the closing of the SCANA Combination, provided that SCANA and DESC would establish an escrow account and proceeds from the escrow account would be distributed to the class members, after payment of certain taxes, attorneys’ fees and other expenses and administrative costs. The escrow account would include (1) up to $2.0 billion, net of a credit of up to $2.0 billion in future electric bill relief, which would inure to the benefit of the escrow account in favor of class members over a period of time established by the South Carolina Commission in its order related to matters before the South Carolina Commission related to the NND Project, (2) a cash payment of $115 million and (3) the transfer of certain DESC-owned real estate or sales proceeds from the sale of such properties, which counsel for the DESC Ratepayer Class estimate to have an aggregate value between $60 million and $85 million. At the closing
 
87

of the SCANA Combination, SCANA and DESC funded the cash payment portion of the escrow account. The court held a fairness hearing on the settlement in May 2019. In June 2019, the court entered an order granting final approval of the settlement, which order became effective July 2019. In July 2019, DESC transferred $117 million representing the cash payment, plus accrued interest, to the plaintiffs. In addition, property, plant and equipment with a net recorded value of $54 million will be transferred to the plaintiffs as soon as practicable to satisfy the settlement agreement.
In September 2017, a purported class action was filed by Santee Cooper ratepayers against Santee Cooper, DESC, Palmetto Electric Cooperative, Inc. and Central Electric Power Cooperative, Inc. in the State Court of Common Pleas in Hampton County, South Carolina (the Santee Cooper Ratepayer Case). The allegations are substantially similar to those in the DESC Ratepayer Case. The plaintiffs seek a declaratory judgment that the defendants may not charge the purported class for reimbursement for past or future costs of the NND Project. In March 2018, the plaintiffs filed an amended complaint including as additional named defendants, including certain then current and former directors of Santee Cooper and SCANA. In June 2018, Santee Cooper filed a Notice of Petition for Original Jurisdiction with the Supreme Court of South Carolina which was denied. In December 2018, Santee Cooper filed its answer to the plaintiffs’ fourth amended complaint and filed cross claims against DESC. This case is pending.
In July 2019, a similar purported class action was filed by certain Santee Cooper ratepayers against DESC, SCANA, Dominion Energy and former directors and officers of SCANA in the State Court of Common Pleas in Orangeburg, South Carolina. The claims are similar to the Santee Cooper Ratepayer Case. This case is pending.
RICO Class Action
In January 2018, a purported class action was filed, and subsequently amended, against SCANA, DESC and certain former executive officers in the U.S. District Court for the District of South Carolina. The plaintiff alleges, among other things, that SCANA, DESC and the individual defendants participated in an unlawful racketeering enterprise in violation of RICO and conspired to violate RICO by fraudulently inflating utility bills to generate unlawful proceeds. The DESC Ratepayer Class Action settlement described previously contemplates dismissal of claims by DESC ratepayers in this case against DESC, SCANA and their officers. This case is pending.
SCANA Shareholder Litigation
In September 2017, a purported class action was filed against SCANA and certain former executive officers and directors in the U.S. District Court for the District of South Carolina. Subsequent additional purported class actions were separately filed against all or nearly all of these defendants. In January 2018, the U.S. District Court for the District of South Carolina consolidated these suits, and the plaintiffs filed a consolidated amended complaint in March 2018. The plaintiffs allege, among other things, that the defendants violated §10(b) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5
promulgated thereunder, and that the individually named defendants are liable under §20(a) of the same act. In June 2018, the defendants filed motions to dismiss. In March 2019, the U.S. District Court for the District of South Carolina granted in part and denied in part the defendants’ motions to dismiss. This case is pending.
In September 2017, a shareholder derivative action was filed against certain former executive officers and directors of SCANA in the State Court of Common Pleas in Richland County, South Carolina. In September 2018, this action was consolidated with another action in the Business Court Pilot Program in Richland County. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties to shareholders by their gross mismanagement of the NND Project, and that the defendants were unjustly enriched by bonuses they were paid in connection with the project. The defendants have filed a motion to dismiss the consolidated action in favor of the pending federal derivative action. In February 2019, one action was voluntarily dismissed. This case is pending.
In November 2017, a shareholder derivative action was filed against SCANA and certain former executive officers and directors in the U.S. District Court of the District of South Carolina. Another purported shareholder derivative action was filed in the same court against nearly all of these defendants. In January 2018, the U.S. District Court for the District of South Carolina consolidated these suits, and the plaintiffs filed a consolidated amended complaint. The plaintiffs allege, among other things, that the defendants violated their fiduciary duties to shareholders by disseminating false and misleading information about the NND Project, failing to maintain proper internal controls, failing to properly oversee and manage SCANA and that the individual defendants were unjustly enriched in their compensation. In June 2018, the court denied the defendants’ motions to dismiss and in October 2018, the court denied SCANA’s motion to stay all proceedings pending investigation by a Special Litigation Committee, with leave to refile after the SCANA Merger Approval Order was issued. The plaintiffs have agreed to a stay of this action on the condition that defendants file a motion for judgment on the pleadings, which was filed in January 2019. This case is pending.
In January 2018, a purported class action was filed against SCANA, Dominion Energy and certain former executive officers and directors of SCANA in the State Court of Common Pleas in Lexington County, South Carolina (the City of Warren Lawsuit). The plaintiff alleges, among other things, that defendants violated their fiduciary duties to shareholders by executing a merger agreement that would unfairly deprive plaintiffs of the true value of their SCANA stock, and that Dominion Energy aided and abetted these actions. Among other remedies, the plaintiff seeks to enjoin and/or rescind the merger. In February 2018, Dominion Energy removed
 
88

the case to the U.S. District Court for the District of South Carolina, and filed a Motion to Dismiss in March 2018. In June 2018, the case was remanded back to the State Court of Common Pleas in Lexington County. Dominion Energy appealed the decision to remand to the U.S. Court of Appeals for the Fourth Circuit, where the appeal was consolidated with a similar appeal in the Metzler lawsuit discussed below. In June 2019, the U.S. Court of Appeals for the Fourth Circuit reversed the order remanding the case to state court. The case is pending in the U.S. District Court for the District of South Carolina.
In February 2018, a purported class action was filed against Dominion Energy and certain former directors of SCANA and DESC in the State Court of Common Pleas in Richland County, South Carolina (the Metzler Lawsuit). The allegations made and the relief sought by the plaintiffs are substantially similar to that described for the City of Warren Lawsuit. In February 2018, Dominion Energy removed the case to the U.S. District Court for the District of South Carolina, and filed a Motion to Dismiss in March 2018. In August 2018, the case was remanded back to the State Court of Common Pleas in Richland County. Dominion Energy appealed the decision to remand to the U.S. Court of Appeals for the Fourth Circuit, where the appeal was consolidated with the City of Warren Lawsuit. In June 2019, the U.S. Court of Appeals for the Fourth Circuit reversed the order remanding the case to state court. The case is pending in the U.S. District Court for the District of South Carolina.
In May 2019, a case was filed against certain former executive officers and directors of SCANA in the State Court of Common Pleas in Richland County, South Carolina. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties to shareholders by their gross mismanagement of the NND Project, were unjustly enriched by the bonuses they were paid in connection with the project and breached their fiduciary duties to secure and obtain the best price for the sale of SCANA. Also in May 2019, the case was removed to the U.S. District Court of South Carolina by the
non-South
Carolina defendants. In June 2019, the plaintiffs filed a motion to remand the case to state court. This case is pending.
Employment Class Actions and Indemnification
In August 2017, a case was filed in the U.S. District Court for the District of South Carolina on behalf of persons who were formerly employed at the NND Project. In July 2018, the court certified this case as a class action. In February 2019, certain of these plaintiffs filed an additional case. In those cases, the plaintiffs allege, among other things, that SCANA, Fluor Corporation and Fluor Enterprises, Inc. violated the Worker Adjustment and Retraining Notification Act in connection with the decision to stop construction at the NND Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment and are seeking damages, which are estimated to be as much as $75 million for 100% of the NND Project.
In September 2018, a case was filed in the State Court of Common Pleas in Fairfield County, South Carolina by Fluor Enterprises, Inc. and Fluor Daniel Maintenance Services, Inc. against DESC and Santee Cooper. The plaintiffs make claims for indemnification, breach of contract and promissory estoppel arising from, among other things, the defendants’ alleged failure and refusal to defend and indemnify the Fluor defendants in the aforementioned case. These cases are pending.
FILOT Litigation and Related Matters
In November 2017, Fairfield County filed a complaint and a motion for temporary injunction against DESC in the State Court of Common Pleas in Fairfield County, South Carolina, making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of implied duty of good faith and fair dealing and unfair trade practices related to DESC’s termination of the FILOT agreement between DESC and Fairfield County related to the NND Project. The plaintiff sought a temporary and permanent injunction to prevent DESC from terminating the FILOT agreement. The plaintiff withdrew the motion for temporary injunction in December 2017. This case is pending.
Governmental Proceedings and Investigations
In June 2018, DESC received a notice of proposed assessment of approximately $410 million, excluding interest, from the SCDOR following its audit of DESC’s sales and use tax returns for the periods September 1, 2008 through December 31, 2017. The proposed assessment, which includes 100% of the NND Project, is based on the SCDOR’s position that DESC’s sales and use tax exemption for the NND Project does not apply because the facility will not become operational. DESC has protested the proposed assessment, which remains pending.
In September and October 2017, SCANA was served with subpoenas issued by the U.S. Attorney’s Office for the District of South Carolina and the Staff of the SEC’s Division of Enforcement seeking documents related to the NND Project. In addition, the South Carolina Law Enforcement Division is conducting a criminal investigation into the handling of the NND Project by SCANA and DESC. These matters are pending. SCANA and DESC are cooperating fully with the investigations, including responding to additional subpoenas and document requests.
 
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Other Litigation
In December 2018, arbitration proceedings commenced between DESC and Cameco Corporation related to a supply agreement signed in May 2008. This agreement provides the terms and conditions under which DESC agreed to purchase uranium hexafluoride from Cameco Corporation over a period from 2010 to 2020. Cameco Corporation alleges that DESC violated this agreement by failing to purchase the stated quantities of uranium hexafluoride for the 2017 and 2018 delivery years. DESC denies that it is in breach of the agreement and believes that it has reduced its purchase quantity within the terms of the agreement. This matter is pending.
Abandoned NND Project
DESC, for itself and as agent for Santee Cooper, entered into an engineering, construction and procurement contract with Westinghouse and WECTEC in 2008 for the design and construction of the NND Project, of which DESC’s ownership share is 55%. Various difficulties were encountered in connection with the project. The ability of Westinghouse and WECTEC to adhere to established budgets and construction schedules was affected by many variables, including unanticipated difficulties encountered in connection with project engineering and the construction of project components, constrained financial resources of the contractors, regulatory, legal, training and construction processes associated with securing approvals, permits and licenses and necessary amendments to them within projected time frames, the availability of labor and materials at estimated costs and the efficiency of project labor. There were also contractor and supplier performance issues, difficulties in timely meeting critical regulatory requirements, contract disputes, and changes in key contractors or subcontractors. These matters preceded the filing for bankruptcy protection by Westinghouse and WECTEC in March 2017, and were the subject of comprehensive analyses performed by SCANA and Santee Cooper.
Based on the results of SCANA’s analysis, and in light of Santee Cooper’s decision to suspend construction on the NND Project, in July 2017, SCANA determined to stop the construction of the units and to pursue recovery of costs incurred in connection with the construction under the abandonment provisions of the Base Load Review Act or through other means. This decision by SCANA became the focus of numerous legislative, regulatory and legal proceedings. Some of these proceedings remain unresolved and are described above.
In September 2017, DESC, for itself and as agent for Santee Cooper, filed with the Bankruptcy Court Proofs of Claim for unliquidated damages against each of Westinghouse and WECTEC. These Proofs of Claim were based upon the anticipatory repudiation and material breach by Westinghouse and WECTEC of the contract, and assert against Westinghouse and WECTEC any and all claims that are based thereon or that may be related thereto. DESC and Santee Cooper remain responsible for any claims that may be made by Westinghouse and WECTEC against them relating to the contract.
Westinghouse’s reorganization plan was confirmed by the Bankruptcy Court and became effective in August 2018. In connection with the effectiveness of the reorganization plan, the contract associated with the NND Project was deemed rejected. DESC is contesting approximately $285 million of filed liens in Fairfield County, South Carolina. Most of these asserted liens are claims that relate to work performed by Westinghouse subcontractors before the Westinghouse bankruptcy, although some of them are claims arising from work performed after the Westinghouse bankruptcy.
Westinghouse has indicated that some unsecured creditors have sought or may seek amounts beyond what Westinghouse allocated when it submitted its reorganization plan to the Bankruptcy Court. If any unsecured creditor is successful in its attempt to include its claim as part of the class of general unsecured creditors beyond the amounts in the bankruptcy reorganization plan allocated by Westinghouse, it is possible that the reorganization plan will not provide for payment in full or nearly in full to its
pre-petition
trade creditors. The shortfall could be significant.
DESC and Santee Cooper are responsible for amounts owed to Westinghouse for valid work performed by Westinghouse subcontractors on the NND Project after the Westinghouse bankruptcy filing until termination of the interim assessment agreement. DESC does not believe that the claims asserted related to the interim assessment agreement period will exceed the amounts previously funded, whether relating to claims already paid or those remaining to be paid. DESC intends to oppose any previously unasserted claim that is asserted against it, whether directly or indirectly by a claim through the interim assessment agreement.
Further, some Westinghouse subcontractors who have made claims against Westinghouse in the bankruptcy proceeding also filed against DESC and Santee Cooper in South Carolina state court for damages. Many of these claimants have also asserted construction liens against the NND Project site. DESC also intends to oppose these claims and liens. With respect to claims of Westinghouse Subcontractors, DESC believes there were sufficient amounts previously funded during the interim assessment agreement period to pay such validly asserted claims. With respect to the Westinghouse subcontractor claims which relate to other periods, DESC understands that such claims will be paid pursuant to Westinghouse’s confirmed bankruptcy reorganization plan. DESC further understands that the amounts paid under the plan may satisfy such claims in full. Therefore, DESC believes that the Westinghouse subcontractors may be paid substantially (and potentially in full) by Westinghouse. While Dominion Energy cannot be assured that it will not have any exposure on account of unpaid Westinghouse subcontractor claims, which DESC is presently disputing, Dominion
 
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Energy believes it is unlikely that it will be required to make payments on account of such claims.
Ash Pond and Landfill Closure Costs
In April 2015, the EPA enacted a final rule regulating CCR landfills, existing ash ponds that still receive and manage CCRs, and inactive ash ponds that do not receive, but still store, CCRs. Dominion Energy currently operates inactive ash ponds, existing ash ponds and CCR landfills subject to the final rule at 11 different facilities, eight​​​​​​​ of which are at Virginia Power. This rule created a legal obligation for Dominion Energy and Virginia Power to retrofit or close all of its inactive and existing ash ponds over a certain period of time, as well as perform required monitoring, corrective action, and post-closure care activities as necessary.
In December 2016, legislation was enacted that creates a framework ​​​​​​​for
EPA-
approved state CCR permit programs. In August 2017, the EPA issued interim guidance outlining the framework for state CCR program approval. The EPA has enforcement authority until state programs are approved. The EPA and states with approved programs both will have authority to enforce CCR requirements under their respective rules and programs. In September 2017, the EPA agreed to reconsider portions of the CCR rule in response to two​​​​​​​ petitions for reconsideration. In March 2018, the EPA proposed certain changes to the CCR rule related to issues remanded as part of the pending litigation and other issues the EPA is reconsidering. Several of the proposed changes would allow states with approved CCR permit programs additional flexibilities in implementing their programs. In July 2018, the EPA promulgated the first phase of changes to the CCR rule. Until all phases of the CCR rule are promulgated, Dominion Energy and Virginia Power cannot forecast potential incremental impacts or costs related to existing coal ash sites in connection with future implementation of the 2016 CCR legislation and reconsideration of the CCR rule. In August 2018, the U.S. Court of Appeals for the D.C. Circuit issued its decision in the pending challenges of the CCR rule, vacating and remanding to the EPA three provisions of the rule. Dominion Energy and Virginia Power do not expect the scope of the U.S. Court of Appeals for the D.C. Circuit’s decision to impact their closure plans, but cannot forecast incremental impacts associated with any future changes to the CCR rule in connection with the court’s remand.
In April 2017, the Governor of Virginia signed legislation into law that placed a moratorium on the VDEQ issuing solid waste permits for closure of ash ponds at Virginia Power’s Bremo, Chesapeake, Chesterfield and Possum Point power stations until May 2018. The law also required Virginia Power to conduct an assessment of closure alternatives for the ash ponds at these four stations, to include an evaluation of excavation for recycling or
off-site
disposal, surface and groundwater conditions and safety. Virginia Power completed the assessments and provided the report on December 1, 2017. In April 2018, the Governor of Virginia signed legislation into law extending the existing permit moratorium until July 2019. The legislation also required Virginia Power to solicit and compile by November 2018, information from third parties on the suitability, cost and market demand for beneficiation or recycling of coal ash from these units. The coal ash recycling business plan was submitted to the legislature in November 2018. The extended moratorium does not apply to a permit required for an impoundment where CCRs have already been removed and placed in another impoundment
on-site,
are being removed from an impoundment, or are being processed in connection with a recycling or beneficial use project. In connection with this legislation, in the second quarter of 2018, Virginia Power recorded an increase to its ARO and a related environmental liability related to future ash pond and landfill closure costs of $131 million, which resulted in an $81 million ($60 million
after-tax)
charge recorded in other operations and maintenance expense in its Consolidated Statement of Income, a $46 million increase in property, plant and equipment associated with asset retirement costs and a $4 million increase in regulatory assets.
In March 2019, the Governor of Virginia signed into law legislation which requires any CCR unit located at Virginia Power’s Bremo, Chesapeake, Chesterfield or Possum Point power stations that stop accepting CCR prior to July 2019 be closed by removing the CCR to an approved landfill or through recycling for beneficial reuse. The legislation further requires that at least 6.8 million cubic yards of CCR be beneficially reused and that costs associated with the closure of these CCR units be recoverable through a rate adjustment clause approved by the Virginia Commission with a revenue requirement that cannot exceed $225 million in any
12-month
period. In connection with this legislation, Virginia Power recorded a $2.4 billion ARO related to the cost of landfills and beneficial reuse, with an offsetting increase to property, plant and equipment of $1.3 billion for the Chesterfield power station and an increase primarily to regulatory assets for the remaining portion related to the Bremo, Chesapeake and Possum Point power stations during the first quarter of 2019. In addition, Virginia Power revised its estimated cash flows for the existing ARO related to future ash pond and landfill closure costs, which resulted in a decrease of $202 million and a corresponding $113 million ($84 million
after-tax)
benefit in other operations and maintenance expense in the Consolidated Statement of Income in the first quarter of 2019. The actual AROs related to CCRs may vary substantially from the estimates used to record the obligation.
 
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FERC
FERC staff in the Office of Enforcement, Division of Investigations, conducted a
non-public
investigation of Virginia Power’s offers of combustion turbines generators into the PJM
day-ahead
markets from April 2010 through September 2014. FERC staff notified Virginia Power of its preliminary findings relating to Virginia Power’s alleged violation of FERC’s rules in connection with these activities. Virginia Power provided its response to FERC staff’s preliminary findings letter explaining why Virginia Power’s conduct was lawful and refuting any allegation of wrongdoing. In May 2019, FERC issued an order approving an agreement between Virginia Power and FERC staff that settled any and all potential claims relating to the types of activities that were the subject of the investigation, under which Virginia Power neither admits nor denies the alleged violations and paid $7 million in disgorgement to PJM and a $7 million penalty to the U.S. Department of the Treasury.
Nuclear Matters
In March 2011, a magnitude 9.0 earthquake and subsequent tsunami caused significant damage at the Fukushima Daiichi nuclear power station in northeast Japan. These events have resulted in significant nuclear safety reviews required by the NRC and industry groups such as the Institute of Nuclear Power Operations. Like other U.S. nuclear operators, Dominion Energy has been gathering supporting data and participating in industry initiatives focused on the ability to respond to and mitigate the consequences of design-basis and beyond-design-basis events at its stations.
In July 2011, an NRC task force provided initial recommendations based on its review of the Fukushima Daiichi accident and in October 2011 the NRC staff prioritized these recommendations into Tiers 1, 2 and 3, with the Tier 1 recommendations consisting of actions which the staff determined should be started without unnecessary delay. In December 2011, the NRC Commissioners approved the agency staff’s prioritization and recommendations, and that same month an appropriations act directed the NRC to require reevaluation of external hazards (not limited to seismic and flooding hazards) as soon as possible.
Based on the prioritized recommendations, in March 2012, the NRC issued orders and information requests requiring specific reviews and actions to all operating reactors, construction permit holders and combined license holders based on the lessons learned from the Fukushima Daiichi event. The orders applicable to Dominion Energy requiring implementation of safety enhancements related to mitigation strategies to respond to extreme natural events resulting in the loss of power at plants, and enhancing spent fuel pool instrumentation have been implemented. The information requests issued by the NRC request each reactor to reevaluate the seismic and external flooding hazards at their site using
present-day
methods and information, conduct walkdowns of their facilities to ensure protection against the hazards in their current design basis, and to reevaluate their emergency communications systems and staffing levels. The walkdowns of each unit have been completed, audited by the NRC and found to be adequate. Reevaluation of the emergency communications systems and staffing levels was completed as part of the effort to comply with the orders. Reevaluation of the seismic hazards was completed or in review with the NRC in 2018. Reevaluation of the external flooding hazards is expected to continue through 2019. Dominion Energy and Virginia Power do not currently expect that compliance with the NRC’s information requests will materially impact their financial position, results of operations or cash flows during the implementation period. The NRC staff is evaluating the implementation of the longer term Tier 2 and Tier 3 recommendations. Dominion Energy and Virginia Power do not expect material financial impacts related to compliance with Tier 2 and Tier 3 recommendations.
Nuclear Operations
Nuclear Insurance
During the second quarter of 2019, the total liability protection per nuclear incident available to all participants in the Secondary Financial Protection Program decreased from $14.1 billion to $13.9 billion. This decrease does not impact Dominion Energy’s responsibility per active unit under the Price-Anderson Amendments Act of 1988.
Spent Nuclear Fuel
As discussed in Notes 3 and 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018,
as updated in Current Report on Form 8-K, filed November 18, 2019,
 
Dominion Energy, Virginia Power and DESC entered into contracts with the DOE for the disposal of spent nuclear fuel under provisions of the Nuclear Waste Policy Act of 1982.
 
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In June 2018, a lawsuit for Kewaunee was filed in the U.S. Court of Federal Claims for recovery of spent nuclear fuel storage costs incurred for the period January 1, 2014 through December 31, 2017. In March 2019, Dominion Energy amended its filing for recovery of spent nuclear fuel storage to include costs incurred for the year ended December 31, 2018. This matter is pending.
Guarantees, Surety Bonds and Letters of Credit
Dominion Energy entered into a guarantee agreement to support a portion of Atlantic Coast Pipeline’s obligation under a $3.4 billion revolving credit facility with a stated maturity date of October 2021. Dominion Energy’s maximum potential loss exposure under the terms of the guarantee is limited to 48% of the outstanding borrowings under the revolving credit facility, an equal percentage to Dominion Energy’s ownership in Atlantic Coast Pipeline. As of June 30, 2019, Atlantic Coast Pipeline has borrowed $1.7 billion against the revolving credit facility. Dominion Energy’s Consolidated Balance Sheets include a liability of $17 million and $21 million associated with this guarantee agreement at June 30, 2019 and December 31, 2018, respectively.
In addition, at June 30, 2019, Dominion Energy had issued an additional $27 million of guarantees, primarily to support other equity method investees. No amounts related to the other guarantees have been recorded.
Dominion Energy also enters into guarantee arrangements on behalf of its consolidated subsidiaries, primarily to facilitate their commercial transactions with third parties. If any of these subsidiaries fail to perform or pay under the contracts and the counterparties seek performance or payment, Dominion Energy would be obligated to satisfy such obligation. To the extent that a liability subject to a guarantee has been incurred by one of Dominion Energy’s consolidated subsidiaries, that liability is included in the Consolidated Financial Statements. Dominion Energy is not required to recognize liabilities for guarantees issued on behalf of its subsidiaries unless it becomes probable that it will have to perform under the guarantees. Terms of the guarantees typically end once obligations have been paid. Dominion Energy currently believes it is unlikely that it would be required to perform or otherwise incur any losses associated with guarantees of its subsidiaries’ obligations.
At June 30, 2019, Dominion Energy had issued the following subsidiary guarantees:
 
Maximum
                    Exposure                    
 
(millions)
 
 
Commodity transactions
(1)
 
$
2,393
 
Nuclear obligations
(2)
 
 
182
 
Cove Point
(3)
 
 
1,900
 
Solar
(4)
 
 
659
 
Other
(5)
 
 
404
 
         
Total
(6)
 
$
                                             5,538
 
         
(1)
Guarantees related to commodity commitments of certain subsidiaries. These guarantees were provided to counterparties in order to facilitate physical and financial transaction related commodities and services.
(2)
Guarantees related to certain DGI subsidiaries regarding all aspects of running a nuclear facility.
(3)
Guarantees related to Cove Point, in support of terminal services, transportation and construction. Cove Point has two guarantees that have no maximum limit and, therefore, are not included in this amount.
(4)
Includes guarantees to facilitate the development of solar projects. Also includes guarantees entered into by DGI on behalf of certain subsidiaries to facilitate the acquisition and development of solar projects.
(5)
Guarantees related to other miscellaneous contractual obligations such as leases, environmental obligations, construction projects and insurance programs. Due to the uncertainty of workers’ compensation claims, the parental guarantee has no stated limit.
(6)
Excludes Dominion Energy’s guarantee for the construction of the new corporate office property discussed in Note 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
,
 as updated in Curr
ent Report on Form 8-K, filed November 18, 2019.
Additionally, at June 30, 2019, Dominion Energy had purchased $185 million of surety bonds, including $79 million at Virginia Power and $34 million at Dominion Energy Gas, and authorized the issuance of letters of credit by financial institutions of $91 million to facilitate commercial transactions by its subsidiaries with third parties. Under the terms of surety bonds, the Companies are obligated to indemnify the respective surety bond company for any amounts paid.
Note 19. Credit Risk
The Companies’ accounting policies for credit risk are discussed in Note 23 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
At June 30, 2019, Dominion Energy’s gross credit exposure related to energy marketing and price risk management activities totaled $166 million. Of this amount, investment grade counterparties, including those internally rated, represented 96%. No single
 
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counterparty, whether investment grade or
non-investment
grade, exceeded $35 million of exposure. At June 30, 2019, Virginia Power’s exposure related to wholesale customers totaled $52 million. Of this amount, investment grade counterparties, including those internally rated, represented 98%. No single counterparty, whether investment grade or
non-investment
grade, exceeded $37 million of exposure. At June 30, 2019, Dominion Energy Gas’ exposure primarily related to wholesale customers totaled $30 million. Of this amount, investment grade counterparties, including those internally rated, represented 96%. No single counterparty, whether investment grade or
non-investment
grade, exceeded $5 million of exposure.
For the three and six months ended June 30, 2019, the Export Customers comprised approximately 34% and 33%, respectively, of Dominion Energy Gas’ total operating revenue, with Dominion Energy Gas’ largest customer representing approximately 18% and 17% of such amounts during the periods. For the three and six months ended June 30, 2018, the Export Customers comprised approximately 27% and 15%, respectively, of Dominion Energy Gas’ total operating revenue, with Dominion Energy Gas’ largest customer representing approximately 15% and 8% of such amounts during the periods.
Credit-Related Contingent Provisions
The majority of Dominion Energy’s derivative instruments contain credit-related contingent provisions. These provisions require Dominion Energy to provide collateral upon the occurrence of specific events, primarily a credit rating downgrade. If the credit-related contingent features underlying these instruments that are in a liability position and not fully collateralized with cash were fully triggered as of June 30, 2019 and December 31, 2018, Dominion Energy would have been required to post less than $3 million and $1 million, respectively, of additional collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives,
non-derivative
contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. Dominion Energy had posted no collateral at June 30, 2019 or December 31, 2018 related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash was immaterial at both June 30, 2019 and December 31, 2018, which does not include the impact of any offsetting asset positions. Credit-related contingent provisions for Virginia Power and Dominion Energy Gas were immaterial as of June 30, 2019 and December 31, 2018. See Note 9 for further information about derivative instruments.
Note 20. Related-Party Transactions
Virginia Power and Dominion Energy Gas engage in related-party transactions primarily with other Dominion Energy subsidiaries (affiliates). Virginia Power’s and Dominion Energy Gas’ receivable and payable balances with affiliates are settled based on contractual terms or on a monthly basis, depending on the nature of the underlying transactions. Virginia Power and Dominion Energy Gas are included in Dominion Energy’s consolidated federal income tax return and, where applicable, combined income tax returns for Dominion Energy are filed in various states. Dominion Energy’s transactions with equity method investments are described in Note 10. A discussion of significant related-party transactions follows.
Virginia Power
Transactions with Affiliates
Virginia Power transacts with affiliates for certain quantities of natural gas and other commodities in the ordinary course of business. Virginia Power also enters into certain commodity derivative contracts with affiliates. Virginia Power uses these contracts, which are principally comprised of forward commodity purchases, to manage commodity price risks associated with purchases of natural gas. At June 30, 2019, Virginia Power’s derivative assets and liabilities with affiliates were $2 million and $23 million, respectively. At December 31, 2018, Virginia Power’s derivative assets and liabilities with affiliates were $26 million and $10 million, respectively. See Note 9 for more information.
Virginia Power participates in certain Dominion Energy benefit plans described in Note 21 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
At June 30, 2019 and December 31, 2018, amounts due to Dominion Energy associated with the Dominion Energy Pension Plan and included in other deferred credits and other liabilities in the Consolidated Balance Sheets were $717 million and $632 million, respectively. At June 30, 2019 and December 31, 2018, Virginia Power’s amounts due from Dominion Energy associated with the Dominion Energy Retiree Health and Welfare Plan and included in other deferred charges and other assets in the Consolidated Balance Sheets were $259 million and $254 million, respectively.
DES and other affiliates provide accounting, legal, finance and certain administrative and technical services to Virginia Power. In addition, Virginia Power provides certain services to affiliates, including charges for facilities and equipment usage.
The financial statements for all years presented include costs for certain general, administrative and corporate expenses assigned by DES to Virginia Power on the basis of direct and allocated methods in accordance with Virginia Power’s services agreements with DES. Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DES resources that is attributable to the entity, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES service. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
 
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Presented below are Virginia Power’s significant transactions with DES and other affiliates:
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
          2019          
 
 
          2018          
   
          2019          
 
 
          2018          
 
(millions)
 
 
 
 
 
 
 
 
Commodity purchases from affiliates
 
$
119
 
  $
     139
   
$
     391
 
  $
     537
 
Services provided by affiliates
(1)
 
 
161
 
   
112
   
 
280
 
   
232
 
Services provided to affiliates
 
 
8
 
   
5
   
 
14
 
   
11
 
(1)
Includes capitalized expenditures of $34 million and $38 million for the three months ended June 30, 2019 and 2018, respectively, and $67 million and $75 million for the six months ended June 30, 2019 and 2018, respectively.
Virginia Power has borrowed funds from Dominion Energy under short-term borrowing arrangements. There were $71 million and $224 million in short-term demand note borrowings from Dominion Energy as of June 30, 2019 and December 31, 2018, respectively. Virginia Power had no outstanding borrowings, net of repayments, under the Dominion Energy money pool for its nonregulated subsidiaries as of June 30, 2019 and December 31, 2018. Interest charges related to Virginia Power’s borrowings from Dominion Energy were immaterial for the three and six months ended June 30, 2019 and 2018.
There were no issuances of Virginia Power’s common stock to Dominion Energy for the three and six months ended June 30, 2019 and 2018.
Dominion Energy Gas
Transactions with Related Parties
Dominion Energy Gas transacts with affiliates for certain quantities of natural gas and other commodities at market prices in the ordinary course of business. Additionally, Dominion Energy Gas provides transportation and storage services to affiliates. Dominion Energy Gas also enters into certain other contracts with affiliates and related parties, including construction services, which are presented separately from contracts involving commodities or services. As of June 30, 2019 and December 31, 2018, all of Dominion Energy Gas’ commodity derivatives were with affiliates. See Notes 7 and 9 for more information. See Note 10 for information regarding transactions with Atlantic Coast Pipeline.
Dominion Energy Gas participates in certain Dominion Energy benefit plans as described in Note 21 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019.
 
At both June 30, 2019 and December 31, 2018, amounts due from Dominion Energy associated with the Dominion Energy Pension Plan included in noncurrent pension and other postretirement benefit assets in the Consolidated Balance Sheets were $320 million and $319 million, respectively. At both June 30, 2019 and December 31, 2018, Dominion Energy Gas’ amounts due from Dominion Energy associated with the Dominion Energy Retiree Health and Welfare Plan included in noncurrent pension and other postretirement benefit assets in the Consolidated Balance Sheets were $14 million and $13 million, respectively. In addition, there are amounts due to East Ohio from Dominion Energy in relation to these plans. As a result of the Dominion Energy Gas Restructuring, at June 30, 2019 and December 31, 2018, there was $444 million and $442 million included in noncurrent assets of discontinued operations in the Consolidated Balance Sheets relating to the Dominion Energy Pension Plan, respectively. Amounts due to East Ohio from Dominion Energy associated with the Dominion Energy Retiree Health and Welfare Plan
 
included in noncurrent assets of discontinued operations in the Consolidated Balance Sheets at both June 30, 2019 and December 31, 2018, were $4 million.
 
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DES, DECGS, DEQPS and other affiliates provide accounting, legal, finance, marketing and certain operational, administrative and technical services to Dominion Energy Gas. Dominion Energy Gas provides certain services to related parties, including technical services.
The financial statements for all years presented include costs for certain general, administrative and corporate expenses assigned by DES, DECGS, and DEQPS to Dominion Energy Gas on the basis of direct and allocated methods in accordance with Dominion Energy Gas’ services agreements with DES, DECGS, and DEQPS. Where costs incurred cannot be determined by specific identification, the costs are allocated based on the proportional level of effort devoted by DES, DECGS, and DEQPS resources that are attributable to the entity, determined by reference to number of employees, salaries and wages and other similar measures for the relevant DES, DECGS, and DEQPS service. Management believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable.
Presented below are Dominion Energy Gas’ significant transactions with DES, DECGS, DEQPS and other affiliates and related parties:
 
Three Months Ended
June 30,
   
Six Months Ended June 30,
 
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
 
(millions)
 
 
 
 
 
 
 
 
Sales of natural gas and transportation and storage services to affiliates
 
$
60
 
  $
39
   
$
127
 
  $
85
 
Services provided by related parties
(1)
 
 
59
 
   
44
   
 
104
 
   
87
 
Services provided to related parties
(2)
 
 
45
 
   
73
   
 
90
 
   
132
 
(1)
Includes capitalized expenditures of $5 million and $6 million for the three months ended June 30, 2019 and 2018,
 
respectively, and $11 million and $18 million for the six months ended June 30, 2019 and 2018, respectively.
(2)
Includes amounts attributable to Atlantic Coast Pipeline, a related-party VIE.
The following table presents affiliated and related party balances reflected in Dominion Energy Gas’ Consolidated Balance Sheets:
 
            June 30, 2019            
 
 
            December 31, 2018            
 
(millions)
 
 
 
 
Other receivables
(1)
 
$
10
 
  $
13
 
Imbalances receivable from affiliates
 
 
5
 
   
16
 
Imbalances payable to affiliates
(2)
 
 
1
 
   
4
 
(1)
Represents amounts due from Atlantic Coast Pipeline, a related-party VIE.
(2)
Amounts are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.
Affiliated receivables at June 30, 2019 and December 31, 2018 included $13 million and $7 million, respectively, of accrued unbilled revenue. This revenue is based on estimated amounts of services provided but not yet billed to various affiliates.
Dominion Energy Gas’ borrowings under the intercompany revolving credit agreement with Dominion Energy was $150 
million and $218 million
as of  June 30
, 2019 and December 31, 2018
,
 respective
ly.
Interest charges related to Dominion Energy Gas’ total borrowings from Dominion Energy were
less than 
$1 million and $1 million for the three and six months ended June 30, 2019 and
less than 
$1 million
for 
both 
the three and six months ended June 30, 2018.
DCPI’s borrowings under intercompany revolving credit agreements with Dominion Energy totaled $2.9 billion at both June 30, 2019 and December 31, 2018. Interest charges related to DCPI’s total borrowings from Dominion Energy and subsidiaries totaled $29 million and $58 million for the three and six months ended June 30, 2019, respectively, and totaled $24 million and $46 million for the three and six months ended June 30, 2018, respectively.
DMLPHCII’s total borrowings under an intercompany revolving credit agreement with Dominion Energy totaled $22 million at both June 30, 2019 and December 31, 2018. Interest charges related to DMLPHCII’s total borrowings from Dominion Energy were less than $1 million for both the three and six months ended June 30, 2019 and 2018.
Affiliated notes receivable from East Ohio and DGP relating to borrowings under intercompany revolving credit agreements with Dominion Energy Gas were $601 million and $704 million as of June 30, 2019 and December 31, 2018, respectively.
Interest income on the promissory notes receivable was
$49 million and $98 million for the three and six months ended June 30
, 2019
and $20 million and $37 million for three and six months ended June 30
, 2018
, respectively.
In 2019, Dominion Energy Midstream entered into a $400 million promissory note with Dominion Energy that matures on January 31, 2022. The interest rate is a fixed 3.5% per annum. As of June 30, 2019, $395 million of the promissory note remained outstanding. Interest
charges
of $3 million and $6 million were incurred for the three and six months ended June 30, 2019
, respectively.
For the six months ended June 30, 2019 and 2018, Dominion Energy Gas, including entities acquired in the Dominion Energy Gas Restructuring, distributed $323 million and $105 million to Dominion Energy, respectively.
 
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Note 21. Employee Benefit Plans
Dominion Energy
The components of Dominion Energy’s provision for net periodic benefit cost (credit) were as follows:
 
Pension Benefits
   
Other Postretirement Benefits
 
 
            2019            
 
 
            2018            
   
            2019            
 
 
            2018            
 
(millions)
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
40
 
  $
40
   
$
6
 
  $
6
 
Interest cost
 
 
98
 
   
84
   
 
17
 
   
14
 
Expected return on plan assets
 
 
(176
)
   
(168
)  
 
(35
)
   
(35
)
Amortization of prior service cost (credit)
 
 
1
 
   
1
   
 
(13
)
   
(13
)
Amortization of net actuarial loss
 
 
43
 
   
49
   
 
3
 
   
2
 
Curtailment
(1)
 
 
71
 
   
   
 
42
 
   
 
                                 
Net periodic benefit cost (credit)
 
$
77
 
  $
6
   
$
20
 
  $
(26
)
                                 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
80
 
  $
79
   
$
13
 
  $
13
 
Interest cost
 
 
199
 
   
168
   
 
34
 
   
28
 
Expected return on plan assets
 
 
(353
)
   
(333
)  
 
(68
)
   
(71
)
Amortization of prior service cost (credit)
 
 
1
 
   
1
   
 
(26
)
   
(26
)
Amortization of net actuarial loss
 
 
82
 
   
97
   
 
7
 
   
5
 
Settlements and Curtailment
(1)
 
 
73
 
   
   
 
42
 
   
 
                                 
Net periodic benefit cost (credit)
 
$
     82
 
  $
     12
   
$
     2
 
  $
     (51
)
                                 
(1)
Primarily related to a voluntary retirement program.
Voluntary Retirement Program
In March 2019, the Companies announced a voluntary retirement program to employees that meet certain age and service requirements. The voluntary retirement program will not compromise safety or the Companies’ ability to comply with applicable laws and regulations. In the second quarter of 2019, upon the determinations made concerning the number of employees that elected to participate in the program, Dominion Energy recorded a charge of $423 million ($316 million
after-tax)
included within other operations and maintenance expense ($288 million), other taxes ($23 million) and other income ($112 million), Virginia Power recorded a charge of $194 million ($144 million
after-tax)
included within other operations and maintenance expense ($186 million) and other taxes ($8 million) and Dominion Energy Gas recorded a charge of $74 million ($58 million
after-tax)
included within other operations and maintenance expense ($39 million), other taxes ($2 million), other income ($1 million) and discontinued operations ($32 million) in the respective Consolidated Statements of Income.
In the second quarter of 2019, Dominion Energy and Dominion Energy Gas remeasured their pension and other postretirement benefit plans as a result of the voluntary retirement program. The remeasurement resulted in an increase in the pension benefit obligation of $484 million and $32 million and an increase in the fair value of the pension plan assets of $671 million and $146 million for Dominion Energy and Dominion Energy Gas, respectively. In addition, the remeasurement resulted in an increase in the accumulated postretirement benefit obligation of $101 million and $8 million and an increase in the fair value of the other postretirement benefit plan assets of $156 million and $29 million for Dominion Energy and Dominion Energy Gas, respectively. The impact of the remeasurement on net periodic benefit cost (credit) was recognized prospectively from the remeasurement date. The remeasurement is expected to increase the net periodic benefit credit for 2019 by approximately $6 million and $4 million for Dominion Energy and Dominion Energy Gas, respectively, excluding the impacts of curtailments. The discount rate used for the remeasurement was 4.07% - 4.10% for the Dominion Energy pension plans, 4.10% for Dominion Energy Gas pension plans, 4.05% - 4.08% for the Dominion Energy other postretirement benefit plans, and 4.05% for the Dominion Energy Gas other postretirement benefit plans. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018.
Employer Contributions
During the six months ended June 30, 2019, Dominion Energy made no contributions to its defined benefit pension plans or other postretirement benefit plans. Dominion Energy expects to contribute approximately $21 million and $12 million to its defined benefit pension plans and other postretirement benefit plans through VEBAs, respectively, during the remainder of 2019.
 
97

Dominion Energy Gas
Dominion Energy Gas participates in certain Dominion Energy benefit plans as described in Note 21 to the Consolidated Financial Statements in the Companies’ Annual Report on Form
10-K
for the year ended December 31, 2018
, as updated in Current Report on Form 8-K, filed November 18, 2019. See Note 20 for more information.
The components of Dominion Energy Gas’ provision for net periodic benefit cost (credit) for employees represented by collective bargaining units were as follows:
                                 
 
Pension Benefits
   
Other Postretirement Benefits
 
 
          2019          
 
 
          2018          
   
            2019            
 
 
            2018            
 
(millions)
 
 
 
 
 
 
 
 
Three Months Ended June 30,
   
     
     
     
 
Service cost
 
$
4
 
  $
5
   
$
1
 
  $
1
 
Interest cost
 
 
8
 
   
7
   
 
2
 
   
2
 
Expected return on plan assets
 
 
(39
)
   
(38
)  
 
(7
)
   
(6
)
Amortization of prior service credit
 
 
 
   
   
 
(1
)
   
(1
)
Amortization of net actuarial loss
 
 
5
 
   
5
   
 
1
 
   
1
 
Curtailment
(1)
 
 
1
 
   
   
 
1
 
   
 
                                 
Net periodic benefit credit
 
$
(21
)
  $
(21
)  
$
(3
)
  $
(3
)
                                 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
8
 
  $
9
   
$
2
 
  $
2
 
Interest cost
 
 
16
 
   
14
   
 
5
 
   
5
 
Expected return on plan assets
 
 
(78
)
   
(75
)  
 
(14
)
   
(14
)
Amortization of prior service credit
 
 
 
   
   
 
(2
)
   
(2
)
Amortization of net actuarial loss
 
 
10
 
   
10
   
 
2
 
   
2
 
Curtailment
(1)
 
 
1
 
   
   
 
1
 
   
 
                                 
Net periodic benefit credit
 
$
     (43
)
  $
     (42
)  
$
     (6
)
  $
     (7)
 
                                 
 
 
 
 
 
 
(1)
Related to a voluntary retirement program.
 
 
Employer Contributions
During the six months ended June 30, 2019, Dominion Energy Gas made no contributions to its defined benefit pension plans or other postretirement benefit plans. Dominion Energy Gas expects to contribute approximately $12 million to its other postretirement benefit plans through VEBAs during the remainder of 2019.
Note 22. Operating Segments
The Companies are organized primarily on the basis of products and services sold in the U.S. A description of the operations included in the Companies’ primary operating segments is as follows:
                             
Primary Operating Segment
 
Description of Operations
 
Dominion
        Energy        
 
 
Virginia Power  
 
 
Dominion
    Energy Gas    
 
Power Delivery
 
Regulated electric distribution
 
 
X
 
 
 
X
 
 
 
 
 
Regulated electric transmission
 
 
X
 
 
 
X
 
 
 
 
Power Generation
 
Regulated electric generation fleet
 
 
X
 
 
 
X
 
 
 
 
 
Merchant electric generation fleet
 
 
X
 
 
 
 
 
 
 
Gas Infrastructure
 
Gas transmission and storage
 
 
X
 
 
 
 
 
 
X
 
 
Gas distribution and storage
 
 
X
 
 
 
 
 
 
 
 
Gas gathering and processing
 
 
X
 
 
 
 
 
 
 
 
LNG terminalling and storage
 
 
X
 
 
 
 
 
 
X
 
 
Nonregulated retail energy marketing                    
 
 
X
 
 
 
 
 
 
 
Southeast Energy
 
Regulated electric distribution
 
 
X
 
 
 
 
 
 
 
 
Regulated electric transmission
 
 
X
 
 
 
 
 
 
 
 
Regulated electric generation fleet
 
 
X
 
 
 
 
 
 
 
 
Gas distribution and storage
 
 
X
 
 
 
 
 
 
 
 
Nonregulated retail energy marketing
 
 
X
 
 
 
 
 
 
 
 
 
In addition to the operating segments above, the Companies also report a Corporate and Other segment.
 
98

Dominion Energy
The Corporate and Other Segment of Dominion Energy
includes its corporate, service company and other functions (including unallocated debt). In addition, Corporate and Other includes specific items attributable to Dominion Energy’s operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.
In the six months ended June 30, 2019, Dominion Energy reported
after-tax
net expenses of $2.1 billion for specific items in the Corporate and Other segment, with $1.9 billion of net expenses attributable to its operating segments. In the six months ended June 30, 2018, Dominion Energy reported
after-tax
net expenses of $349 million for specific items in the Corporate and Other segment, with $310 million of net expenses attributable to its operating segments.
The net expense for specific items attributable to Dominion Energy’s operating segments in 2019 primarily related to the impact of the following items:
A $1.0 billion ($760 million
after-tax)
charge for refunds of amounts previously collected primarily from retail electric customers of DESC for the NND Project, attributable to Southeast Energy;
 
 
 
 
 
 
$548 million ($418 million
after-tax)
of merger and integration-related costs associated with the SCANA Combination, including a $425 million ($317 million
after-tax)
charge related to a voluntary retirement program, attributable to:
 
 
 
 
 
 
 
Power Delivery ($73 million
after-tax);
 
 
 
 
 
 
 
Power Generation ($109 million
after-tax);
 
 
 
 
 
 
 
Gas Infrastructure ($80 million
after-tax);
and
 
 
 
 
 
 
 
Southeast Energy ($156 million
after-tax);
 
 
 
 
 
 
A $369 million ($275 million
after-tax)
charge related to the early retirement of certain Virginia Power electric generation facilities, attributable to Power Generation;
 
 
 
 
 
 
$278 million ($209 million
after-tax)
of charges associated with litigation acquired in the SCANA Combination, attributable to Southeast Energy;
 
 
 
 
 
 
A $198 million tax charge for $264 million of income
tax-related
regulatory assets acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery, attributable to Southeast Energy;
 
 
 
 
 
 
A $160 million ($119 million
after-tax)
charge related to Virginia Power’s planned early retirement of certain automated meter reading infrastructure, attributable to Power Delivery;
 
 
 
 
 
 
A $135 million ($100 million
after-tax)
charge related to Virginia Power’s contract termination with a
non-utility
generator, attributable to Power Generation; and
 
 
 
 
 
 
A $114 million ($86 million
after-tax)
charge for property, plant and equipment acquired in the SCANA Combination primarily for which Dominion Energy committed to forgo recovery, attributable to Southeast Energy; partially offset by
 
 
 
 
 
 
A $336 million ($251 million
after-tax)
net gain related to investments in nuclear decommissioning trust funds, attributable to Power Generation; and
 
 
99

A $113 million ($84 million
after-tax)
benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019, attributable to Power Generation.
The net expense for specific items attributable to Dominion Energy’s operating segments in 2018 primarily related to the impact of the following items:
A $215 million ($160 million
after-tax)
charge associated with Virginia legislation enacted in March 2018 that requires
one-time
rate credits of certain amounts to utility customers, attributable to:
 
Power Generation ($109 million
after-tax);
and
 
Power Delivery ($51 million
after-tax).
A $122 million ($89 million
after-tax)
charge for disallowance of FERC-regulated plant, attributable to Gas Infrastructure.
An $81 million ($60 million
after-tax)
charge associated primarily with the asset retirement obligations for ash ponds and landfills at certain utility generation facilities in connection with the enactment of Virginia legislation in April 2018 attributable to Power Generation.
The following table presents segment information pertaining to Dominion Energy’s operations:
Dominion Energy
 
Power
  Delivery  
 
 
Power
Generation
 
 
Gas
Infrastructure
 
 
  Southeast  
Energy
 
 
Corporate
and Other
 
 
Adjustments/
Eliminations
 
 
Consolidated
Total
 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                         
Three Months Ended
June
 3
0
, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
 
$
585
 
 
$
1,598
 
 
$
881
 
 
$
915
 
 
$
(9
)
 
$
 
 
$
3,970
 
Intersegment revenue
 
 
6
 
 
 
5
 
 
 
29
 
 
 
 
 
 
263
 
 
 
(303
)
 
 
 
                                                         
Total operating revenue
 
 
591
 
 
 
1,603
 
 
 
910
 
 
 
915
 
 
 
254
   
 
(303
)
 
 
3,970
 
Net income (loss) attributable to Dominion Energy
 
 
156
 
 
 
250
 
 
 
247
 
 
 
82
 
 
 
(681
)
 
 
 
 
 
54
 
                                                         
Three Months Ended
June
 3
0
, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
  $
528
    $
1,635
    $
914
     
    $
(3
)   $
14
    $
3,088
 
Intersegment revenue
   
6
     
3
     
8
     
     
170
     
(187
)    
 
                                                         
Total operating revenue
   
534
     
1,638
     
922
     
     
167
     
(173
)    
3,088
 
Net income (loss) attributable to Dominion Energy
   
145
     
276
     
249
     
     
(221
)    
     
449
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
 
$
1,183
 
 
$
3,343
 
 
$
2,254
 
 
$
2,097
 
 
$
(1,049
)
 
$
 
 
$
7,828
 
Intersegment revenue
 
 
12
 
 
 
9
 
 
 
55
 
 
 
 
 
 
447
 
 
 
(523
)
 
 
 
 
Total operating revenue
 
 
1,195
 
 
 
3,352
 
 
 
2,309
 
 
 
2,097
 
 
 
(602
)
 
 
 
(523
)
 
 
 
7,828
 
Net income (loss) attributable to Dominion Energy
 
 
311
 
 
 
558
 
 
 
606
 
 
 
214
 
 
 
(2,315
)
 
 
 
 
 
 
(626
)
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
 
$
1,091
 
 
$
3,495
 
 
$
2,136
 
 
 
 
 
 
$
(210
)
 
$
42
 
 
$
6,554
 
Intersegment revenue
 
 
12
 
 
 
5
 
 
 
14
 
 
 
 
 
 
 
345
 
 
 
(376
)
 
 
 
Total operating revenue
 
 
1,103
 
 
 
3,500
 
 
 
2,150
 
 
 
 
 
 
 
135
 
 
 
(334
)
 
 
6,554
 
Net income (loss) attributable to Dominion Energy
 
 
301
 
 
 
624
 
 
 
576
 
 
 
 
 
 
 
(549
)
 
 
 
 
 
952
 
Intersegment sales and transfers for Dominion Energy are based on contractual arrangements and may result in intersegment profit or loss that is eliminated in consolidation.
Virginia Power
The Corporate and Other Segment of Virginia Power
primarily includes specific items attributable to its operating segments that are not included in profit measures evaluated by executive management in assessing the segments’ performance or in allocating resources.
In the six months ended June 30, 2019, Virginia Power reported
after-tax
net expenses of $652 million for specific items in the Corporate and Other segment, with $607 million of net expenses attributable to its operating segments. In the six months ended June 30, 2018, Virginia Power reported
after-tax
net expenses of $237 million for specific items in the Corporate and Other segment, with $230 million of net expenses attributable to its operating segments.
The net expense for specific items attributable to Virginia Power’s operating segments in 2019 primarily related to the impact of the following items:
A $369 million ($275 million
after-tax)
charge related to the early retirement of certain electric generation facilities, attributable to Power Generation;
A $192 million ($143 million
after-tax)
charge related to a voluntary retirement program, attributable to:
 
100

 
Power Delivery ($71 million
after-tax);
and
 
Power Generation ($72 million
after-tax);
A $160 million ($119 million
after-tax)
charge related to the planned early retirement of certain automated meter reading infrastructure, attributable to Power Delivery;
A $135 million ($100 million
after-tax)
charge related to a contract termination with a
non-utility
generator, attributable to Power Generation; and
A $62 million ($46 million
after-tax)
charge related the abandonment of a project at an electric generating facility, attributable to Power Generation; partially offset by
A $113 million ($84 million
after-tax)
benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019, attributable to Power Generation.
The net expense for specific items attributable to Virginia Power’s operating segments in 2018 primarily related to the impact of the following items:
A $215 million ($160 million
after-tax)
charge associated with Virginia legislation enacted in March 2018 that requires
one-time
rate credits of certain amounts to utility customers, attributable to:
 
Power Generation ($109 million
after-tax);
and
 
Power Delivery ($51 million
after-tax).
An $81 million ($60 million
after-tax)
charge associated primarily with the asset retirement obligations for ash ponds and landfills at certain utility generation facilities in connection with the enactment of Virginia legislation in April 2018 attributable to Power Generation.
The following table presents segment information pertaining to Virginia Power’s operations:
 
Power
    Delivery    
 
 
Power
    Generation    
 
 
Corporate
    and Other    
 
 
Consolidated
          Total          
 
(millions)
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
         585
 
 
$
         1,353
 
 
$
         —
 
 
$
         1,938
 
Net income (loss)
 
 
156
 
 
 
237
 
 
 
(293
)
 
 
100
 
                                 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
  $
528
    $
1,301
    $
    $
1,829
 
Net income (loss)
   
145
     
227
     
(33
)    
339
 
                                 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,183
 
 
$
2,749
 
 
$
(29
)
 
$
3,903
 
Net income (loss)
 
 
310
 
 
 
441
 
 
 
(631
)
 
 
120
 
                                 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
  $
1,091
    $
2,701
    $
(215
)   $
3,577
 
Net income (loss)
   
299
     
449
     
(225
)    
523
 
                                 
Dominion Energy Gas
The Corporate and Other Segment of Dominion Energy Gas
primarily includes specific items attributable to Dominion Energy Gas’ operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources and the effect of certain items recorded at Dominion Energy Gas as a result of Dominion Energy’s basis in the net assets contributed. In addition, Corporate and Other includes the net impact of discontinued
 operations
, which are discussed in Note 3.
In the six months ended June 30, 2019, Dominion Energy Gas reported
after-tax
net expenses of $44 million for specific items in the Corporate and Other segment,
$43 million
of which
is
attributable to its operating segment. In the six months ended June 30, 2018, Dominion Energy Gas reported
after-tax
net expenses of $91 million for specific items in the Corporate and Other segment, with $89 million of net expenses attributable to its operating segment.
 
101

The net expense for specific items attributable to Dominion Energy Gas’ operating segment in 2019 primarily related to a $42 million ($31 million
after-tax)
charge related to a voluntary retirement program, attributable to Gas Infrastructure.
The net expense for specific items attributable to Dominion Energy Gas’ operating segment in 2018 primarily related to a $122 million ($89 million
after-tax)
charge for disallowance of FERC-regulated plant, attributable to Gas Infrastructure.
The following table presents segment information pertaining to Dominion Energy Gas’ operations:
                         
 
Gas
    Infrastructure    
 
 
    Corporate and    
Other
 
 
    Consolidated    
Total
 
(millions)
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
         530
 
 
$
 
 
$
         530
 
Net income from discontinued operations
 
 
 
 
 
26
 
 
 
26
 
Net income attributable to Dominion Energy Gas
 
 
116
 
 
 
3
 
 
 
119
 
                         
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
Operating revenue
  $
508
    $
    $
508
 
Net income from discontinued operations
   
     
45
    $
45
 
Net income (loss) attributable to Dominion Energy Gas
   
130
     
(47
)    
83
 
                         
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,096
 
 
$
 
 
$
1,096
 
Net income from discontinued operations
 
 
 
 
 
80
 
 
 
80
 
Net income attributable to Dominion Energy Gas
 
 
254
 
 
 
55
 
 
 
309
 
                         
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
Operating revenue
  $
898
    $
    $
898
 
Net income from discontinued operations
   
     
        102
     
102
 
Net income attributable to Dominion Energy Gas
   
253
     
10
     
263
 
                         
 
 
 
 
 
102

Exhibit 99.2

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 8-K are defined below:

 

Abbreviation or Acronym

  

Definition

2019 Equity Units   

Dominion Energy’s 2019 Series A Equity Units issued in June 2019, initially in the form of 2019 Series A Corporate Units, consisting of a stock purchase contract and a 1/10 interest in a share of the Series A Preferred Stock

AFUDC   

Allowance for funds used during construction

ARO   

Asset retirement obligation

Atlantic Coast Pipeline   

Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion Energy, Duke and Southern Company Gas

bcf   

Billion cubic feet

Blue Racer   

Blue Racer Midstream, LLC, a joint venture between Caiman Energy II, LLC and FR BR Holdings, LLC effective December 2018

Companies   

Dominion Energy, Virginia Power and Dominion Energy Gas, collectively

Cooling degree days   

Units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, or 75 degrees Fahrenheit in DESC’s service territory, calculated as the difference between 65 or 75 degrees, as applicable, and the average temperature for that day

Cove Point   

Dominion Energy Cove Point LNG, LP

DECG   

Dominion Energy Carolina Gas Transmission, LLC

DESC   

The legal entity, Dominion Energy South Carolina, Inc. (formerly known as South Carolina Electric & Gas Company), one or more of its consolidated subsidiaries or operating segments, or the entirety of Dominion Energy South Carolina, Inc. and its consolidated subsidiaries

Dominion Energy   

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

Dominion Energy Gas   

The legal entity, Dominion Energy Gas Holdings, LLC, one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Energy Gas Holdings, LLC and its consolidated subsidiaries

Dominion Energy Midstream   

The legal entity, Dominion Energy Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point GP Holding Company, LLC, Iroquois GP Holding Company, LLC, DECG and Dominion Energy Questar Pipeline, or the entirety of Dominion Energy Midstream Partners, LP and its consolidated subsidiaries

Dominion Energy Questar Pipeline   

The legal entity, Dominion Energy Questar Pipeline, LLC, one or more of its consolidated subsidiaries, or the entirety of Dominion Energy Questar Pipeline, LLC and its consolidated subsidiaries

Duke   

The legal entity, Duke Energy Corporation, one or more of its consolidated subsidiaries or operating segments, or the entirety of Duke Energy Corporation and its consolidated subsidiaries

EPS   

Earnings per share

FERC   

Federal Energy Regulatory Commission

 

1


Abbreviation or Acronym

  

Definition

Gas Infrastructure   

Gas Infrastructure Group operating segment

GHG   

Greenhouse gas

Heating degree days   

Units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, or 60 degrees Fahrenheit in DESC’s service territory, calculated as the difference between 65 or 60 degrees, as applicable, and the average temperature for that day

Iroquois   

Iroquois Gas Transmission System, L.P.

Liquefaction Facility   

A natural gas export/liquefaction facility at Cove Point

LNG   

Liquefied natural gas

MD&A   

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

MWh   

Megawatt hour

NND Project   

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

NOx   

Nitrogen oxide

NYSE   

New York Stock Exchange

Order 1000   

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

PJM   

PJM Interconnection, L.L.C.

Power Delivery   

Power Delivery Group operating segment

Power Generation   

Power Generation Group operating segment

Santee Cooper   

South Carolina Public Service Authority

SCANA   

The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries or the entirety of SCANA Corporation and its consolidated subsidiaries

SCANA Combination   

Dominion Energy’s acquisition of SCANA completed on January 1, 2019 pursuant to the terms of the agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA

SEC   

U.S. Securities and Exchange Commission

Series A Preferred Stock   

Dominion Energy’s 1.75% Series A Cumulative Perpetual Convertible Preferred Stock, without par value, with a liquidation preference of $1,000 per share

Southeast Energy   

Southeast Energy Group operating segment

Standard & Poor’s   

Standard & Poor’s Ratings Services, a division of S&P Global Inc.

VDEQ   

Virginia Department of Environmental Quality

Virginia Commission   

Virginia State Corporation Commission

Virginia Power   

The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries

Westinghouse   

Westinghouse Electric Company LLC

 

2


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses Dominion Energy’s results of operations and general financial condition and Virginia Power’s and Dominion Energy Gas’ results of operations. MD&A should be read in conjunction with the Companies’ Consolidated Financial Statements. Virginia Power and Dominion Energy Gas meet the conditions to file under the reduced disclosure format, and therefore have 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

 

   

Segment Results of Operations

 

 

Virginia Power

 

   

Results of Operations

 

 

Dominion Energy Gas

 

   

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 and changes in water temperatures and availability that can cause outages and property damage to facilities;

 

 

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

 

 

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

 

 

Changes to regulated electric rates collected by Dominion Energy and Virginia Power and regulated gas distribution, transportation and storage rates, including LNG storage, collected by Dominion Energy and Dominion Energy Gas;

 

 

Changes in rules for regional transmission organizations and independent system operators in which Dominion Energy and Virginia Power participate, including changes in rate designs, changes in FERC’s interpretation of market rules and new and evolving capacity models;

 

 

Risks associated with Virginia Power’s membership and participation in PJM, including risks related to obligations created by the default of other participants;

 

 

Risks associated with entities in which Dominion Energy Gas shares ownership with third parties, including risks that result from lack of sole decision making authority, disputes that may arise between Dominion Energy Gas and third party participants and difficulties in exiting these arrangements;

 

 

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

 

 

Fluctuations in future volumes of LNG imports or exports from the U.S. and other countries worldwide or demand for, purchases of, and prices related to natural gas or LNG;

 

3


 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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 Dominion Energy’s merchant 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 Dominion Energy and Virginia Power’s 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 Dominion Energy and Dominion Energy Gas’ pipeline and processing systems, 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, including the recently completed SCANA Combination, divestitures, transfers of assets to joint ventures and retirements of assets based on asset portfolio reviews;

 

 

Adverse outcomes in litigation matters or regulatory proceedings, including matters acquired in the SCANA Combination;

 

 

Counterparty credit and performance risk;

 

 

Fluctuations in the value of investments held in nuclear decommissioning trusts by Dominion Energy and Virginia Power and in benefit plan trusts by Dominion Energy and Dominion Energy Gas;

 

 

Fluctuations in energy-related commodity prices and the effect these could have on Dominion Energy’s and Dominion Energy Gas’ earnings and the Companies’ liquidity position and the underlying value of their assets;

 

 

Fluctuations in interest rates or foreign currency exchange rates;

 

 

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

 

 

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

 

4


 

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 in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019.

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

As of June 30, 2019, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019. The policies disclosed included the accounting for regulated operations, AROs, income taxes, derivative contracts and financial instruments at fair value, impairment testing of goodwill, long-lived assets and equity method investments and employee benefit plans.

Dominion Energy

Results of Operations

Presented below is a summary of Dominion Energy’s consolidated results:

 

                 2019                             2018                          $ Change          
(millions, except EPS)                    

Second Quarter

       

Net income attributable to Dominion Energy

   $ 54     $ 449      $ (395

Diluted EPS

     0.05       0.69        (0.64

Year-To-Date

       

Net income (loss) attributable to Dominion Energy

   $ (626   $ 952      $ (1,578

Diluted EPS

     (0.78     1.46        (2.24

Overview

Second Quarter 2019 vs. 2018

Net income attributable to Dominion Energy decreased 88%, primarily due to charges related to a voluntary retirement program, Virginia Power’s contract termination with a non-utility generator, litigation acquired in the SCANA Combination and the abandonment of a project at a Virginia Power electric generating facility. These decreases were partially offset by the absence of charges for disallowance of FERC-regulated plant and future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018 and the operations acquired in the SCANA Combination.

Year-To-Date 2019 vs. 2018

Net income attributable to Dominion Energy decreased $1.6 billion, primarily due to charges for refunds of amounts previously collected from retail electric customers of DESC for the NND Project, a voluntary retirement program, the planned early retirement of certain Virginia Power electric generation facilities and automated meter reading infrastructure, regulatory assets and property, plant and equipment acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery, litigation acquired in the SCANA Combination and Virginia Power’s contract termination with a non-utility generator. These decreases were partially offset by an increase in net investment earnings on nuclear decommissioning trust funds, the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019, the absence of charges associated with Virginia legislation enacted in March 2018 and April 2018 and disallowance of FERC-regulated plant and the operations acquired in the SCANA Combination.

 

5


Analysis of Consolidated Operations

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

 

     Second Quarter      Year-To-Date  
             2019                      2018                  $ Change                  2019                      2018                  $ Change      
(millions)                                          

Operating revenue

   $ 3,970      $ 3,088      $ 882      $ 7,828      $ 6,554      $ 1,274  

Electric fuel and other energy-related purchases

     718        623        95        1,509        1,367        142  

Purchased electric capacity

     24        23        1        63        37        26  

Purchased gas

     227        64        163        957        404        553  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue

     3,001        2,378        623        5,299        4,746        553  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other operations and maintenance

     1,283        873        410        2,285        1,668        617  

Depreciation, depletion and amortization

     661        463        198        1,312        961        351  

Other taxes

     284        166        118        576        365        211  

Impairment of assets and other charges

     312        134        178        1,147        135        1,012  

Other income

     92        185        (93      480        285        195  

Interest and related charges

     452        361        91        921        675        246  

Income tax expense

     43        88        (45      157        223        (66

Noncontrolling interests

     4        29        (25      7        52        (45

An analysis of Dominion Energy’s results of operations follows:

Second Quarter 2019 vs. 2018

Net revenue increased 26%, primarily due to:

 

 

A $547 million increase from operations acquired in the SCANA Combination;

 

 

An $88 million increase from Virginia Power rate adjustment clauses; and

 

 

A $52 million increase from the Liquefaction Facility, primarily reflecting the absence of credits associated with the start-up phase ($35 million) and operations being included for the full quarter of 2019 ($18 million).

These increases were partially offset by:

 

 

A $52 million decrease from the absence of certain merchant generation facilities sold in 2018; and

 

 

A $34 million decrease in services performed for Atlantic Coast Pipeline.

Other operations and maintenance increased 47%, primarily reflecting:

 

 

An increase in merger and integration-related costs associated with the SCANA Combination ($298 million), including a charge related to a voluntary retirement program ($288 million);

 

 

A $190 million increase from operations acquired in the SCANA Combination; and

 

 

A $42 million increase from additional planned outage days at certain generation facilities; partially offset by

 

6


 

The absence of an $81 million charge associated primarily with future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018;

 

 

A $33 million decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income; and

 

 

A $24 million benefit associated with a revision of certain AROs.

Depreciation, depletion and amortization increased 43%, primarily due to property, plant and equipment acquired in the SCANA Combination ($147 million), including amortization of NND Project costs ($35 million), an increase from various growth projects being placed into service ($38 million) and the absence of a benefit for the retroactive application of depreciation rates for regulated nuclear plants to comply with Virginia Commission requirements ($38 million).

Other taxes increased 71%, primarily due to the SCANA Combination ($80 million) and a charge related to a voluntary retirement program ($23 million).

Impairment of assets and other charges increased $178 million, primarily due to:

 

 

A $135 million charge related to Virginia Power’s contract termination with a non-utility generator;

 

 

A $100 million charge associated with litigation acquired in the SCANA Combination; and

 

 

A $62 million charge related to the abandonment of a project at a Virginia Power electric generating facility; partially offset by

 

 

The absence of a $134 million charge for disallowance of FERC-regulated plant.

Other income decreased 50%, primarily due to a charge related to a voluntary retirement program ($112 million), partially offset by an increase in net investment earnings on nuclear decommissioning trust funds ($34 million).

Interest and related charges increased 25%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first quarter of 2019 ($70 million) and higher long-term debt interest expense resulting from net debt issuances in 2018 ($10 million).

Income tax expense decreased 51%, primarily due to lower pre-tax income ($63 million), partially offset by the absence of a state legislative change ($18 million).

Noncontrolling interests decreased 86%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.

Year-To-Date 2019 vs. 2018

Net revenue increased 12%, primarily reflecting:

 

 

A $246 million increase from the Liquefaction Facility, including terminalling services provided to the Export Customers ($190 million), the absence of credits associated with the start-up phase ($35 million) and regulated gas transportation contracts to serve the Export Customers ($23 million);

 

 

The absence of a $215 million charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers;

 

 

A $134 million increase from the SCANA Combination, due to operations acquired ($1.1 billion), partially offset by a $1.0 billion charge for refunds of amounts previously collected from retail electric customers of DESC for the NND Project; and

 

 

A $102 million increase from Virginia Power rate adjustment clauses.

These increases were partially offset by:

 

 

A $99 million decrease from the absence of certain merchant generation facilities sold in 2018;

 

 

A $49 million decrease in services performed for Atlantic Coast Pipeline; and

 

 

A $39 million decrease in sales to Virginia Power retail customers, primarily due to a decrease in heating degree days during the heating season.

Other operations and maintenance increased 37%, primarily reflecting:

 

 

An increase in merger and integration-related costs associated with the SCANA Combination ($409 million), including a charge related to a voluntary retirement program ($288 million);

 

7


 

A $374 million increase from operations acquired in the SCANA Combination;

 

 

The absence of gains related to agreements to convey shale development rights under natural gas storage fields ($50 million);

 

 

A $48 million increase from additional planned outage days at certain generation facilities; and

 

 

A $25 million increase in operating expenses from the commercial operations of the Liquefaction Facility and costs associated with regulated gas transportation contracts to serve the Export Customers.

These increases were partially offset by:

 

 

A $113 million benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019;

 

 

The absence of an $81 million charge associated primarily with future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018; and

 

 

A $48 million decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income.

Depreciation, depletion and amortization increased 37%, primarily due to property, plant and equipment acquired in the SCANA Combination ($275 million), including amortization of NND Project costs ($58 million), an increase from various growth projects being placed into service ($93 million), including the Liquefaction Facility ($28 million), and the absence of a benefit for the retroactive application of depreciation rates for regulated nuclear plants to comply with Virginia Commission requirements ($31 million).

Other taxes increased 58%, primarily due to the SCANA Combination ($155 million) and a charge related to a voluntary retirement program ($23 million).

Impairment of assets and other charges increased $1.0 billion, primarily due to:

 

 

A $368 million charge related to the early retirement of certain Virginia Power electric generation facilities;

 

 

Charges associated with litigation acquired in the SCANA Combination ($278 million);

 

 

A $160 million charge related to Virginia Power’s planned early retirement of certain automated meter reading infrastructure;

 

 

A $135 million charge related to Virginia Power’s contract termination with a non-utility generator;

 

 

A $105 million charge for property, plant and equipment acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery; and

 

 

A $62 million charge related to the abandonment of a project at a Virginia Power electric generating facility; partially offset by

 

 

The absence of a $134 million charge for disallowance of FERC-regulated plant.

Other income increased 68%, primarily reflecting an increase in net investment earnings on nuclear decommissioning trust funds ($334 million), partially offset by a charge related to a voluntary retirement program ($112 million).

Interest and related charges increased 36%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first quarter of 2019 ($163 million), the absence of capitalization of interest expense associated with the Liquefaction Facility upon completion of construction ($46 million) and higher long-term debt interest expense resulting from net debt issuances in 2018 ($29 million).

Income tax expense decreased 30%, primarily due to lower pre-tax income ($283 million), partially offset by a charge for certain income tax-related regulatory assets acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery ($198 million) and the absence of a state legislative change ($18 million).

Noncontrolling interests decreased 87%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.

 

8


Segment Results of Operations

Segment results include the impact of intersegment revenues and expenses, which may result in intersegment profit and loss. Presented below is a summary of contributions by Dominion Energy’s operating segments to net income (loss) attributable to Dominion Energy:

 

    

Net Income (Loss) attributable to

Dominion Energy

    Diluted EPS  
             2019                     2018                 $ Change                 2019                     2018                 $ Change      
(millions, except EPS)                                     

Second Quarter

            

Power Delivery

   $ 156     $ 145     $ 11     $ 0.20     $ 0.23     $ (0.03

Power Generation

     250       276       (26     0.31       0.42       (0.11

Gas Infrastructure

     247       249       (2     0.31       0.38       (0.07

Southeast Energy

     82             82       0.10             0.10  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary operating segments

     735       670       65       0.92       1.03       (0.11

Corporate and Other

     (681     (221     (460     (0.87     (0.34     (0.53
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 54     $ 449     $ (395   $ 0.05     $ 0.69     $ (0.64
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            

Year-To-Date

            

Power Delivery

   $ 311     $ 301     $ 10     $ 0.39     $ 0.46     $ (0.07

Power Generation

     558       624       (66     0.70       0.96       (0.26

Gas Infrastructure

     606       576       30       0.76       0.88       (0.12

Southeast Energy

     214             214       0.27             0.27  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary operating segments

     1,689       1,501       188       2.12       2.30       (0.18

Corporate and Other

     (2,315     (549     (1,766     (2.90     (0.84     (2.06
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ (626   $ 952     $ (1,578   $ (0.78   $ 1.46     $ (2.24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Power Delivery

Presented below are selected operating statistics related to Power Delivery’s operations:

 

     Second Quarter     Year-To-Date  
             2019                      2018                % Change               2019                      2018                % Change    

Electricity delivered (million MWh)

     20.6        20.9        (1 )%      42.4        43.0        (1 )% 

Degree days (electric distribution service area):

                

Cooling

     644        611        5       649        619        5  

Heating

     150        284        (47     2,042        2,306        (11

Average electric distribution customer accounts (thousands)(1)

     2,622        2,597        1       2,620        2,594        1  

 

(1)

Period average.

Presented below, on an after-tax basis, are the key factors impacting Power Delivery’s net income contribution:

 

    

Second Quarter

2019 vs. 2018

Increase (Decrease)

   

Year-To-Date

2019 vs. 2018

Increase (Decrease)

 
                 Amount                                 EPS                                  Amount                                 EPS                   
(millions, except EPS)                         

Regulated electric sales:

        

Weather

   $ (1   $     $ (9   $ (0.01

Other

     2             5       0.01  

Rate adjustment clause equity return

     11       0.02       23       0.04  

Storm damage and service restoration

     (5     (0.01     (10     (0.02

Other

     4             1        

Share dilution

           (0.04           (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ 11     $ (0.03   $ 10     $ (0.07
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


Power Generation

Presented below are selected operating statistics related to Power Generation’s operations:

 

     Second Quarter     Year-To-Date  
             2019                     2018                 % Change                 2019                     2018                 % Change      

Electricity supplied (million MWh):

            

Utility

     20.9       20.8       —       42.8       43.1       (1 )% 

Merchant

     4.4       7.7       (43)       9.6       15.0       (36

Degree days (electric utility service area):

            

Cooling

     644       611             649       619       5  

Heating

     150       284       (47)       2,042       2,306       (11

Presented below, on an after-tax basis, are the key factors impacting Power Generation’s net income contribution:

 

    

Second Quarter

2019 vs. 2018

Increase (Decrease)

   

Year-To-Date

2019 vs. 2018

Increase (Decrease)

 
             Amount                         EPS                         Amount                         EPS              
(millions, except EPS)                         

Merchant generation margin

   $ 7     $ 0.01     $ (3   $  

Regulated electric sales:

        

Weather

     (3           (19     (0.03

Other

     (2           (6     (0.01

Planned outage costs

     (30     (0.05     (35     (0.05

Electric capacity

     8       0.01       (3      

Sale of certain merchant generation facilities

     (19     (0.03     (33     (0.05

Renewable energy investment tax credits

     8       0.01       8       0.01  

Interest expense

     7       0.01       13       0.02  

Other

     (2           12       0.01  

Share dilution

           (0.07           (0.16
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ (26   $ (0.11   $ (66   $ (0.26
  

 

 

   

 

 

   

 

 

   

 

 

 

Gas Infrastructure

Presented below are selected operating statistics related to Gas Infrastructure’s operations:

 

     Second Quarter     Year-To-Date  
             2019                     2018                 % Change                 2019                     2018                 % Change      

Gas distribution throughput (bcf):

            

Sales

     19       19       —       83       76       9

Transportation

     147       158       (7)       370       372       (1

Heating degree days (gas distribution service area):

            

Eastern region

     526       670       (21)       3,441       3,585       (4

Western region

     634       405       57        3,204       2,500       28  

Average gas distribution customer accounts (thousands)(1):

            

Sales

     1,267       1,250             1,267       1,254       1  

Transportation

     1,116       1,105             1,112       1,100       1  

Average retail energy marketing customer accounts (thousands)(1)

     375       862       (56)       373       862       (57
(1)

Period average.

 

10


Presented below, on an after-tax basis, are the key factors impacting Gas Infrastructure’s net income contribution:

 

    

Second Quarter

2019 vs. 2018

Increase (Decrease)

   

Year-To-Date

2019 vs. 2018

Increase (Decrease)

 
     Amount     EPS     Amount     EPS  
(millions, except EPS)                         

Cove Point export contracts

   $                     36     $                     0.06     $                     148     $                     0.23  

Noncontrolling interest(1)

     16       0.03       30       0.05  

Interest expense, net

     (14     (0.02     (64     (0.10

Assignment of shale development rights

     (4     (0.01     (36     (0.05

State legislative change

     (18     (0.03     (18     (0.03

Sale of Blue Racer

     (10     (0.02     (19     (0.03

Other

     (8     (0.01     (11     (0.02

Share dilution

           (0.07           (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ (2   $ (0.07   $ 30     $ (0.12
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Reflects the acquisition of the public interest in Dominion Energy Midstream in January 2019.

Southeast Energy

Presented below are selected operating statistics related to Southeast Energy’s operations:

 

           Second Quarter                  Year-To-Date        
    

 

2019

    

 

2019

 

Electricity delivered (million MWh)

     5.8        10.9  

Electricity supplied (million MWh)

     6.2        11.4  

Degree days (electric distribution service area):

     

  Cooling

     268        268  

  Heating

     38        698  

Average electric distribution customer accounts

    (thousands)(1)

     738        736  

Gas distribution throughput (bcf):

     

  Sales

     20        62  

  Transportation

     14        31  

Heating degree days (gas distribution service area)

     50        808  

Average gas distribution customer accounts

    (thousands)(1)

     964        963  

Average retail energy marketing customer accounts

    (thousands)(1)

     415        419  

 

(1)

Period average.

Presented below, on an after-tax basis, are the key factors impacting Southeast Energy’s net income contribution:

 

    

Second Quarter

2019 vs. 2018

Increase (Decrease)

    

Year-To-Date

2019 vs. 2018

Increase (Decrease)

 
     Amount      EPS      Amount      EPS  
(millions, except EPS)                            

SCANA Combination

   $                     82      $                     0.10      $                     214      $                     0.27  
  

 

 

    

 

 

    

 

 

    

 

 

 

Change in net income contribution

   $ 82      $ 0.10      $ 214      $ 0.27  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


Corporate and Other

Presented below are the Corporate and Other segment’s after-tax results:

 

    Second Quarter     Year-To-Date  
            2019                     2018                   $ Change                     2019                     2018                   $ Change        
(millions, except EPS)                                    

Specific items attributable to operating segments

  $ (500   $ (92   $ (408   $ (1,875   $ (310   $ (1,565

Specific items attributable to Corporate and Other

    segment

    (65     (19     (46     (243     (39     (204
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total specific items

    (565     (111     (454     (2,118     (349     (1,769

Other corporate operations(1)

    (116     (110     (6     (197     (200     3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net expense

  $ (681   $ (221   $ (460   $ (2,315   $ (549   $ (1,766

EPS impact

  $ (0.87   $ (0.34   $ (0.53   $ (2.90   $ (0.84   $ (2.06
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Primarily consists of net interest expense.

Total Specific Items

Corporate and Other includes specific items attributable to Dominion Energy’s primary operating segments that are not included in profit measures evaluated by executive management in assessing those segments’ performance or in allocating resources. See Note 22 to the Consolidated Financial Statements in this report for discussion of these items in more detail. Corporate and Other also includes items attributable to the Corporate and Other segment.

Virginia Power

Results of Operations

Presented below is a summary of Virginia Power’s consolidated results:

 

     Second Quarter     Year-To-Date  
             2019                      2018                    $ Change                   2019                      2018                    $ Change        
(millions)                                         

Net income

   $ 100      $ 339      $ (239   $ 120      $ 523      $ (403

 

12


Overview

Second Quarter 2019 vs. 2018

Net income decreased 71%, primarily due to charges related to a voluntary retirement program, a contract termination with a non-utility generator and the abandonment of a project at an electric generating facility. These decreases were partially offset by the absence of a charge associated primarily with future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018.

Year-To-Date 2019 vs. 2018

Net income decreased 77%, primarily due to charges associated with the planned early retirement of certain electric generation facilities and automated meter reading infrastructure, a voluntary retirement program, a contract termination with a non-utility generator and the abandonment of a project at an electric generating facility. These decreases were partially offset by the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019 and the absence of charges associated with Virginia legislation enacted in March 2018 and April 2018.

Analysis of Consolidated Operations

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

 

    Second Quarter     Year-To-Date  
            2019                     2018                 $ Change               2019               2018             $ Change      
(millions)                                    

Operating revenue

  $ 1,938     $ 1,829     $ 109     $ 3,903     $ 3,577     $ 326  

Electric fuel and other energy-related purchases

    536       508       28       1,132       1,099       33  

Purchased electric capacity

    13       23       (10     46       37       9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    1,389       1,298       91       2,725       2,441       284  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operations and maintenance

    565       439       126       844       838       6  

Depreciation and amortization

    299       247       52       603       544       59  

Other taxes

    90       79       11       175       162       13  

Impairment of assets and other charges

    197             197       743             743  

Other income

    16       21       (5     53       24       29  

Interest and related charges

    135       126       9       270       258       12  

Income tax expense

    19       89       (70     23       140       (117

An analysis of Virginia Power’s results of operations follows:

Second Quarter 2019 vs. 2018

Net revenue increased 12%, primarily reflecting:

 

 

An $88 million increase from rate adjustment clauses; and

 

 

A $10 million decrease in electric capacity expense primarily related to a contract termination with a non-utility generator ($12 million) and the annual PJM capacity performance market effective June 2019 ($8 million), partially offset by the annual PJM capacity performance market effective June 2018 ($10 million).

Other operations and maintenance increased 1%, primarily reflecting:

 

 

A $186 million charge related to a voluntary retirement program; partially offset by

 

 

The absence of an $81 million charge associated primarily with future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018.

Depreciation and amortization increased 1%, primarily due to the absence of a benefit for the retroactive application of depreciation rates for regulated nuclear plants to comply with Virginia Commission requirements ($38 million) and various projects being placed into service ($25 million), partially offset by the absence of depreciation from certain electric generation facilities and automated meter reading infrastructure that were retired early ($11 million).

Impairment of assets and other charges increased $197 million, primarily reflecting:

 

 

A $135 million charge related to a contract termination with a non-utility generator; and

 

 

A $62 million charge related to the abandonment of a project at an electric generating facility.

 

13


Income tax expense decreased 79%, primarily due to lower pre-tax income.

Year-To-Date 2019 vs. 2018

Net revenue increased 12%, primarily reflecting:

 

 

The absence of a $215 million charge associated with Virginia legislation enacted in March 2018 that required one-time rate credits of certain amounts to utility customers; and

 

 

A $102 million increase from rate adjustment clauses; partially offset by

 

 

A $9 million increase in net electric capacity expense primarily related to the annual PJM capacity performance market effective June 2018 ($26 million); partially offset by a contract termination with a non-utility generator ($12 million) and the annual PJM capacity performance market effective June 2019 ($8 million); and

 

 

A $39 million decrease in sales to retail customers, primarily due to a decrease in heating degree days during the heating season.

Other operations and maintenance remained substantially unchanged, primarily reflecting:

 

 

A $113 million benefit from the revision of future ash pond and landfill closure costs as a result of Virginia legislation enacted in March 2019;

 

 

The absence of an $81 million charge associated primarily with future ash pond and landfill closure costs in connection with the enactment of Virginia legislation in April 2018; and

 

 

A $15 million decrease in storm damage and service restoration costs, including the absence of Winter Storm Riley ($31 million); substantially offset by

 

 

A $186 million charge related to a voluntary retirement program.

Depreciation and amortization increased 11%, primarily due to various projects being placed into service ($49 million) and the absence of a benefit for the retroactive application of depreciation rates for regulated nuclear plants to comply with Virginia Commission requirements ($31 million), partially offset by the absence of depreciation from certain electric generation facilities and automated meter reading infrastructure that were retired early ($18 million).

Impairment of assets and other charges increased $743 million, primarily reflecting:

 

 

A $368 million charge related to the early retirement of certain electric generation facilities;

 

 

A $160 million charge related to the planned early retirement of certain automated meter reading infrastructure;

 

 

A $135 million charge related to contract termination with a non-utility generator; and

 

 

A $62 million charge related to the abandonment of a project at an electric generating facility.

Other income increased $29 million, primarily reflecting an increase in net investment earnings on nuclear decommissioning trust funds.

Income tax expense decreased 84%, primarily due to lower pre-tax income.

Dominion Energy Gas

Results of Operations

Presented below is a summary of Dominion Energy Gas’ consolidated results:

 

     Second Quarter      Year-To-Date  
           2019                  2018               $ Change               2019                  2018               $ Change     
(millions)                                          

Net income attributable to Dominion Energy Gas

   $ 119      $ 83      $ 36      $ 309      $ 263      $ 46  

Overview

Second Quarter 2019 vs. 2018

 

14


Net income increased 43%, primarily due to the absence of a charge for disallowance of FERC-regulated plant, partially offset by a charge related to a voluntary retirement program.

Year-To-Date 2019 vs. 2018

Net income increased 17%, primarily due to the absence of a charge for disallowance of FERC-regulated plant and the commercial operations of the Liquefaction Facility, partially offset by a charge related to a voluntary retirement program and the absence of gains from agreements to convey shale development rights underneath several natural gas storage fields.

Analysis of Consolidated Operations

Presented below are selected amounts related to Dominion Energy Gas’ results of operations:

 

    Second Quarter     Year-To-Date  
          2019                 2018               $ Change               2019                 2018               $ Change      
(millions)                                    

Operating revenue

  $           530     $           508     $ 22     $       1,096     $       898     $     198  

Purchased (excess) gas

    (3     (6     3       9       8       1  

Other energy-related purchases

    1       2       (1     1       2       (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    532       512       20       1,086       888       198  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operations and maintenance

    210       189       21       386       354       32  

Depreciation and amortization

    92       88       4       182       150       32  

Other taxes

    38       25       13       78       52       26  

Impairment of assets and other charges

    13       126       (113     13       126       (113

Gains on sales of assets

          (6     6             (51     51  

Earnings from equity method investees

    9       11       (2     22       31       (9

Other income

    44       16       28       85       33       52  

Interest and related charges

    86       46       40       173       50       123  

Income tax expense (benefit)

    23       (13     36       66       31       35  

Net income from discontinued operations

    26       45       (19     80       102       (22

Noncontrolling interests

    30       46       (16     66       79       (13

An analysis of Dominion Energy Gas’ results of operations follows:

Second Quarter 2019 vs. 2018

Net revenue increased 4%, primarily reflecting:

 

 

A $52 million increase from the Liquefaction Facility, primarily reflecting the absence of credits associated with the start-up phase ($35 million) and operations being included for the full quarter of 2019 ($18 million); partially offset by

 

 

A $34 million decrease in services performed for Atlantic Coast Pipeline; and

 

 

A $4 million increase in net fuel costs.

Other operations and maintenance increased 11%, primarily reflecting:

 

 

A $39 million charge related to a voluntary retirement program;

 

 

A $7 million increase in salaries, wages and benefits and general administrative expenses; and

 

 

A $5 million increase in operating expenses from the commercial operations of the Liquefaction Facility and costs associated with regulated gas transportation contracts to serve the Export Customers; partially offset by

 

 

A $33 million decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income.

Other taxes increased 52%, primarily due to due to the Liquefaction Facility being placed into service.

Impairment of assets and other charges decreased 90%, due to the absence of a charge for disallowance of FERC-regulated plant ($126 million), partially offset by the abandonment of the Sweden Valley project ($13 million).

 

15


Gains on sales of assets decreased $6 million, due to the absence of gains from agreements to convey shale development rights underneath several natural gas storage fields.

Other income increased $28 million, primarily due to interest income from Cove Point’s promissory notes receivable from Dominion Energy issued in 2018.

Interest and related charges increased 87%, primarily due to Cove Point’s term loan borrowings.

Income tax expense (benefit) increased $36 million, due to higher pre-tax income.

Noncontrolling interests decreased 35%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.

Year-To-Date 2019 vs. 2018

Net revenue increased 22%, primarily reflecting:

 

 

A $246 million increase from the Liquefaction Facility, including terminalling services provided to the Export Customers ($190 million), the absence of credits associated with the start-up phase ($35 million) and regulated gas transportation contracts to serve the Export Customers ($23 million); partially offset by

 

 

A $49 million decrease in services performed for Atlantic Coast Pipeline; and

 

 

A $12 million increase in net fuel costs.

Other operations and maintenance increased 9%, primarily reflecting:

 

 

A $39 million charge related to a voluntary retirement program;

 

 

A $25 million increase in operating expenses from the commercial operations of the Liquefaction Facility and costs associated with regulated gas transportation contracts to serve the Export Customers; and

 

 

A $14 million increase in salaries, wages and benefits and general administrative expenses; partially offset by

 

 

A $48 million decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income.

Depreciation and amortization increased by 21%, primarily due to the Liquefaction Facility being placed into service.

Other taxes increased by 50%, primarily due to the Liquefaction Facility being placed into service.

Impairment of assets and other charges decreased 90%, due to the absence of a charge for disallowance of FERC-regulated plant ($126 million), partially offset by the abandonment of the Sweden Valley project ($13 million).

Gains on sales of assets decreased $51 million, primarily due to the absence of gains from agreements to convey shale development rights underneath several natural gas storage fields.

Earnings from equity method investees decreased 29%, primarily due to lower earnings from unsubscribed capacity as a result of a decrease in heating degree days at Iroquois.

Other income increased $52 million, primarily due to interest income from Cove Point’s promissory notes receivable from Dominion Energy issued in 2018.

Interest and related charges increased $123 million, primarily due to Cove Point’s term loan borrowings ($68 million), the absence of capitalization of interest expense associated with the Liquefaction Facility upon completion of construction ($46 million) and higher interest expense due to affiliate borrowings ($11 million).

 

16


Income tax expense (benefit) increased $35 million, primarily due to higher pre-tax income.

Noncontrolling interests decreased 16%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.

Liquidity and Capital Resources

Dominion Energy depends on both internal and external sources of liquidity to provide working capital and as a bridge to long-term debt financings. Short-term cash requirements not met by cash provided by operations are generally satisfied with proceeds from short-term borrowings. Long-term cash needs are met through issuances of debt and/or equity securities.

At June 30, 2019, Dominion Energy had $3.4 billion of unused capacity under its credit facility. See Note 17 to the Consolidated Financial Statements for more information.

A summary of Dominion Energy’s cash flows is presented below:

 

                   2019                                  2018                 
(millions)             

Cash, restricted cash and equivalents at January 1

   $ 391     $ 185  

Cash flows provided by (used in):

    

Operating activities

     2,313       2,425  

Investing activities

     (1,833     (2,236

Financing activities

     (311     (20
  

 

 

   

 

 

 

Net increase in cash, restricted cash and equivalents

     169       169  
  

 

 

   

 

 

 

Cash, restricted cash and equivalents at June 30

   $ 560     $ 354  
  

 

 

   

 

 

 

Operating Cash Flows

Net cash provided by Dominion Energy’s operating activities decreased $112 million, primarily due to an increase in property tax payments, decreased customer deposits, increased interest, higher customer refunds, and a contract termination payment, partially offset by higher deferred fuel cost recoveries, the commencement of commercial operations of the Liquefaction Facility and operations acquired from the SCANA Combination.

 

17


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.

Dominion Energy’s operations are subject to risks and uncertainties that may negatively impact the timing or amounts of operating cash flows, which are discussed in Item 1A. Risk Factors in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019.

Credit Risk

Dominion Energy’s exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary of Dominion Energy’s credit exposure as of June 30, 2019 for these activities. Gross credit exposure for each counterparty is calculated prior to the application of collateral and represents outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights.

 

           Gross Credit      
Exposure
     Credit
      Collateral      
           Net Credit      
Exposure
 
(millions)                     

Investment grade(1)

   $ 94      $      $ 94  

Non-investment grade(2)

     1               1  

No external ratings:

        

Internally rated—investment grade(3)

     65               65  

Internally rated—non-investment grade(4)

     6               6  
  

 

 

    

 

 

    

 

 

 

Total

   $ 166      $      $ 166  
  

 

 

    

 

 

    

 

 

 

 

(1)

Designations as investment grade are based upon minimum credit ratings assigned by Moody’s Investors Service and Standard & Poor’s. The five largest counterparty exposures, combined, for this category represented approximately 33% of the total net credit exposure.

(2)

The five largest counterparty exposures, combined, for this category represented approximately less than 1% of the total net credit exposure.

(3)

The five largest counterparty exposures, combined, for this category represented approximately 38% of the total net credit exposure.

(4)

The five largest counterparty exposures, combined, for this category represented approximately 2% of the total net credit exposure.

Investing Cash Flows

Net cash used in Dominion Energy’s investing activities decreased $403 million, primarily due to cash and restricted cash acquired in the SCANA Combination and proceeds from the sale of Blue Racer, partially offset by an increase in plant construction and other property additions.

Financing Cash Flows and Liquidity

Dominion Energy relies on capital markets as significant sources of funding for capital requirements not satisfied by cash provided by its operations. As discussed further in Credit Ratings and Debt Covenants in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, the ability to borrow funds or issue securities and the return demanded by investors are affected by credit ratings. In addition, the raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances.

Dominion Energy currently meets the definition of a well-known seasoned issuer under SEC 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 allows Dominion Energy to use automatic shelf registration statements to register any offering of securities, other than those for exchange offers or business combination transactions.

Net cash used by Dominion Energy’s financing activities increased $291 million, primarily due to net debt repayments in 2019 compared to net debt issuances in 2018, lower issuance of common stock and higher common dividend payments, partially offset by the issuance of the 2019 Equity Units.

In November 2017, Dominion Energy filed an SEC shelf registration statement for the sale of up to $3.0 billion of variable denomination floating rate demand notes, called Dominion Energy Reliability InvestmentSM. The registration limits the principal amount that may be outstanding at any one time to $1.0 billion. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Dominion Energy Reliability Investment Committee, or its designee, on a weekly basis. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Dominion Energy or at the investor’s option at any time. The balance as of June 30, 2019 was $21 million. The notes are short-term debt obligations on Dominion Energy’s Consolidated Balance Sheets. The proceeds will be used for general corporate purposes and to repay debt.

 

18


In January 2019, Dominion Energy acquired all outstanding partnership interests of Dominion Energy Midstream not owned by Dominion Energy through the issuance of 22.5 million common shares. See Note 17 to the Consolidated Financial Statements for additional information.

In January 2019, in connection with the SCANA Combination, Dominion Energy issued 95.6 million shares of Dominion Energy common stock, valued at $6.8 billion, representing 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock outstanding at closing. SCANA’s outstanding debt totaled $6.9 billion at closing.

In June 2019, Dominion Energy issued $1.6 billion of 2019 Equity Units, initially in the form of 2019 Series A Corporate Units. The Corporate Units are listed on the NYSE under the symbol DCUE. See Note 17 to the Consolidated Financial Statements for additional information.

See Note 17 to the Consolidated Financial Statements in this report for further information regarding Dominion Energy’s credit facilities, liquidity and significant financing transactions.

Credit Ratings

Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold securities. In the Credit Ratings section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, there is a discussion on the use of capital markets by Dominion Energy as well as the impact of credit ratings on the accessibility and costs of using these markets. As of June 30, 2019, there have been no changes in Dominion Energy’s credit ratings.

Debt Covenants

In the Debt Covenants section of MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, there is a discussion on the various covenants present in the enabling agreements underlying Dominion Energy’s debt. As of June 30, 2019, there have been no material changes to debt covenants, nor any events of default under Dominion Energy’s debt covenants.

Future Cash Payments for Contractual Obligations and Planned Capital Expenditures

As of June 30, 2019, there have been no material changes outside the ordinary course of business to Dominion Energy’s contractual obligations nor any material changes to planned capital expenditures as disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019.

Use of Off-Balance Sheet Arrangements

As of June 30, 2019, there have been no material changes in the off-balance sheet arrangements disclosed in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019.

Future Issues and Other Matters

The following discussion of future issues and other information includes current developments of previously disclosed matters and new issues arising during the period covered by, and subsequent to, the dates of Dominion Energy’s Consolidated Financial Statements that may impact future results of operations, financial condition and/or cash flows. This section should be read in conjunction with Item 1. Business and Future Issues and Other Matters in MD&A in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, Future Issues and Other Matters in MD&A in the Companies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 18 to the Consolidated Financial Statements in this report.

Environmental Matters

Dominion Energy is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations. See Note 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, Note 17 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 18 in this report for additional information on various environmental matters.

 

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State Actions Related to Air and GHG Emissions

In August 2017, the Ozone 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 which Dominion Energy has natural gas operations, are expected to develop reasonably achievable control technology rules for existing sources based on the Ozone Transport Commission model rule. States outside of the Ozone Transport Commission may also consider the model rules in setting new reasonably achievable control technology standards.

In May 2019, VDEQ issued a final rule establishing a state carbon regulation program. Several other states in which Dominion Energy operates, including Pennsylvania, New York, Maryland and Ohio 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.

Legal Matters

See Notes 3, 13 and 22 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, Notes 13 and 17 to the Consolidated Financial Statements and Item 1. Legal Proceedings in the Companies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as updated in Current Report on Form 8-K, filed November 18, 2019, and Notes 13 and 18 to the Consolidated Financial Statements in this report for additional information on various legal matters.

Regulatory Matters

See Notes 3 and 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019, Note 13 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as updated in Current Report on Form 8-K, filed November 18, 2019, and Note 13 to the Consolidated Financial Statements in this report for additional information on various regulatory matters.

Atlantic Coast Pipeline

In September 2014, Dominion Energy, along with Duke and Southern Company Gas, announced the formation of Atlantic Coast Pipeline. Atlantic Coast Pipeline is focused on constructing an approximately 600-mile natural gas pipeline running from West Virginia through Virginia to North Carolina. During the third and fourth quarters of 2018, a FERC stop work order together with delays in obtaining permits necessary for construction and delays in construction due to judicial actions impacted the cost and schedule for the project. As a result, project cost estimates have increased from between $6.0 billion to $6.5 billion to between $7.0 billion to $7.5 billion, excluding financing costs. Atlantic Coast Pipeline expects to achieve a late 2020 in-service date for at least key segments of the project, while the remainder may extend into early 2021. Alternatively, if it takes longer to resolve the judicial issues, such as through resolution of the appeal to the Supreme Court of the U.S. filed in June 2019, full in-service could extend to the end of 2021 with total project cost estimated to increase an additional $250 million, resulting in total project cost estimates of $7.25 billion to $7.75 billion, excluding financing costs. Atlantic Coast Pipeline is also evaluating possible legislative and administrative remedies. Project construction activities, schedules and costs are subject to uncertainty due to permitting and/or work delays (including due to judicial or regulatory action), abnormal weather and other conditions that could result in cost or schedule modifications in the future, a suspension of AFUDC for Atlantic Coast Pipeline and/or impairment charges potentially material to Dominion Energy’s cash flows, financial position and/or results of operations.

 

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