falsefalsefalse000071595700001036820001603291VIRGINIA ELECTRIC & POWER CORichmondRichmondRichmondtrue
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 September 30, 2019, which replace Part I, Item 1. Financial Statements in the Companies’ Quarterly Report for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission (the SEC) on November 1, 2019 (the 2019 Third 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 of Dominion Energy Gas and replaces Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2019 Third 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 Third Quarter Form 10-Q. More current information is contained in the Companies’ Quarterly Report on Form 10-Q for the quarter ended September 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 September 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 September 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 September 30, 2019 from Dominion Energy Gas Holdings, LLC’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.
 
 
 
 
 
 
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.
Registrant
     
 
/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
 

2019-102019-102020-092020-092019-032019-083331111111111112019-0951trueJun. 30, 2020112019-112019-12See Note 10 for amounts attributable to related parties. See Note 20 for amounts attributable to affiliates.See Note 20 for amounts attributable to related parties.Net of $37 million and $9 million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $69 million and $(17) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $(2) million and $1 million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(13) million and $7 million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $4 million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(45) million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $1 million and $(10) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $19 million and $(24) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $1 million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $1 million and $(1) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $5 million and $(1) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $11 million and $(3) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $(1) million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(2) million and $1 million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $— million tax for both the three and nine months ended September 30, 2019 and 2018.Net of $13 million and $(2) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $30 million and $1 million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $— million tax for both the three months ended September 30, 2019 and 2018, and net of $(11) million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $(3) million and $(2) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(3) million and $(6) million tax for the nine months ended September 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. Virginia Power’s Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date. Net of $(6) million and $(7) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(17) million and $(15) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $— million tax for both the three months ended September 30, 2019 and 2018, and net of $— million and $(1) million tax for the nine months ended September 30, 2019 and 2018, respectively.Net of $1 million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $1 million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.Dominion Energy Gas’ Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Balance Sheet at that date. Net of $— million tax for both the three months ended September 30, 2019 and 2018, and net of $(1) million tax for both the nine months ended September 30, 2019 and 2018.20 million shares authorized; 2 million shares outstanding at September 30, 2019. 1.8 billion shares authorized and 823 million shares outstanding at September 30, 2019 and 1.0 billion shares authorized and 681 million shares outstanding at December 31, 2018. 500,000 shares authorized; 274,723 shares outstanding at September 30, 2019 and December 31, 2018. Restricted cash and equivalent balances are presented within other current assets in the Companies’ Consolidated Balance Sheets.At September 30, 2019, September 30, 2018, December 31, 2018 and December 31, 2017, Dominion Energy Gas had $10 million, $3 million, $9 million and $3 million of cash and cash equivalents included in current assets of discontinued operations, respectively.See Note 2 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements. See Note 3 for noncash investing and financing activities related to the SCANA Combination. 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. Includes $98 million of financing leases and $4 million of operating leases. Includes (3.7) % and (4.4) % relating to the absence of tax on noncontrolling interest in 2019 and 2018, respectively.Amounts include adjustments for non-recurring costs directly related to the SCANA Combination.Includes $389 million of cash, restricted cash and equivalents, of which $115 million is considered restricted.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 nine months ended September 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 stock-based compensation awards with a fair value of $21 million.See table below for details about these reclassifications.Virginia Power’s reclassifications out of AOCI were immaterial for both the three and nine months ended September 30, 2019 and 2018.Amounts above include $36 million and $1 million for the three months ended September 30, 2019, $108 million and $3 million for the three months ended September 30, 2018, $129 million and $4 million for the nine months ended September 30, 2019 and $170 million and $8 million for the nine months ended September 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. In addition, the amounts include $12 million and $19 million of sales of renewable energy credits at Dominion Energy for the three and nine months ended September 30, 2019, respectively, $11 million and $14 million at Virginia Power for the three and nine months ended September 30, 2019, respectively, and $10 million and $11 million at both Dominion Energy and Virginia Power for the three and nine months ended September 30, 2018, 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 above include alternative revenue of $9 million and $44 million at Dominion Energy and $9 million and $35 million at Virginia Power for the three and nine months ended September 30, 2019, respectively.Includes acquisition cost. Includes $282 million and $317 million reported in other current liabilities at December 31, 2018 and September 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 September 30, 2019, respectively.Includes $79 million and $76 million reported in other deferred credits and other liabilities, with the remainder recorded in other current liabilities, at December 31, 2018 and September 30, 2019, respectively.Includes amounts reflected in discontinued operations.Included in property, plant and equipment in the Companies’ Consolidated Balance Sheets, net of $39 million, $3 million and $1 million of accumulated amortization at Dominion Energy, Virginia Power and Dominion Energy Gas, respectively, at September 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 $26 million of lease assets recorded in assets of discontinued operations and $24 million for lease liabilities recorded in liabilities of discontinued operations.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.Payments of $17 million were made in September 2019. The stock purchase contract liability was $233 million at September 30, 2019.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 September 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.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 September 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.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.Excludes $4 million and $7 million of derivative assets at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Excludes $3 million and $1 million of derivative liabilities at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. 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 information. 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. 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. Includes options. Maturity is determined based on final settlement period. Euro equivalent volumes are €250,000,000. 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. 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 27 years as of September 30, 2019. 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 26 years as of September 30, 2019. During 2019, DESC purchased certain of its first mortgage bonds as discussed in Note 17. As a result of these transactions, DESC incurred net costs, including write-offs of unamortized discount, premium and debt issuance costs, of $270 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. Includes $(396) million and $(892) million related to discontinued hedging relationships at September 30, 2019 and December 31, 2018, respectively. Includes $4 million and $8 million of hedging adjustments on discontinued hedging relationships at September 30, 2019 and December 31, 2018, respectively. Current derivative assets include amounts presented in assets held for sale 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 include $242 million and $157 million in other current liabilities at September 30, 2019 and December 31. 2018, respectively, with the remainder recorded in liabilities held for sale 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 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. Amounts recorded in Dominion Energy’s Consolidated Statements of Income are classified in other income. 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. 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. Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability.Included in other income and the nuclear decommissioning trust regulatory liability.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 for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed on November 18, 2019, and Note 3 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 on November 18, 2019, and Note 13 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 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 for the year ended December 31, 2018 and Note 3 for more information. Reflects a regulatory liability for the collection of postretirement benefit costs allowed in rates in excess of expense incurred. 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 $5 million and $6 million at September 30, 2019 and December 31, 2018, respectively.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 24 years as of September 30, 2019. 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. 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 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. Includes pending sales of securities of $3 million at September 30, 2019.The fair value of securities in an unrealized loss position was $277 million and $833 million at September 30, 2019 and December 31, 2018, respectively.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. 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 primarily 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 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, and guarantees for debt of certain subsidiaries discussed in Note 17. Includes basis.Averages weighted by volume.Represents volatilities unrepresented in published markets.Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $262 million and $220 million of assets at September 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 $152 million and $160 million of assets at September 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 September 30, 2019 and December 31, 2018, includes the valuation of certain fair value hedges associated with fixed rate debt of $6 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.Represents market prices beyond defined terms for Levels 1 and 2.Excludes $3 million and $26 million of derivative assets at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Excludes $17 million and $9 million of derivative liabilities at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements. Includes options. 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.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.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. Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets. 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 in Dominion Energy Gas’ Consolidated Balance Sheets at September 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. Primarily related to a voluntary retirement program.Related to a voluntary retirement program.Includes capitalized expenditures of $33 million and $34 million for the three months ended September 30, 2019 and 2018, respectively, and $100 million and $109 million for the nine months ended September 30, 2019 and 2018, respectively.Includes capitalized expenditures of $9 million for both the three months ended September 30, 2019 and 2018 and $20 million and $27 million for the nine months ended September 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.Includes cash and cash equivalents of $5 million and $9 million as of September 30, 2019 and December 31, 2018, respectively.Includes cash and cash equivalents of $5 million and less than $1 million dollars 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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
     
Atlantic Coast Pipeline Project
 
The approximately
600-mile
natural gas pipeline running from West Virginia through Virginia to North Carolina which will be owned by Dominion Energy, Duke and Southern Company Gas and constructed and operated by DETI
     
BACT
 
Best available control technology
     
Bankruptcy Court
 
U.S. Bankruptcy Court for the Southern District of New York
     
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
     
Brookfield
 
Brookfield Super-Core Infrastructure Partners, an infrastructure fund managed by Brookfield Asset Management Inc.
     
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
     
Companies
 
Dominion Energy, Virginia Power and Dominion Energy Gas, collectively
     
Cove Point
 
Dominion Energy Cove Point LNG, LP
     
Cove Point LNG Facility
 
An LNG terminalling and storage facility located on the Chesapeake Bay in Lusby, Maryland owned by Cove Point
     
CPCN
 
Certificate of Public Convenience and Necessity
     
CWA
 
Clean Water Act
 
1
 

Abbreviation or Acronym          
 
Definition
     
DCPI
 
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.
     
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, and 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
 
2
 

Abbreviation or Acronym          
 
Definition
     
GAAP
 
U.S. generally accepted accounting principles
     
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
     
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
     
Liquefaction Facility
 
A natural gas export/liquefaction facility at Cove Point
     
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.
 
3
 

Abbreviation or Acronym          
 
Definition
     
Power Delivery
 
Power Delivery Group operating segment
     
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 BW
 
A rate adjustment clause associated with the recovery of costs related to Brunswick County
     
Rider E
 
A rate adjustment clause associated with the recovery of costs related to certain capital projects at Virginia Power’s electric generating stations to comply with federal and state environmental laws and regulations
     
Rider U
 
A rate adjustment clause associated with the recovery of costs of new underground distribution facilities
     
Rider
US-2
 
A rate adjustment clause associated with the recovery of costs related to Woodland, Scott Solar and Whitehouse
     
ROE
 
Return on equity
     
RSN
 
Remarketable subordinated note
     
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 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
     
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
 
4
 

Abbreviation or Acronym          
 
Definition
     
VEBA
 
Voluntary Employees’ Beneficiary Association
     
VIE
 
Variable interest entity
     
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
     
WECTEC
 
WECTEC Global Project Services, Inc. (formerly known as Stone & Webster, Inc.), a wholly-owned subsidiary of Westinghouse
     
West Virginia Commission
 
Public Service Commission of West Virginia
     
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
     
Wrangler
 
Wrangler Retail Gas Holdings, LLC, a partnership between Dominion Energy and Interstate Gas Supply, Inc.
     
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
September 30,
   
Nine Months Ended
September 30,
 
 
    2019    
 
 
    2018    
   
    2019
 
 
    2018    
 
(millions, except per share amounts)
 
 
 
 
 
 
 
 
Operating Revenue
(1)
 
$
           4,269
 
  $
           3,451
   
$
         12,097
 
  $
         10,005
 
                                 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Electric fuel and other energy-related purchases
 
 
774
 
   
761
   
 
2,283
 
   
2,128
 
Purchased electric capacity
 
 
11
 
   
50
   
 
74
 
   
87
 
Purchased gas
 
 
153
 
   
5
   
 
1,110
 
   
409
 
Other operations and maintenance
 
 
1,010
 
   
770
   
 
3,295
 
   
2,438
 
Depreciation, depletion and amortization
 
 
679
 
   
526
   
 
1,991
 
   
1,487
 
Other taxes
 
 
243
 
   
177
   
 
819
 
   
542
 
Impairment of assets and other charges
 
 
85
 
   
12
   
 
1,232
 
   
147
 
                                 
Total operating expenses
 
 
2,955
 
   
2,301
   
 
10,804
 
   
7,238
 
                                 
Income from operations
 
 
1,314
 
   
1,150
   
 
1,293
 
   
2,767
 
                                 
Other income
 
 
173
 
   
373
   
 
653
 
   
658
 
Interest and related charges
 
 
451
 
   
378
   
 
1,372
 
   
1,053
 
                                 
Income from operations including noncontrolling interests before income tax expense
 
 
1,036
 
   
1,145
   
 
574
 
   
2,372
 
Income tax expense
 
 
51
 
   
262
   
 
208
 
   
485
 
                                 
Net Income Including Noncontrolling Interests
 
 
985
 
   
883
   
 
366
 
   
1,887
 
Noncontrolling Interests
 
 
10
 
   
29
   
 
17
 
   
81
 
                                 
Net Income Attributable to Dominion Energy
 
$
975
 
  $
854
   
$
349
 
  $
1,806
 
                                 
Earnings Per Common Share
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Dominion Energy - Basic
 
$
1.19
 
  $
1.31
   
$
0.42
 
  $
2.77
 
Net income attributable to Dominion Energy - Diluted
 
 
1.17
 
   
1.30
   
 
0.39
 
   
2.77
 
 
 
 
 
 
(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
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Net income including noncontrolling interests
 
$
985
 
  $
883
   
$
366
 
  $
1,887
 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(107
)
   
(27
)  
 
(209
)
   
51
 
Changes in unrealized net gains (losses) on investment securities
(2)
 
 
8
 
   
(6
)  
 
37
 
   
(24
)
Changes in net unrecognized pension and other postretirement benefit costs
(3)
 
 
(4
)
   
   
 
109
 
   
 
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
Net derivative (gains) losses-hedging activities
(4)
 
 
(6
)
   
30
   
 
(58
)
   
71
 
Net realized (gains) losses on investment securities
(5)
 
 
(4
)
   
3
   
 
(5
)
   
4
 
Net pension and other postretirement benefit costs
(6)
 
 
20
 
   
18
   
 
50
 
   
60
 
Changes in other comprehensive income from equity method investees
(7)
 
 
(1
)
   
   
 
(1
)
   
1
 
                                 
Total other comprehensive income (loss)
 
 
(94
)
   
18
   
 
(77
)
   
163
 
                                 
Comprehensive income including noncontrolling interests
 
 
891
 
   
901
   
 
289
 
   
2,050
 
Comprehensive income attributable to noncontrolling interests
 
 
10
 
   
29
   
 
17
 
   
82
 
                                 
Comprehensive income attributable to Dominion Energy
 
$
            881
 
  $
            872
   
$
            272
 
  $
         1,968
 
                                 
(1)
Net of $37 million and $9 million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $69 million and $(17) million tax for the nine months ended September 30, 2019 and 2018, respectively.
(2)
Net of $(2) million and $1 million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(13) million and $7 million tax for the nine months ended September 30, 2019 and 2018, respectively.
(3)
Net of $4 million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(45) million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.
(4)
Net of $1 million and $(10) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $19 million and $(24) million tax for the nine months ended September 30, 2019 and 2018, respectively.
(5)
Net of $1 million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $1 million and $(1) million tax for the nine months ended September 30, 2019 and 2018, respectively.
(6)
Net of $(6) million and $(7) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(17) million and $(15) million tax for the nine months ended September 30, 2019 and 2018, respectively.
(7)
Net of $—​​​​​​​ million tax for both the three months ended September 30, 2019 and 2018, and net of $— million and $(1) million tax for the nine months ended September 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)
 
  September 30, 2019  
 
 
  December 31, 2018
(1)
  
 
(millions)
 
 
 
 
ASSETS
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
378
 
  $
268
 
Customer receivables (less allowance for doubtful accounts of $
19
and $
14
)
 
 
1,972
 
   
1,749
 
Other receivables (less allowance for doubtful accounts of $
3
and $
4
)
(2)
 
 
363
 
   
331
 
Inventories
 
 
1,800
 
   
1,418
 
Regulatory assets
 
 
966
 
   
496
 
Derivative assets
 
 
55
 
   
223
 
Prepayments
 
 
338
 
   
265
 
Assets held for sale
 
 
228
 
   
 
Other
 
 
169
 
   
411
 
                 
Total current assets
 
 
6,269
 
   
5,161
 
                 
Investments
 
 
 
 
 
 
Nuclear decommissioning trust funds
 
 
5,860
 
   
4,938
 
Investment in equity method affiliates
 
 
1,528
 
   
1,278
 
Other
 
 
369
 
   
344
 
                 
Total investments
 
 
7,757
 
   
6,560
 
                 
Property, Plant and Equipment
 
 
 
 
 
 
Property, plant and equipment
 
 
96,122
 
   
76,578
 
Accumulated depreciation, depletion and amortization
 
 
(28,144
)
   
(22,018
)
                 
Total property, plant and equipment, net
 
 
67,978
 
   
54,560
 
                 
Deferred Charges and Other Assets
 
 
 
 
 
 
Goodwill
 
 
8,986
 
   
6,410
 
Intangible assets, net
 
 
773
 
   
670
 
Regulatory assets
 
 
7,669
 
   
2,676
 
Operating lease assets
 
 
455
 
   
 
Pension and other postretirement benefit assets
 
 
1,610
 
   
1,279
 
Other
 
 
862
 
   
598
 
                 
Total deferred charges and other assets
 
 
20,355
 
   
11,633
 
                 
Total assets
 
$
102,359
 
  $
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)
 
  September 30, 2019  
 
 
  December 31, 2018
(1)
  
 
(millions)
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
Securities due within one year
 
$
4,824
 
  $
3,624
 
Credit facility borrowings
 
 
 
   
73
 
Short-term debt
 
 
2,420
 
   
334
 
Accounts payable
 
 
791
 
   
914
 
Accrued interest, payroll and taxes
 
 
1,263
 
   
836
 
Regulatory liabilities
 
 
547
 
   
356
 
Liabilities held for sale
 
 
85
 
   
 
Other
(2)
 
 
2,261
 
   
1,510
 
                 
Total current liabilities
 
 
12,191
 
   
7,647
 
                 
Long-Term Debt
 
 
 
 
 
 
Long-term debt
 
 
29,838
 
   
26,328
 
Junior subordinated notes
 
 
3,797
 
   
3,430
 
Remarketable subordinated notes
 
 
 
   
1,386
 
                 
Total long-term debt
 
 
33,635
 
   
31,144
 
                 
Deferred Credits and Other Liabilities
 
 
 
 
 
 
Deferred income taxes and investment tax credits
 
 
6,198
 
   
5,116
 
Regulatory liabilities
 
 
10,926
 
   
6,840
 
Asset retirement obligations
 
 
5,020
 
   
2,250
 
Operating lease liabilities
 
 
394
 
   
 
Pension and other postretirement benefit liability
 
 
2,571
 
   
2,328
 
Other
 
 
1,467
 
   
541
 
                 
Total deferred credits and other liabilities
 
 
26,576
 
   
17,075
 
                 
Total liabilities
 
 
72,402
 
   
55,866
 
                 
Commitments and Contingencies (see Note 18)
 
 
 
 
 
 
Equity
 
 
 
 
 
 
Preferred stock
(3)
 
 
1,596
 
 
 
 
Common stock – no par
(4)
 
 
22,131
 
   
12,588
 
Retained earnings
 
 
7,336
 
   
9,219
 
Accumulated other comprehensive loss
 
 
(1,777
)
   
(1,700
)
                 
Total shareholders’ equity
 
 
29,286
 
   
20,107
 
                 
Noncontrolling interests
 
 
671
 
   
1,941
 
                 
Total equity
 
 
29,957
 
   
22,048
 
                 
Total liabilities and equity
 
$
             102,359
 
  $
             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 September 30, 2019.
(4)
1.8 billion shares authorized and 823 million shares outstanding at September 30, 2019 and 1.0 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
Shareholders’
Equity
 
 
 
 
 
 
 Shares 
 
 
 Amount 
 
 
 Shares 
 
 
Amount
 
 
Retained
Earnings
 
 
AOCI
 
Noncontrolling
Interests
 
 
Total
Equity
 
(millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
   
    $
     
654
    $
10,782
    $
8,820
    $
(1,538
)   $
18,064
    $
1,972
    $
20,036
 
                                                                         
Net income including noncontrolling interests
   
     
     
     
     
854
     
     
854
     
29
     
883
 
Issuance of stock
   
     
     
1
     
75
     
     
     
75
     
     
75
 
Stock awards (net of change in unearned compensation)
   
     
     
     
5
     
     
     
5
     
     
5
 
Dividends ($
0.8350
per common share) and distributions
   
     
     
     
     
(546
)    
     
(546
)    
(45
)    
(591
)
Other comprehensive income, net of tax
   
     
     
     
     
     
18
     
18
     
     
18
 
                                                                         
September 30, 2018
   
    $
     
655
    $
10,862
    $
9,128
    $
(1,520
)   $
18,470
    $
1,956
    $
20,426
 
                                                                         
                                                                         
June 30, 2019
   
2
    $
1,596
     
803
    $
20,660
    $
7,124
    $
(1,683
)   $
27,697
    $
684
    $
28,381
 
                                                                         
Net income including noncontrolling interests
   
     
     
     
   
 
975
 
   
   
 
975
 
 
 
10
 
 
 
985
 
Issuance of stock
   
     
   
 
20
 
 
 
1,477
 
   
     
   
 
1,477
 
   
   
 
1,477
 
Stock awards (net of change in unearned compensation)
   
     
     
   
 
7
 
   
     
   
 
7
 
   
   
 
7
 
Preferred stock dividends ($
4.375
per share)
   
     
     
     
   
 
(7
)
   
   
 
(7
)
   
   
 
(7
)
Common stock dividends ($
0.9175
per share) and distributions
   
     
     
     
   
 
(755
)
   
   
 
(755
)
 
 
(23
)
 
 
(778
)
Other comprehensive loss, net of tax
   
     
     
     
     
   
 
(94
)
 
 
(94
)
   
   
 
(94
)
Other
   
     
     
   
 
(13
)
 
 
(1
)
   
   
 
(14
)
   
   
 
(14
)
                                                                         
September 30, 2019
 
 
2
 
 
$
1,596
 
 
 
823
 
 
$
22,131
 
 
$
7,336
 
 
$
(1,777
)
 
$
29,286
 
 
$
671
 
 
$
29,957
 
                                                                         
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
Shareholders’
Equity
 
 
Noncontrolling
Interests
 
 
Total
Equity
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Retained
Earnings
 
 
AOCI
 
(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
   
     
     
     
     
1,806
     
     
1,806
     
81
     
1,887
 
Issuance of stock
   
     
     
10
     
737
     
     
     
737
     
     
737
 
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)
   
     
     
     
17
     
     
     
17
     
     
17
 
Dividends ($
2.505
per common share) and distributions
   
     
     
     
     
(1,635
)    
     
(1,635
)    
(110
)    
(1,745
)
Other comprehensive income, net of tax
   
     
     
     
     
     
162
     
162
     
1
     
163
 
Other
   
     
     
     
(5
)    
(8
)    
     
(13
)    
     
(13
)
                                                                         
September 30, 2018
   
    $
     
655
    $
10,862
    $
9,128
    $
(1,520
)   $
18,470
    $
1,956
    $
20,426
 
                                                                         
                                                                         
December 31, 2018
   
    $
     
681
    $
12,588
    $
9,219
    $
(1,700
)   $
20,107
    $
1,941
    $
22,048
 
                                                                         
Net income including noncontrolling interests
   
     
     
     
   
 
349
 
   
   
 
349
 
 
 
17
 
 
 
366
 
Issuance of stock
 
 
2
 
 
 
1,596
 
 
 
24
 
 
 
1,802
 
   
     
   
 
3,398
 
   
   
 
3,398
 
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)
   
     
     
   
 
19
 
   
     
   
 
19
 
   
   
 
19
 
Preferred stock dividends ($
5.104
per share)
   
     
     
     
   
 
(8
)
   
   
 
(8
)
   
   
 
(8
)
Common stock dividends ($
2.753
per share) and distributions
   
     
     
     
   
 
(2,224
)
   
   
 
(2,224
)
 
 
(66
)
 
 
(2,290
)
Other comprehensive loss, net of tax
   
     
     
     
     
   
 
(77
)
 
 
(77
)
   
   
 
(77
)
Other
   
     
     
   
 
(13
)
   
     
   
 
(13
)
   
   
 
(13
)
                                                                         
September 30, 2019
 
 
2
 
 
$
1,596
 
 
 
823
 
 
$
22,131
 
 
$
7,336
 
 
$
(1,777
)
 
$
29,286
 
 
$
671
 
 
$
29,957
 
                                                                         
(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)
Nine Months Ended September 30,
 
        2019        
 
 
        2018        
 
(millions)
 
 
 
 
Operating Activities
 
 
 
 
 
 
Net income including noncontrolling interests
 
$
366
 
  $
                 1,887
 
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
 
 
 
   
 
Depreciation, depletion and amortization (including nuclear fuel)
 
 
                2,235
 
   
1,706
 
Deferred income taxes and investment tax credits
 
 
112
 
   
486
 
Provision for refunds and rate credits to electric utility customers
 
 
936
 
   
77
 
Impairment of assets and other charges
 
 
982
 
   
139
 
Charge related to a voluntary retirement program
 
 
384
 
   
 
Gains on sales of assets and equity method investments
 
 
(20
)
   
(196
)
Net gains on nuclear decommissioning trust funds and other investments
 
 
(418
)
   
(208
)
Charge associated with future ash pond and landfill closure costs
 
 
 
   
81
 
Revision to future ash pond and landfill closure costs
 
 
(113
)
   
 
Other adjustments
 
 
(9
)
   
 
Changes in:
 
 
 
   
 
Accounts receivable
 
 
354
 
   
129
 
Inventories
 
 
(106
)
   
(37
)
Deferred fuel and purchased gas costs, net
 
 
158
 
   
(226
)
Prepayments
 
 
31
 
   
(81
)
Accounts payable
 
 
(446
)
   
(167
)
Accrued interest, payroll and taxes
 
 
(123
)
   
(14
)
Customer deposits
 
 
(94
)
   
7
 
Margin deposit assets and liabilities
 
 
54
 
   
(5
)
Net realized and unrealized changes related to derivative activities
 
 
1
 
   
101
 
Pension and other postretirement benefits
 
 
(107
)
   
(79
)
Other operating assets and liabilities
 
 
(468
)
   
111
 
                 
Net cash provided by operating activities
 
 
3,709
 
   
3,711
 
                 
Investing Activities
 
 
 
 
 
 
Plant construction and other property additions (including nuclear fuel)
 
 
(3,407
)
   
(3,111
)
Cash and restricted cash acquired in the SCANA Combination
 
 
389
 
   
 
Acquisition of solar development projects
 
 
(183
)
   
(108
)
Proceeds from sales of securities
 
 
1,311
 
   
1,301
 
Purchases of securities
 
 
(1,330
)
   
(1,364
)
Proceeds from sales of assets and equity method investments
 
 
211
 
   
200
 
Contributions to equity method affiliates
 
 
(187
)
   
(282
)
Other
 
 
36
 
   
(5
)
                 
Net cash used in investing activities
 
 
(3,160
)
   
(3,369
)
                 
Financing Activities
 
 
 
 
 
 
Issuance (repayment) of short-term debt, net
 
 
1,913
 
   
(363
)
Issuance of short-term notes
 
 
3,000
 
   
1,450
 
Repayment of short-term notes
 
 
 
   
(1,450
)
Credit facility borrowings
 
 
 
   
73
 
Repayment of credit facility borrowings
 
 
(113
)
   
 
Issuance of long-term debt
 
 
2,298
 
   
4,400
 
Repayment of long-term debt, including redemption premiums
 
 
(8,595
)
   
(3,154
)
Issuance of 2019 Equity Units
 
 
1,582
 
   
 
Issuance of common stock
 
 
1,802
 
   
737
 
Common dividend payments
 
 
(2,224
)
   
(1,635
)
Other
 
 
(163
)
   
(198
)
                 
Net cash used in financing activities
 
 
(500
)
   
(140
)
                 
Increase in cash, restricted cash and equivalents
 
 
49
 
   
202
 
Cash, restricted cash and equivalents at beginning of period
 
 
391
 
   
185
 
                 
Cash, restricted cash and equivalents at end of period
 
$
440
 
  $
387
 
                 
Supplemental Cash Flow Information
 
 
 
 
 
 
Significant noncash investing and financing activities:
(1)(2)(3)
 
 
 
   
 
Accrued capital expenditures
 
$
378
 
  $
197
 
Leases
(4)
 
 
102
 
   
 
                 
(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 $98 million of financing leases and $4 million of operating leases.
The accompanying notes are an integral part of Dominion Energy’s Consolidated Financial Statements.
 
12
 

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Operating Revenue
(1)
 
$
       2,264
 
  $
       2,232
   
$
       6,167
 
  $
       5,809
 
                                 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Electric fuel and other energy-related purchases
(1)
 
 
559
 
   
648
   
 
1,691
 
   
1,747
 
Purchased (excess) electric capacity
 
 
(1
)
   
50
   
 
45
 
   
87
 
Other operations and maintenance:
 
 
 
   
   
 
 
   
 
Affiliated suppliers
 
 
74
 
   
72
   
 
287
 
   
229
 
Other
 
 
379
 
   
332
   
 
1,010
 
   
1,013
 
Depreciation and amortization
 
 
313
 
   
295
   
 
916
 
   
839
 
Other taxes
 
 
82
 
   
79
   
 
257
 
   
241
 
Impairment of assets and other charges
 
 
38
 
   
   
 
781
 
   
 
                                 
Total operating expenses
 
 
1,444
 
   
1,476
   
 
4,987
 
   
4,156
 
                                 
Income from operations
 
 
820
 
   
756
   
 
1,180
 
   
1,653
 
                                 
Other income
 
 
15
 
   
25
   
 
68
 
   
49
 
Interest and related charges
(1)
 
 
138
 
   
130
   
 
408
 
   
388
 
                                 
Income before income tax expense
 
 
697
 
   
651
   
 
840
 
   
1,314
 
Income tax expense
 
 
95
 
   
131
   
 
118
 
   
271
 
                                 
Net Income
 
$
602
 
  $
520
   
$
722
 
  $
1,043
 
                                 
 
 
 
 
 
 
 
 
(1)
See Note 20 for amounts attributable to affiliates.
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
13
 

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Net income
 
$
           602
 
  $
           520
   
$
           722
 
  $
           1,043
 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(16
)
   
3
   
 
(34
)
   
10
 
Changes in unrealized net gains (losses) on nuclear decommissioning trust funds
(2)
 
 
1
 
   
   
 
5
 
   
(2
)
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
Net derivative losses-hedging activities
(3)
 
 
 
   
   
 
1
 
   
 
Net realized gains on nuclear decommissioning trust funds
(4)
 
 
 
   
   
 
(1
)
   
 
                                 
Total other comprehensive income (loss)
 
 
(15
)
   
3
   
 
(29
)
   
8
 
                                 
Comprehensive income
 
$
587
 
  $
523
   
$
693
 
  $
1,051
 
                                 
(1)
Net of $5 million and $(1) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $11 million and $(3) million tax for the nine months ended September 30, 2019 and 2018, respectively.
(2)
Net of $(1) million and $— million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(2) million and $1 million tax for the nine months ended September 30, 2019 and 2018, respectively.
(3)
Net of $— million tax for both the three and nine months ended September 30, 2019 and 2018.
(4)
Net of $1 million and $—​​​​​​​ million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $1 million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
14
 

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
 
  September 30, 2019  
 
 
  December 31, 2018
(1)
  
 
(millions)
 
 
 
 
ASSETS
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
29
 
  $
29
 
Customer receivables (less allowance for doubtful accounts of $9 at both dates)
 
 
1,177
 
   
999
 
Other receivables (less allowance for doubtful accounts of $2 and $
3
)
 
 
51
 
   
76
 
Affiliated receivables
 
 
8
 
   
101
 
Inventories (average cost method)
 
 
850
 
   
837
 
Other
(2)
 
 
530
 
   
529
 
                 
Total current assets
 
 
2,645
 
   
2,571
 
                 
Investments
 
 
 
 
 
 
Nuclear decommissioning trust funds
 
 
2,738
 
   
2,369
 
Other
 
 
3
 
   
3
 
                 
Total investments
 
 
2,741
 
   
2,372
 
                 
Property, Plant and Equipment
 
 
 
 
 
 
Property, plant and equipment
 
 
46,438
 
   
44,524
 
Accumulated depreciation and amortization
 
 
(14,036
)
   
(14,003
)
                 
Total property, plant and equipment, net
 
 
32,402
 
   
30,521
 
                 
Deferred Charges and Other Assets
 
 
 
 
 
 
Regulatory assets
 
 
1,917
 
   
737
 
Operating lease assets
 
 
184
 
   
 
Other
(2)
 
 
876
 
   
679
 
                 
Total deferred charges and other assets
 
 
2,977
 
   
1,416
 
                 
Total assets
 
$
             40,765
 
  $
             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.
 
15
 

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED BALANCE SHEETS—(Continued)
(Unaudited)
 
   September 30, 2019   
 
 
 
  December 31, 2018
(1)
  
 
(millions)
 
 
 
 
 
LIABILITIES AND SHAREHOLDER’S EQUITY
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
Securities due within one year
 
$
3
 
 
  $
350
 
Short-term debt
 
 
685
 
 
   
314
 
Accounts payable
 
 
286
 
 
   
339
 
Payables to affiliates
 
 
138
 
 
   
209
 
Affiliated current borrowings
 
 
9
 
 
   
224
 
Accrued interest, payroll and taxes
 
 
321
 
 
   
248
 
Derivative liabilities
(2)
 
 
165
 
 
   
25
 
Regulatory liabilities
 
 
180
 
 
   
299
 
Other
 
 
867
 
 
   
807
 
                     
Total current liabilities
 
 
2,654
 
 
   
2,815
 
                     
Long-Term Debt
 
 
11,792
 
 
   
11,321
 
                     
Deferred Credits and Other Liabilities
 
 
 
 
 
 
 
Deferred income taxes and investment tax credits
 
 
2,911
 
 
   
3,017
 
Asset retirement obligations
 
 
3,418
 
 
   
1,200
 
Regulatory liabilities
 
 
4,978
 
 
   
4,647
 
Operating lease liabilities
 
 
152
 
 
   
 
Other
(2)
 
 
1,310
 
 
   
833
 
                     
Total deferred credits and other liabilities
 
 
12,769
 
 
   
9,697
 
                     
Total liabilities
 
 
27,215
 
 
   
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
 
 
6,740
 
 
   
6,208
 
Accumulated other comprehensive loss
 
 
(41
)
 
   
(12
)
                     
Total common shareholder’s equity
 
 
13,550
 
 
   
13,047
 
                     
Total liabilities and shareholder’s equity
 
$
40,765
 
 
  $
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 September 30, 2019 and December 31, 2018.
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
16
 

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)
   
 
 
 
 
 
 
 
 
 
June 30, 2018
   
275
    $
5,738
    $
1,113
    $
5,655
    $
(9
)   $
12,497
 
                                                 
Net income
   
     
     
     
520
     
     
520
 
Dividends
   
     
     
     
(104
)    
     
(104
)
Other comprehensive income, net of tax
   
     
     
     
     
3
     
3
 
Other
   
     
     
     
1
     
     
1
 
                                                 
September 30, 2018
   
275
    $
5,738
    $
1,113
    $
6,072
    $
(6
)   $
12,917
 
                                                 
                                                 
June 30, 2019
   
275
    $
5,738
    $
1,113
    $
6,139
    $
(26
)   $
12,964
 
                                                 
Net income
   
     
     
   
 
602
 
   
   
 
602
 
Other comprehensive loss, net of tax
   
     
     
     
   
 
(15
)
 
 
(15
)
Other
   
     
     
   
 
(1
)
   
   
 
(1
)
                                                 
September 30, 2019
 
 
      275
 
 
$
5,738
 
 
$
1,113
 
 
$
     6,740
 
 
$
(41
)
 
$
     13,550
 
                                                 
                               
 
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
   
     
     
     
1,043
     
     
1,043
 
Dividends
   
     
     
     
(361
)    
     
(361
)
Other comprehensive income, net of tax
   
     
     
     
     
8
     
8
 
                                                 
September 30, 2018
   
275
    $
5,738
    $
1,113
    $
6,072
    $
(6
)   $
12,917
 
                                                 
                                                 
December 31, 2018
   
275
    $
5,738
    $
1,113
    $
6,208
    $
(12
)   $
13,047
 
                                                 
Net income
   
     
     
   
 
722
 
   
   
 
722
 
Dividends
   
     
     
   
 
(189
)
   
   
 
(189
)
Other comprehensive loss, net of tax
   
     
     
     
   
 
(29
)
 
 
(29
)
Other
   
     
     
   
 
(1
)
   
   
 
(1
)
                                                 
September 30, 2019
 
 
      275
 
 
$
5,738
 
 
$
1,113
 
 
$
6,740
 
 
$
(41
)
 
$
13,550
 
                                                 
The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.
 
17
 

VIRGINIA ELECTRIC AND POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
 
2019
 
 
2018
 
(millions)
 
 
 
 
Operating Activities
 
 
 
 
 
 
Net income
 
$
                  722
 
  $
               1,043
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   
 
Depreciation and amortization (including nuclear fuel)
 
 
1,045
 
   
974
 
Deferred income taxes and investment tax credits
 
 
(141
)
   
175
 
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
 
 
646
 
   
 
Provision for rate credits to customers
 
 
 
   
77
 
Charge related to a voluntary retirement program
 
 
138
 
   
 
Other adjustments
 
 
(60
)
   
(48
)
Changes in:
 
 
 
   
 
Accounts receivable
 
 
(154
)
   
(113
)
Affiliated receivables and payables
 
 
21
 
   
(8
)
Inventories
 
 
(34
)
   
40
 
Prepayments
 
 
(4
)
   
(1
)
Deferred fuel expenses, net
 
 
232
 
   
(273
)
Accounts payable
 
 
(38
)
   
(28
)
Accrued interest, payroll and taxes
 
 
73
 
   
50
 
Net realized and unrealized changes related to derivative activities
 
 
18
 
   
69
 
Asset retirement obligations
 
 
33
 
   
(29
)
Other operating assets and liabilities
 
 
(316
)
   
197
 
                 
Net cash provided by operating activities
 
 
2,068
 
   
2,206
 
                 
Investing Activities
 
 
 
 
 
 
Plant construction and other property additions
 
 
(1,816
)
   
(1,696
)
Purchases of nuclear fuel
 
 
(96
)
   
(82
)
Acquisition of solar development projects
 
 
(169
)
   
(98
)
Proceeds from sales of securities
 
 
677
 
   
651
 
Purchases of securities
 
 
(717
)
   
(681
)
Other
 
 
(18
)
   
(47
)
                 
Net cash used in investing activities
 
 
(2,139
)
   
(1,953
)
                 
Financing Activities
 
 
 
 
 
 
Issuance of short-term debt, net
 
 
371
 
   
392
 
Repayment of affiliated current borrowings, net
 
 
(215
)
   
(18
)
Issuance of long-term debt
 
 
698
 
   
700
 
Repayment of long-term debt
 
 
(590
)
   
(951
)
Common dividend payments to parent
 
 
(189
)
   
(361
)
Other
 
 
(5
)
   
(7
)
                 
Net cash provided by (used in) financing activities
 
 
70
 
   
(245
)
                 
Increase (decrease) in cash, restricted cash and equivalents
 
 
(1
)
   
8
 
Cash, restricted cash and equivalents at beginning of period
 
 
38
 
   
24
 
                 
Cash, restricted cash and equivalents at end of period
 
$
37
 
  $
32
 
                 
Supplemental Cash Flow Information
 
 
 
 
 
 
Significant noncash investing activities:
(1)
 
 
 
   
 
Accrued capital expenditures
 
$
231
 
  $
96
 
Financing leases
 
 
13
 
   
 
                 
(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.
 
18
 

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Operating Revenue
(1)
 
$
502
 
  $
533
   
$
1,598
 
  $
1,431
 
                                 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Purchased (excess) gas
(1)
 
 
3
 
   
(10
)  
 
12
 
   
(2
)
Other energy-related purchases
 
 
1
 
   
1
   
 
2
 
   
3
 
Other operations and maintenance:
 
 
 
   
   
 
 
   
 
Affiliated suppliers
 
 
32
 
   
30
   
 
125
 
   
97
 
Other
 
 
134
 
   
148
   
 
427
 
   
435
 
Depreciation and amortization
 
 
92
 
   
91
   
 
274
 
   
241
 
Other taxes
 
 
40
 
   
35
   
 
118
 
   
87
 
Impairment of assets and other charges
 
 
 
   
1
   
 
13
 
   
127
 
Gains on sales of assets
 
 
(2
)
   
(65
)  
 
(2
)
   
(116
)
                                 
Total operating expenses
 
 
300
 
   
231
   
 
969
 
   
872
 
                                 
Income from continuing operations
 
 
202
 
   
302
   
 
629
 
   
559
 
                                 
Earnings from equity method investee
s
 
 
8
 
   
10
   
 
30
 
   
41
 
Other income
 
 
46
 
   
18
   
 
131
 
   
51
 
Interest and related charges
(1)
 
 
88
 
   
52
   
 
261
 
   
102
 
                                 
Income from continuing operations before income tax expense
 
 
168
 
   
278
   
 
529
 
   
549
 
Income tax expense
 
 
38
 
   
69
   
 
104
 
   
100
 
                                 
Net income from continuing operations
 
 
130
 
   
209
   
 
425
 
   
449
 
Net
i
ncome from discontinued operations
 
 
45
 
   
33
   
 
125
 
   
135
 
                                 
Net
i
ncome including noncontrolling interest
 
 
175
 
   
242
   
 
550
 
   
584
 
Noncontrolling interest
 
 
24
 
   
51
   
 
90
 
   
130
 
                                 
Net
i
ncome attributable to Dominion Energy Gas
 
$
                 151
 
  $
                 191
   
$
                 460
 
  $
                 454
 
                                 
(1)
See Note 20 for amounts attributable to related parties.
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
19
 

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
                                 
 
Three Months Ended
September 30,
   
Nine Months Ended September 30,
 
 
        2019        
 
 
        2018        
 
 
        2019        
 
 
        2018        
 
(millions)
 
 
 
 
 
 
 
 
Net
i
ncome including noncontrolling interest
 
$
175
 
  $
242
   
$
550
 
  $
584
 
Other comprehensive income (loss), net of taxes:
 
 
 
   
   
 
 
   
 
Net deferred gains (losses) on derivatives-hedging activities
(1)
 
 
(36
)
   
4
   
 
(87
)
   
(2
)
Changes in unrecognized pension and other postretirement benefit costs
(2)
 
 
(1
)
   
   
 
28
 
   
 
Amounts reclassified to net income:
 
 
 
   
   
 
 
   
 
Net derivative losses-hedging activities
(3)
 
 
9
 
   
4
   
 
10
 
   
15
 
Net pension and other postretirement benefit costs
(4)
 
 
1
 
   
2
   
 
4
 
   
4
 
                                 
Total other comprehensive income (loss)
 
 
(27
)
   
10
   
 
(45
)
   
17
 
                                 
Comprehensive income including noncontrolling interests
 
 
148
 
   
252
   
 
505
 
   
601
 
Comprehensive income attributable to noncontrolling interests
 
 
24
 
   
51
   
 
89
 
   
131
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Dominion Energy Gas
 
$
124
 
  $
201
   
$
416
 
  $
470
 
                                 
 
 
 
 
 
 
(1)
Net of $13 million and $(2) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $30 million and $1 million tax for the nine months ended September 30, 2019 and 2018, respectively.
 
 
 
 
 
 
(2)
Net of $— million tax for both the three months ended September 30, 2019 and 2018, and net of $(11) million and $— million tax for the nine months ended September 30, 2019 and 2018, respectively.
 
 
 
 
 
 
(3)
Net of $(3) million and $(2) million tax for the three months ended September 30, 2019 and 2018, respectively, and net of $(3) million and $(6) million tax for the nine months ended September 30, 2019 and 2018, respectively.
 
 
 
 
 
 
(4)
Net of $— million tax for both the three months ended September 30, 2019 and 2018, and net of $(1) million tax for both the nine months ended September 30, 2019 and 2018.
 
 
 
 
 
 
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
20
 

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                     
 
September 30, 2019 
 
 
 
  December 31, 2018
(1)
  
 
(millions)
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
64
 
 
  $
99
 
Customer receivables (less allowance for doubtful accounts of less than $
1
at both dates)
 
 
145
 
 
   
187
 
Other receivables
(2)
 
 
19
 
 
   
18
 
Affiliated receivables
 
 
308
 
 
   
319
 
Affiliated notes receivable
 
 
770
 
 
   
819
 
Inventories
 
 
124
 
 
   
97
 
Gas imbalances
(2)
 
 
41
 
 
   
187
 
Current assets of discontinued operations
 
 
292
 
 
   
444
 
Other
(2)
 
 
122
 
 
   
178
 
                     
Total current assets
 
 
1,885
 
 
   
2,348
 
                     
Investments
 
 
 
 
 
 
 
Affiliated notes receivable
 
 
1,578
 
 
   
4,317
 
Investment in equity method affiliates
 
 
313
 
 
   
339
 
                     
Total investments
 
 
1,891
 
 
   
4,656
 
                     
Property, Plant and Equipment
 
 
 
 
 
 
 
Property, plant and equipment
 
 
15,074
 
 
   
14,700
 
Accumulated depreciation and amortization
 
 
(3,463
)
 
   
(3,219
)
                     
Total property, plant and equipment, net
 
 
11,611
 
 
   
11,481
 
                     
Deferred Charges and Other Assets
 
 
 
 
 
 
 
Goodwill
 
 
1,471
 
 
   
1,471
 
Pension and other postretirement benefit assets
(2)
 
 
797
 
 
   
705
 
Operating lease assets
 
 
37
 
 
   
 
Other
 
 
203
 
 
   
241
 
                     
Total deferred charges and other assets
 
 
2,508
 
 
   
2,417
 
                     
Noncurrent assets of discontinued operations
 
 
6,178
 
 
   
5,849
 
                     
Total assets
 
$
24,073
 
 
  $
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.
 
21
 

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS—(Continued)
(Unaudited)
                 
 
September 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
 
 
280
 
   
10
 
Accounts payable
 
 
71
 
   
76
 
Payables to affiliates
 
 
53
 
   
124
 
Affiliated current borrowings
 
 
3,129
 
   
3,097
 
Current liabilities of discontinued operations
 
 
1,062
 
   
1,273
 
Other
(2)
 
 
330
 
   
354
 
                 
Total current liabilities
 
 
5,375
 
   
5,755
 
                 
Long-Term Debt
 
 
4,028
 
   
7,022
 
                 
Affiliated Long-Term Debt
 
 
395
 
 
 
 
                 
Deferred Credits and Other Liabilities
 
 
 
 
 
 
Deferred income taxes and investment tax credits
 
 
1,323
 
   
1,330
 
Regulatory liabilities
 
 
807
 
   
765
 
Operating lease liabilities
 
 
31
 
   
 
Other
 
 
179
 
   
118
 
                 
Total deferred credits and other liabilities
 
 
2,340
 
   
2,213
 
                 
Noncurrent liabilities of discontinued operations
 
 
3,194
 
   
2,896
 
                 
Total liabilities
 
 
15,332
 
   
17,886
 
                 
Commitments and Contingencies (see Note 18)
 
 
 
 
 
 
Equity
 
 
 
 
 
 
Predecessor equity
 
 
2,733
 
   
1,804
 
Membership interests
 
 
4,821
 
   
4,566
 
Accumulated other comprehensive loss
 
 
(213
)
   
(169
)
                 
Total members’ equity
 
 
7,341
 
   
6,201
 
                 
Noncontrolling interest
 
 
1,400
 
   
2,664
 
                 
Total equity
 
 
8,741
 
   
8,865
 
                 
Total liabilities and equity
 
$
             24,073
 
  $
             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 STATEMENTS OF EQUITY - QUARTER-TO-DATE
(Unaudited)
 
Predecessor
Equity
 
 
Membership
Interests
 
 
    AOCI    
 
 
Total
Members’
Equity
 
 
Noncontrolling
Interests
 
 
    Total    
 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
  $
     1,788
    $
4,446
    $
(118
)   $
6,116
    $
2,645
    $
8,761
 
                                                 
Net income
   
55
     
136
     
     
191
     
51
     
242
 
Equity contributions from Dominion Energy
   
5
     
     
     
5
     
     
5
 
Dividends and distributions
   
(28
)    
     
     
(28
)    
(31
)    
(59
)
Distributions to noncontrolling interest
   
(1
)    
     
     
(1
)    
1
     
 
Other comprehensive income, net of tax
   
     
     
        10
     
10
     
     
10
 
                                                 
September 30, 2018
  $
1,819
    $
4,582
    $
(108
)   $
6,293
    $
2,666
    $
8,959
 
                                                 
                                                 
June 30, 2019
  $
2,859
    $
       4,729
    $
(186
)   $
     7,402
    $
         1,427
    $
     8,829
 
                                                 
Net income
 
 
59
 
 
 
92
 
 
 
 
 
 
151
 
 
 
24
 
 
 
175
 
Dividends and distributions
 
 
(189
)
 
 
 
 
 
 
 
 
(189
)
 
 
(51
)
 
 
(240
)
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(27
)
 
 
(27
)
 
 
 
 
 
(27
)
Other
 
 
4
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
4
 
                                                 
September 30, 2019
 
$
2,733
 
 
$
4,821
 
 
$
(213
)
 
$
7,341
 
 
$
1,400
 
 
$
8,741
 
                                                 
The accompanying notes are an integral part of Dominion Energy Gas’ Consolidated Financial Statements.
 
23
 

DOMINION ENERGY GAS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF EQUITY - YEAR-TO-DATE
(Unaudited)
 
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
   
137
     
317
     
     
454
     
130
     
584
 
Sale of Dominion Energy Midstream common units
   
     
     
     
     
4
     
4
 
Remeasurement of noncontrolling interest in Dominion Energy Midstream
   
375
     
     
     
375
     
(375
)    
 
Dividends and distributions
   
(67
)    
(25
)    
     
(92
)    
(92
)    
(184
)
Distributions to noncontrolling interest
   
(27
)    
     
     
(27
)    
27
     
 
Equity contributions from Dominion Energy
   
40
     
     
     
40
     
     
40
 
Other comprehensive income, net of tax
   
     
     
16
     
16
     
1
     
17
 
                                                 
September 30, 2018
  $
1,819
    $
4,582
    $
(108
)   $
6,293
    $
2,666
    $
8,959
 
                                                 
                                                 
December 31, 2018
  $
1,804
    $
4,566
    $
(169
)   $
6,201
    $
2,664
    $
8,865
 
                                                 
Net income
 
 
205
 
 
 
255
 
 
 
 
 
 
460
 
 
 
90
 
 
 
550
 
Acquisition of public interest in Dominion Energy Midstream
 
 
1,181
 
 
 
 
 
 
 
 
 
1,181
 
 
 
(1,221
)
 
 
(40
)
Dividends and distributions
 
 
(457
)
 
 
 
 
 
 
 
 
(457
)
 
 
(132
)
 
 
(589
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
(44
)
 
 
(44
)
 
 
(1
)
 
 
(45
)
                                                 
September 30, 2019
 
$
2,733
 
 
$
4,821
 
 
$
(213
)
 
$
7,341
 
 
$
1,400
 
 
$
8,741
 
                                                 
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)
Nine Months Ended September 30,
 
2019
 
 
2018
 
(millions)
 
 
 
 
Operating Activities
 
 
 
   
 
Net income including noncontrolling interest
 
$
                 550
 
  $
                 584
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   
 
Depreciation and amortization
 
 
344
 
   
307
 
Deferred income taxes and investment tax credits
 
 
40
 
   
350
 
Charge related to a voluntary retirement program
 
 
40
 
   
 
Impairment of assets and other charges
 
 
13
 
   
129
 
Gains on sales of assets
 
 
(7
)
   
(109
)
Other adjustments
 
 
67
 
   
18
 
Changes in:
 
 
 
   
 
Accounts receivable
 
 
107
 
   
23
 
Affiliated receivables and payables
 
 
(34
)
   
(61
)
Inventories
 
 
(51
)
   
(43
)
Prepayments
 
 
31
 
   
(206
)
Accounts payable
 
 
(110
)
   
(105
)
Accrued interest, payroll and taxes
 
 
(45
)
   
(29
)
Customer deposits
 
 
(82
)
   
8
 
Pension and other postretirement benefits
 
 
(105
)
   
(106
)
Other operating assets and liabilities
 
 
(34
)
   
28
 
                 
Net cash provided by operating activities
 
 
724
 
   
788
 
                 
Investing Activities
 
 
 
 
 
 
Plant construction and other property additions
 
 
(537
)
   
(819
)
Loan to Dominion Energy from Cove Point
 
 
 
   
(1,986
)
Repayment of loan by Dominion Energy to Cove Point
 
 
2,986
 
   
 
Proceeds from assignments of shale development rights
 
 
 
   
109
 
Other
 
 
(19
)
   
(16
)
                 
Net cash provided by (used in) investing activities
 
 
2,430
 
   
(2,712
)
                 
Financing Activities
 
 
 
 
 
 
Issuance (repayment) of short-term debt, net
 
 
270
 
   
(489
)
Issuance of affiliated current borrowings, net
 
 
32
 
   
89
 
Issuance of long-term debt
 
 
 
   
2,750
 
Repayment of long-term debt
 
 
(3,300
)
   
(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
 
 
(589
)
   
(183
)
Other
 
 
(1
)
   
(21
)
                 
Net cash provided by (used in) financing activities
 
 
(3,266
)
   
1,998
 
                 
Increase (decrease) in cash, restricted cash and equivalents
 
 
(112
)
   
74
 
Cash, restricted cash and equivalents at beginning of period
 
 
198
 
   
57
 
                 
Cash, restricted cash and equivalents at end of period
 
$
86
 
  $
131
 
                 
Supplemental Cash Flow Information
 
 
 
 
 
 
Significant noncash investing and financing activities:
(1)
 
 
 
   
 
Accrued capital expenditures
 
$
19
 
  $
72
 
Equity contributions from Dominion Energy
 
 
 
 
 
15
 
Financing leases
 
 
10
 
   
 
                 
(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 more information on 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 September 30, 2019, their results of operations and changes in equity for the three and nine months ended September 30, 2019 and 2018 and their cash flows for the nine months ended September 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 September 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 September 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.
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 nine months ended September 30, 2019 and 2018:
                                 
             
 
Cash, Restricted Cash and Equivalents
at End of Period
   
Cash, Restricted Cash and Equivalents at
Beginning of Period
 
                         
 
September 30,
2019
 
 
September 30,
2018
   
December 31,
2018
   
December 31,
2017
 
                         
(millions)
 
 
 
   
   
 
Dominion Energy
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Cash and cash equivalents
 
$
378
 
  $
310
    $
268
    $
120
 
Restricted cash and equivalents
(1)
 
 
62
 
   
77
     
123
     
65
 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
440
 
  $
387
    $
391
    $
185
 
                                 
Virginia Power
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
29
 
  $
22
    $
29
    $
14
 
Restricted cash and equivalents
(1)
 
 
8
 
   
10
     
9
     
10
 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
37
 
  $
32
    $
38
    $
24
 
                                 
Dominion Energy Gas
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Cash and cash equivalents
(2)
 
$
74
 
  $
85
    $
108
    $
18
 
Restricted cash and equivalents
(1)
 
 
12
 
   
46
     
90
     
39
 
                                 
Cash, restricted cash and equivalents shown in the Consolidated Statements of Cash Flows
 
$
86
 
  $
131
    $
198
    $
57
 
                                 
 
 
 
 
 
 
(1)
Restricted cash and equivalent balances are presented within other current assets in the Companies’ Consolidated Balance Sheets.
 
 
 
 
 
 
(2)
At September 30, 2019, September 30, 2018, December 31, 2018 and December 31, 2017, Dominion Energy Gas had $10 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, 2019.
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.
In September 2019, Dominion Energy and Virginia Power abandoned certain property, plant and equipment before the end of its useful life. As a result, Dominion Energy recorded a charge of $26 million ($19 million
after-tax)
and Virginia Power recorded a charge of $17 million ($12 million
after-tax),
included in impairment of assets and other charges in their Consolidated Statements of Income for the three and nine months ended September 30, 2019.
 
27
 

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.
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.
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
 
28
 

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 for more information on the SCANA Combination, including 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 was 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 was 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 nine months ended September 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 was 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.
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;
 
 
29
 

 
 
  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.
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 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)
 
$
1,782
 
         
Investments
 
 
224
 
         
Property, plant and equipment
(2)
 
 
11,006
 
         
Goodwill
 
 
2,576
 
         
Regulatory assets
(3)
 
 
3,940
 
         
Other deferred charges and other assets, including intangible assets
 
 
430
 
         
Total Assets
 
 
19,958
 
         
Total current liabilities
 
 
1,515
 
         
Long-term debt
 
 
6,707
 
         
Deferred income taxes
 
 
1,114
 
         
Regulatory liabilities
 
 
2,668
 
         
Other deferred credits and other liabilities
(4)
 
 
1,115
 
         
Total Liabilities
 
 
                    13,119
 
         
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 nine months ended September 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.
 
 
30
 

(5)
Includes stock-based compensation awards with a fair value of $21 million.
 
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 $979 million and $97 million for the three months ended September 30, 2019, respectively, and an increase of $2.1 billion and a decrease of $1.1 billion for the nine months ended September 30, 2019, respectively.
Dominion Energy incurred merger and integration-related costs of $29 million and $596 million in the Consolidated Statements of Income for the three and nine months ended September 30, 2019, respectively. These amounts for the three and nine months ended September 30, 2019 include $4 million and $427 million, respectively, for a charge related to a voluntary retirement program. See Note 21 for additional information. Of the remaining merger and integration-related costs, $25 million and $160 million was recorded in other operations and maintenance expense in the Consolidated Statements of Income for the three and nine months ended September 30, 2019, respectively, and less than $1 million and $9 million was recorded in interest and related charges in the Consolidated Statements of Income for the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, Dominion Energy incurred merger and integration-related costs of $3 million and $17 million, respectively, recorded primarily 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 September 30,
   
Nine Months Ended September 30,
 
 
2019
(1)
 
 
2018
(1)
   
2019
(1)
 
 
2018
(1)
 
             
(millions, except EPS)
 
   
 
                                 
Operating Revenue
 
$
4,269
 
  $
4,356
   
$
13,104
 
  $
12,902
 
                                 
Net income attributable to Dominion Energy
 
 
1,029
 
   
923
   
 
1,991
 
   
2,054
 
                                 
Earnings Per Common Share – Basic
 
$
1.28
 
  $
1.23
   
$
2.47
 
  $
2.74
 
                                 
Earnings Per Common Share – Diluted
 
$
1.26
 
  $
1.23
   
$
2.44
 
  $
2.74
 
 
 
 
 
 
 
(1)
Amounts include adjustments for
non-recurring
costs directly related to the SCANA Combination.
 
Expected Sale of Interest in Cove Point
In October 2019, Dominion Energy signed an agreement to sell a noncontrolling interest (consisting of 25% of the limited partnership interests) in Cove Point to Brookfield for cash consideration of approximately $2.1 billion, subject to working capital adjustments, which is expected to close in December 2019.
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 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.
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
 
31
 

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 September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
             
(millions)
 
   
 
                                 
Operating revenue
 
$
155
 
  $
148
   
$
538
 
  $
527
 
                                 
Depreciation and amortization
 
 
23
 
   
19
   
 
66
 
   
55
 
                                 
Other operating expenses
 
 
90
 
   
88
   
 
364
 
   
322
 
                                 
Other income
 
 
20
 
   
18
   
 
55
 
   
54
 
                                 
Interest and related charges
 
 
11
 
   
10
   
 
30
 
   
27
 
                                 
Income tax expense
 
 
8
 
   
13
   
 
25
 
   
39
 
                                 
                                 
Net income from discontinued operations
 
$
43
 
  $
36
   
$
108
 
  $
138
 
                                 
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 September 30, 2019
 
 
At December 31, 2018
 
             
(millions)
 
 
 
 
                 
Current assets of discontinued operations
(1)
 
$
268
 
  $
423
 
                 
Investments
 
 
2
 
   
2
 
                 
Property, plant and equipment, net
 
 
3,866
 
   
3,669
 
                 
Regulatory assets
 
 
675
 
   
711
 
                 
Other deferred charges and other assets, including goodwill and intangible assets
 
 
1,440
 
   
1,275
 
                 
                 
Noncurrent assets of discontinued operations
 
 
5,983
 
   
5,657
 
                 
Current liabilities of discontinued operations
 
 
1,055
 
   
1,262
 
                 
Long-term debt
 
 
1,554
 
   
1,300
 
                 
Deferred income taxes and investment tax credits
 
 
741
 
   
716
 
                 
Regulatory liabilities
 
 
769
 
   
747
 
                 
Other deferred credits and liabilities
 
 
110
 
   
108
 
                 
                 
Noncurrent liabilities of discontinued operations
 
 
3,174
 
   
2,871
 
(1)
Includes cash and cash equivalents of $5 million and $9 million as of September 30, 2019 and December 31, 2018, respectively.
Capital expenditures and significant noncash items relating to East Ohio included the following:
 
Nine Months Ended September 30,
 
 
            2019            
 
 
            2018            
 
       
(millions)
 
 
                 
Capital expenditures
 
$
267
 
  $
246
 
                 
Significant noncash items
 
 
 
   
 
                 
Charge related to a voluntary retirement program
 
 
20
 
 
 
 
Accrued capital expenditures
 
 
10
 
   
6
 
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:
 
32
 

             
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
                                 
(millions)
   
     
     
     
 
                                 
Operating revenue
 
$
31
 
  $
42
   
$
110
 
  $
144
 
                                 
Depreciation and amortization
 
 
1
 
   
4
   
 
4
 
   
11
 
                                 
Other operating expenses
 
 
27
 
   
42
   
 
83
 
   
137
 
                                 
Income tax expense (benefit)
 
 
1
 
   
(1
)  
 
6
 
   
(1
)
                                 
                                 
Net income (loss) from discontinued operations
 
$
2
 
  $
(3
)  
$
17
 
  $
(3
)
                                 
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 September 30, 2019
 
 
At December 31, 2018
 
                 
(millions)
   
     
 
                 
Current assets of discontinued operations
(1)
 
$
24
 
  $
21
 
                 
Noncurrent assets of discontinued operations
(2)
 
 
195
 
   
192
 
                 
Current liabilities of discontinued operations
 
 
7
 
   
11
 
                 
Noncurrent liabilities of discontinued operations
 
 
20
 
   
25
 
(1) Includes cash and cash equivalents of $5 million and less than $1 million dollars as of September 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:
       
 
Nine Months Ended September 31,
 
 
2019
 
 
2018
 
                 
(millions)
   
     
 
                 
Capital expenditures
 
$
10
 
  $
4
 
                 
 
33
 

Note 4. Operating Revenue
The Companies’ operating revenue consists of the following:
             
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
                                 
(millions)
 
 
 
 
 
 
 
 
 
   
 
                                 
Dominion Energy
   
   
 
 
   
     
 
                                 
Regulated electric sales:
   
   
 
 
   
     
 
                                 
Residential
 
$
1,440
 
  $
1,036
   
$
3,180
 
  $
2,641
 
                                 
Commercial
 
 
962
 
   
737
   
 
2,347
 
   
1,897
 
                                 
Industrial
 
 
227
 
   
143
   
 
474
 
   
371
 
                                 
Government and other retail
 
 
244
 
   
224
   
 
658
 
   
647
 
                                 
Wholesale
 
 
45
 
   
30
   
 
134
 
   
95
 
                                 
Nonregulated electric sales
 
 
197
 
   
322
   
 
688
 
   
1,022
 
                                 
Regulated gas sales:
 
 
 
   
   
 
 
   
 
                                 
Residential
 
 
121
 
   
73
   
 
900
 
   
553
 
                                 
Commercial
 
 
52
 
   
15
   
 
316
 
   
152
 
                                 
Other
 
 
23
 
   
3
   
 
86
 
   
14
 
                                 
Nonregulated gas sales
 
 
51
 
   
42
   
 
369
 
   
139
 
                                 
Regulated gas transportation and storage:
 
 
 
   
   
 
 
   
 
                                 
FERC-regulated
 
 
248
 
   
266
   
 
772
 
   
800
 
                                 
State-regulated
 
 
168
 
   
138
   
 
547
 
   
472
 
                                 
Nonregulated gas transportation and storage
 
 
153
 
   
162
   
 
501
 
   
286
 
                                 
Other regulated revenues
(1)
 
 
54
 
   
38
   
 
180
 
   
132
 
                                 
Other nonregulated revenues
(1)(2)
 
 
96
 
   
133
   
 
305
 
   
410
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
4,081
 
   
3,362
   
 
11,457
 
   
9,631
 
                                 
                                 
Other revenues
(3)
 
 
188
 
   
89
   
 
640
 
   
374
 
                                 
                                 
Total operating revenue
 
$
4,269
 
  $
3,451
   
$
12,097
 
  $
10,005
 
                                 
                                 
Virginia Power
 
 
 
   
   
 
 
   
 
                                 
Regulated electric sales:
 
 
 
   
   
 
 
   
 
                                 
Residential
 
$
1,085
 
  $
1,036
   
$
2,816
 
  $
2,641
 
                                 
Commercial
 
 
732
 
   
737
   
 
2,049
 
   
1,897
 
                                 
Industrial
 
 
121
 
   
143
   
 
351
 
   
371
 
                                 
Government and other retail
 
 
224
 
   
224
   
 
625
 
   
647
 
                                 
Wholesale
 
 
31
 
   
30
   
 
97
 
   
95
 
                                 
Other regulated revenues
(1)
 
 
36
 
   
30
   
 
124
 
   
95
 
                                 
Other nonregulated revenues
(2)
 
 
21
 
   
10
   
 
54
 
   
41
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
2,250
 
   
2,210
   
 
6,116
 
   
5,787
 
                                 
                                 
Other revenues
(2)(3)
 
 
14
 
   
22
   
 
51
 
   
22
 
                                 
                                 
Total operating revenue
 
$
2,264
 
  $
2,232
   
$
6,167
 
  $
5,809
 
                                 
                                 
Dominion Energy Gas
 
 
 
   
   
 
 
   
 
                                 
Regulated gas sales - wholesale
 
$
 
  $
   
$
2
 
  $
6
 
                                 
Nonregulated gas sales
(2)
 
 
1
 
   
2
   
 
4
 
   
5
 
                                 
Regulated gas transportation and storage
 
 
306
 
   
300
   
 
952
 
   
917
 
                                 
Nonregulated gas transportation and storage
 
 
153
 
   
162
   
 
501
 
   
286
 
                                 
Management service revenue
(2)
 
 
37
 
   
63
   
 
126
 
   
195
 
                                 
Other regulated revenues
(1)
 
 
3
 
   
4
   
 
8
 
   
17
 
                                 
Other nonregulated revenues
(1)(2)
 
 
1
 
   
1
   
 
2
 
   
2
 
                                 
                                 
Total operating revenue from contracts with customers
 
 
501
 
   
532
   
 
1,595
 
   
1,428
 
                                 
                                 
Other revenues
 
 
1
 
   
1
   
 
3
 
   
3
 
                                 
                                 
Total operating revenue
 
$
502
 
  $
533
   
$
1,598
 
  $
1,431
 
                                 
(1)
Amounts above include $36 million and $1 million for the three months ended September 30, 2019, $108 million and $3 million for the three months ended September 30, 2018, $129 million and $4 million for the nine months ended September 30, 2019 and $170 million and $8 million for the nine months ended September 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. In addition, the amounts include $12 million and $19 million of sales of renewable energy credits at Dominion Energy for the three and nine months ended September 30, 2019, respectively, $11 million and $14 million at Virginia Power for the three and nine months ended September 30, 2019, respectively, and $10 million and $11 million at both Dominion Energy and Virginia Power for the three and nine months ended September 30, 2018, respectively, which are considered to be goods transferred at a point in time.
 
34
 

(2)
See Notes 10 and 20 for amounts attributable to related parties and affiliates.
(3)
Amounts above include alternative revenue of $9 million and $44 million at Dominion Energy and $9 million and $35 million at Virginia Power for the three and nine months ended September 30, 2019, respectively.
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 September 30, 2019
 
 
2019
 
 
 
2020
 
 
 
2021
 
 
 
2022
 
 
 
2023
 
 
 
Thereafter
 
 
 
Total
 
(millions)
   
     
     
     
     
     
     
 
Dominion Energy
  $
     431
    $
     1,545
    $
     1,446
    $
     1,344
    $
     1,199
    $
     13,502
    $
     19,467
 
Virginia Power
   
5
     
3
     
1
     
     
     
     
9
 
Dominion Energy Gas
   
455
     
1,658
     
1,559
     
1,436
     
1,268
     
13,810
     
20,186
 
Contract assets represent an entity’s right to consideration in exchange for goods and services that the entity has transferred to a customer. At September 30, 2019 and December 31, 2018, Dominion Energy’s contract asset balances were $34 million and $42 million, respectively. Dominion Energy Gas’ contract asset balances were $47 million and $58 million at September 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 September 30, 2019 and December 31, 2018, Dominion Energy’s contract liability balances were $127 million and $106 million, respectively. At September 30, 2019 and December 31, 2018, Virginia Power’s contract liability balances were $25 million and $22 million, respectively. At September 30, 2019 and December 31, 2018, Dominion Energy Gas’ contract liability balances were $46 million and $49 million, respectively. During the nine months ended September 30, 2019, Dominion Energy, Virginia Power and Dominion Energy Gas recognized revenue of $92 million $22 million and $30 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
 
Nine Months Ended September 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
 
 
0.2
 
   
3.3
   
 
4.5
 
   
4.6
   
 
3.6
 
   
3.2
 
                                                 
Investment tax credits
 
 
(5.7
)
   
(0.9
)  
 
(5.3
)
   
(1.4
)  
 
 
   
 
                                                 
Production tax credits
 
 
(1.2
)
   
(0.7
)  
 
(0.8
)
   
(0.7
)  
 
 
   
 
                                                 
Reversal of excess deferred income taxes
 
 
(6.8
)
   
(1.5
)  
 
(4.1
)
   
(1.9
)  
 
(0.9
)
   
(0.9
)
                                                 
Federal legislative change
 
 
 
   
2.0
   
 
 
   
(0.2
)  
 
 
   
2.7
 
                                                 
State legislative change
 
 
 
   
(0.8
)  
 
 
   
   
 
 
   
(3.3
)
                                                 
Write-off
of regulatory assets
 
 
33.5
 
   
   
 
 
   
   
 
 
   
 
                                                 
AFUDC - equity
 
 
(2.0
)
   
(0.9
)  
 
 
   
(0.5
)  
 
(0.5
)
   
(0.3
)
                                                 
Other, net
 
 
(2.7
)
   
(1.0
)  
 
(1.2
)
   
(0.3
)    
(3.5
)
  
(1)
   
(4.3
)  
(1)
                                                 
Effective tax rate
   
        36.3
%
 
   
        20.5
%    
        14.1
%
 
   
        20.6
%    
        19.7
%
 
   
        18.1
%
                                                 
(1)
Includes
(3.7) % and (4.4) % 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
 
35
 

these deferred tax impacts in accordance with applicable regulatory commission orders or formula rate mechanisms. See Note 13 for current year developments.
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.
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 the third quarter, DESC’s unrecognized tax benefits increased by $1 million and both accrued interest and penalties increased by $7 million. In total, these adjustments resulted in an increase to goodwill of $72 million and had no impact on Dominion Energy’s income tax expense, interest expense or other income.
As of September 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 September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
                                 
(millions, except EPS)
 
 
 
 
 
 
 
 
 
 
 
 
                                 
Net income attributable to Dominion Energy
 
$
975
 
  $
854
   
$
349
 
  $
1,806
 
                                 
Series A Preferred Stock dividends
 
 
(7
)
   
   
 
(8
)
   
 
                                 
                                 
Net income attributable to Dominion Energy - Basic
 
 
968
 
   
854
   
 
341
 
   
1,806
 
                                 
                                 
Dilutive effect of Series A Preferred Stock
 
 
(13
)
   
   
 
(26
)
   
 
                                 
                                 
Net income attributable to Dominion Energy - Diluted
 
 
955
 
   
854
   
 
315
 
   
1,806
 
                                 
                                 
Average shares of common stock outstanding – Basic
 
 
813.0
 
   
653.9
   
 
802.9
 
   
652.4
 
                                 
Net effect of dilutive securities
 
 
 
   
1.0
   
 
0.1
 
   
0.4
 
                                 
                                 
Average shares of common stock outstanding – Diluted
 
 
813.0
 
   
654.9
   
 
803.0
 
   
652.8
 
                                 
                                 
Earnings Per Common Share – Basic
 
$
1.19
 
  $
1.31
   
$
0.42
 
  $
2.77
 
                                 
Earnings Per Common Share – Diluted
 
$
1.17
 
  $
1.30
   
$
0.39
 
  $
2.77
 
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 and nine months ended September 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 and nine months ended September 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 were potentially dilutive securities, but were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2019 and 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 nine months ended September 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 nine months ended September 30, 2018. In calculating diluted EPS in connection with the Dominion Energy Midstream convertible preferred units, Dominion Energy applied the
if-converted
method.
 
36
 

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 September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Beginning balance
 
$
(389
)
 
$
30
 
 
$
(1,322
)
 
$
(2
)
 
$
(1,683
)
                                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(107
)
 
 
8
 
 
 
(4
)
 
 
(1
)
 
 
(104
)
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
(6
)
 
 
(4
)
 
 
20
 
 
 
 
 
 
10
 
                                         
                                         
Net current period other comprehensive income (loss)
 
 
(113
)
 
 
4
 
 
 
16
 
 
 
(1
)
 
 
(94
)
                                         
                                         
Ending balance
 
$
(502
)
 
$
34
 
 
$
(1,306
)
 
$
(3
)
 
$
(1,777
)
                                         
                                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Beginning balance
  $
(248
)   $
(2
)   $
(1,286
)   $
(2
)   $
(1,538
)
                                         
Other comprehensive income before reclassifications: gains (losses)
   
(27
)    
(6
)    
     
     
(33
)
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
30
     
3
     
18
     
     
51
 
                                         
                                         
Net current period other comprehensive income (loss)
   
3
     
(3
)    
18
     
     
18
 
                                         
                                         
Ending balance
  $
(245
)   $
(5
)   $
(1,268
)   $
(2
)   $
(1,520
)
                                         
                                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Beginning balance
 
$
(235
)
 
$
2
 
 
$
(1,465
)
 
$
(2
)
 
$
(1,700
)
                                         
Other comprehensive income before reclassifications: gains (losses)
 
 
(209
)
 
 
37
 
 
 
109
 
 
 
(1
)
 
 
(64
)
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
(58
)
 
 
(5
)
 
 
50
 
 
 
 
 
 
(13
)
                                         
                                         
Net current period other comprehensive income (loss)
 
 
(267
)
 
 
32
 
 
 
159
 
 
 
(1
)
 
 
(77
)
                                         
                                         
Ending balance
 
$
(502
)
 
$
34
 
 
$
(1,306
)
 
$
(3
)
 
$
(1,777
)
                                         
                                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Beginning balance
  $
(302
)   $
747
    $
(1,101
)   $
(3
)   $
(659
)
                                         
Other comprehensive income before reclassifications: gains (losses)
   
51
     
(24
)    
     
1
     
28
 
                                         
Amounts reclassified from AOCI: (gains) losses
(1)
   
71
     
4
     
60
     
     
135
 
                                         
                                         
Net current period other comprehensive income (loss)
   
122
     
(20
)    
60
     
1
     
163
 
                                         
                                         
Cumulative-effect of changes in accounting principle
   
(64
)    
(732
)    
(227
)    
     
(1,023
)
                                         
Less other comprehensive income attributable to noncontrolling interest
   
1
     
     
     
     
1
 
                                         
                                         
Ending balance
  $
(245
)   $
(5
)   $
(1,268
)   $
(2
)   $
(1,520
)
                                         
(1) See table below for details about these reclassifications.
 
37
 

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 September 30, 2019
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
 
$
(35
)
 
Operating revenue
 
 
2
 
 
Purchased gas
Interest rate contracts
 
 
14
 
 
Interest and related charges
Foreign currency contracts
 
 
12
 
 
Other income
             
Total
 
 
(7
)
 
Tax
 
 
1
 
 
Income tax expense
             
Total, net of tax
 
$
(6
)
 
             
Unrealized (gains) and losses on investment securities:
 
 
 
 
Realized (gain) loss on sale of securities
 
$
(5
)
 
Other income
             
Total
 
 
(5
)
 
Tax
 
 
1
 
 
Income tax expense
             
Total, net of tax
 
$
(4
)
 
             
Unrecognized pension and other postretirement benefit costs:
 
 
 
 
Amortization of prior-service costs (credits)
 
$
(5
)
 
Other income
Amortization of actuarial losses
 
 
31
 
 
Other income
             
Total
 
 
26
 
 
             
Tax
 
 
(6
)
 
Income tax expense
             
Total, net of tax
 
$
20
 
 
             
Three Months Ended September 30, 2018
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
  $
26
   
Operating revenue
Interest rate contracts
   
12
   
Interest and related charges
Foreign currency contracts
   
2
   
Other income
             
Total
   
40
   
Tax
   
(10
)  
Income tax expense
             
Total, net of tax
  $
30
   
             
Unrealized (gains) and losses on investment securities:
   
   
Realized (gain) loss on sale of securities
  $
3
   
Other income
             
Total
   
3
   
Tax
   
   
Income tax expense
             
Total, net of tax
  $
3
   
             
Unrecognized pension and other postretirement benefit costs:
   
   
Amortization of prior-service costs (credits)
  $
(5
)  
Other income
Amortization of actuarial losses
   
30
   
Other income
             
Total
   
25
   
Tax
   
(7
)  
Income tax expense
             
Total, net of tax
  $
18
   
             
 
38
 

Details about AOCI components
 
Amounts
reclassified
    from AOCI    
 
 
Affected line item in the
Consolidated Statements of
Income
(millions)
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
 
$
(127
)
 
Operating revenue
 
 
(1
)
 
Purchased gas
Interest rate contracts
 
 
37
 
 
Interest and related charges
Foreign currency contracts
 
 
14
 
 
Other income
             
Total
 
 
(77
)
 
Tax
 
 
19
 
 
Income tax expense
             
Total, net of tax
 
$
(58
)
 
             
Unrealized (gains) and losses on investment securities:
 
 
 
 
Realized (gain) loss on sale of securities
 
$
(6
)
 
Other income
             
Total
 
 
(6
)
 
Tax
 
 
1
 
 
Income tax expense
             
Total, net of tax
 
$
(5
)
 
             
Unrecognized pension and other postretirement benefit costs:
 
 
 
 
Amortization of prior-service costs (credits)
 
$
(18
)
 
Other income
Amortization of actuarial losses
 
 
85
 
 
Other income
             
Total
 
 
67
 
 
Tax
 
 
(17
)
 
Income tax expense
             
Total, net of tax
 
$
50
 
 
             
Nine Months Ended September 30, 2018
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
  $
55
   
Operating revenue
   
2
   
Purchased gas
   
(8
)  
Electric fuel and other energy-related purchases
Interest rate contracts
   
36
   
Interest and related charges
Foreign currency contracts
   
10
   
Other income
             
Total
   
95
   
Tax
   
(24
)  
Income tax expense
             
Total, net of tax
  $
71
   
             
Unrealized (gains) and losses on investment securities:
   
   
Realized (gain) loss on sale of securities
  $
5
   
Other income
             
Total
   
5
   
Tax
   
(1
)  
Income tax expense
             
Total, net of tax
  $
4
   
             
Unrecognized pension and other postretirement benefit costs:
   
   
Amortization of prior-service costs (credits)
  $
(16
)  
Other income
Amortization of actuarial losses
   
91
   
Other income
             
Total
   
75
   
Tax
   
(15
)  
Income tax expense
             
Total, net of tax
  $
60
   
             
 
39
 

Virginia Powe
r
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 September 30, 2019
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(30
)
 
$
4
 
 
$
(26
)
Other comprehensive income before reclassifications: gains (losses)
 
 
(16
)
 
 
1
 
 
 
(15
)
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
 
 
 
 
 
 
 
                         
Net current period other comprehensive income (loss)
 
 
(16
)
 
 
1
 
 
 
(15
)
                         
Ending balance
 
$
(46
)
 
$
5
 
 
$
(41
)
                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Beginning balance
  $
(8
)   $
(1
)   $
(9
)
Other comprehensive income before reclassifications: gains (losses)
   
3
     
     
3
 
Amounts reclassified from AOCI: (gains) losses
(1)
   
     
     
 
                         
Net current period other comprehensive income (loss)
   
3
     
     
3
 
                         
Ending balance
  $
(5
)   $
(1
)   $
(6
)
                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(13
)
 
$
1
 
 
$
(12
)
Other comprehensive income before reclassifications: gains (losses)
 
 
(34
)
 
 
5
 
 
 
(29
)
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
1
 
 
 
(1
)
 
 
 
                         
Net current period other comprehensive income (loss)
 
 
(33
)
 
 
4
 
 
 
(29
)
                         
Ending balance
 
$
(46
)
 
$
5
 
 
$
(41
)
                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Beginning balance
  $
(12
)   $
74
    $
62
 
Other comprehensive income before reclassifications: gains (losses)
   
10
     
(2
)    
8
 
Amounts reclassified from AOCI: (gains) losses
(1)
   
     
     
 
                         
Net current period other comprehensive income (loss)
   
10
     
(2
)    
8
 
                         
Cumulative-effect of changes in accounting principle
   
(3
)    
(73
)    
(76
)
                         
Ending balance
  $
(5
)   $
(1
)   $
(6
)
                         
 
 
 
 
 
(1)
Virginia Power’s reclassifications out of AOCI were immaterial for both the three and nine months ended September 30, 2019 and 2018.
 
 
40
 

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 September 30, 2019
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(74
)
 
$
(112
)
 
$
(186
)
Other comprehensive income before reclassifications: gains (losses)
 
 
(36
)
 
 
(1
)
 
 
(37
)
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
9
 
 
 
1
 
 
 
10
 
                         
Net current period other comprehensive income (loss)
 
 
(27
)
 
 
 
 
 
(27
)
                         
Ending balance
 
$
(101
)
 
$
(112
)
 
$
(213
)
                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Beginning balance
  $
(24
)   $
(94
)   $
(118
)
Other comprehensive income before reclassifications: gains (losses)
   
4
     
     
4
 
Amounts reclassified from AOCI: (gains) losses
(1)
   
4
     
2
     
6
 
                         
Net current period other comprehensive income (loss)
   
8
     
2
     
10
 
                         
Ending balance
  $
(16
)   $
(92
)   $
(108
)
                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
(25
)
 
$
(144
)
 
$
(169
)
Other comprehensive income before reclassifications: gains (losses)
 
 
(87
)
 
 
28
 
 
 
(59
)
Amounts reclassified from AOCI: (gains) losses
(1)
 
 
10
 
 
 
4
 
 
 
14
 
                         
Net current period other comprehensive income (loss)
 
 
(77
)
 
 
32
 
 
 
(45
)
                         
Less other comprehensive income (loss) attributable to noncontrolling interest
 
 
(1
)
 
 
 
 
 
(1
)
                         
Ending balance
 
$
(101
)
 
$
(112
)
 
$
(213
)
                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Beginning balance
  $
(23
)   $
(75
)   $
(98
)
Other comprehensive income before reclassifications: gains (losses)
   
(2
)    
     
(2
)
Amounts reclassified from AOCI: (gains) losses
(1)
   
15
     
4
     
19
 
                         
Net current period other comprehensive income (loss)
   
13
     
4
     
17
 
                         
Cumulative-effect of changes in accounting principle
   
(5
)    
(21
)    
(26
)
Less other comprehensive income (loss) attributable to noncontrolling interest
   
1
     
     
1
 
                         
Ending balance
  $
(16
)   $
(92
)   $
(108
)
                         
 
 
 
 
 
(1)
See table below for details about these reclassifications.
 
 
41
 

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 September 30, 2019
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
 
$
(2
)
 
Net income from discontinued operations
Interest rate contracts
 
 
2
 
 
Interest and related charges
Foreign currency contracts
 
 
12
 
 
Other income
             
Total
 
 
12
 
 
Tax
 
 
(3
)
 
Income tax expense
             
Total, net of tax
 
$
9
 
 
             
Unrecognized pension costs:
 
 
 
 
Actuarial losses
 
$
1
 
 
Other income
             
Total
 
 
1
 
 
Tax
 
 
 
 
Income tax expense
             
Total, net of tax
 
$
1
 
 
             
Three Months Ended September 30, 2018
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
  $
3
   
Net income from discontinued operations
Interest rate contracts
   
1
   
Interest and related charges
Foreign currency contracts
   
2
   
Other income
             
Total
   
6
   
Tax
   
(2
)  
Income tax expense
             
Total, net of tax
  $
4
   
             
Unrecognized pension costs:
   
   
Actuarial losses
  $
2
   
Other income
             
Total
   
2
   
Tax
   
   
Income tax expense
             
Total, net of tax
  $
2
   
             
Nine Months Ended September 30, 2019
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
 
$
(4
)
 
Net income from discontinued operations
Interest rate contracts
 
 
3
 
 
Interest and related charges
Foreign currency contracts
 
 
14
 
 
Other income
             
Total
 
 
13
 
 
Tax
 
 
(3
)
 
Income tax expense
             
Total, net of tax
 
$
10
 
 
             
Unrecognized pension costs:
 
 
 
 
Actuarial losses
 
$
5
 
 
Other income
             
Total
 
 
5
 
 
Tax
 
 
(1
)
 
Income tax expense
             
Total, net of tax
 
$
4
 
 
             
Nine Months Ended September 30, 2018
 
 
 
 
Deferred (gains) and losses on derivatives-hedging activities:
   
   
Commodity contracts
  $
8
   
Net income from discontinued operations
Interest rate contracts
   
3
   
Interest and related charges
Foreign currency contracts
   
10
   
Other income
             
Total
   
21
   
Tax
   
(6
)  
Income tax expense
             
Total, net of tax
  $
15
   
             
Unrecognized pension costs:
   
   
Actuarial losses
  $
5
   
Other income
             
Total
   
5
   
Tax
   
(1
)  
Income tax expense
             
Total, net of tax
  $
4
   
             
 
 
 
42
 

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, 2018. See Note 9 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 September 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)
 
 
$            13
 
 
Discounted cash flow
 
Market price (per Dth)
(3)
   
(1) - 6
     
 
FTRs
 
 
5
 
 
Discounted cash flow
 
Market price (per MWh)
(3)
   
(2) - 8
     
1
 
Physical options:
 
 
 
 
 
   
     
 
Natural gas
 
 
2
 
 
Option model
 
Market price (per Dth)
(3)
   
1 - 6
     
4
 
 
 
 
 
 
Price volatility
(4)
   
1% - 70%
     
47
%
                                 
Total assets
 
 
$            20
 
 
 
   
     
 
                                 
Liabilities
 
 
 
 
 
   
     
 
Physical and financial forwards:
 
 
 
 
 
   
     
 
Natural gas
(2)
 
 
$            10
 
 
Discounted Cash Flow
 
Market price (per Dth)
(3)
   
(2) - 7
     
(1
)
FTRs
 
 
5
 
 
Discounted cash flow
 
Market price (per MWh)
(3)
   
(5) - 3
     
 
Physical options:
 
 
 
 
 
   
     
 
Natural gas
 
 
6
 
 
Option model
 
Market price (per Dth)
(3)
   
1 - 6
     
3
 
 
 
 
 
 
Price volatility
(4)
   
1% - 71%
     
26
%
                                 
Total liabilities
 
 
$            21
 
 
 
   
     
 
                                 
 
 
 
 
 
 
 
(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)
 
 
 
43
 

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 September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
   
     
     
     
 
Commodity
 
$
6
 
 
$
54
 
 
$
20
 
 
$
80
 
Interest rate
 
 
 
 
 
10
 
 
 
 
 
 
10
 
Foreign currency
 
 
 
 
 
3
 
 
 
 
 
 
3
 
Investments
(1)
:
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
 
 
3,881
 
 
 
 
 
 
 
 
 
3,881
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt instruments
 
 
 
 
 
472
 
 
 
 
 
 
472
 
Government securities
 
 
474
 
 
 
694
 
 
 
 
 
 
1,168
 
Cash equivalents and other
 
 
26
 
 
 
5
 
 
 
 
 
 
31
 
                                 
Total assets
 
$
         4,387
 
 
$
         1,238
 
 
$
             20
 
 
$
         5,645
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity
 
$
14
 
 
$
45
 
 
$
21
 
 
$
80
 
Interest rate
 
 
 
 
 
850
 
 
 
 
 
 
850
 
Foreign currency
 
 
 
 
 
4
 
 
 
 
 
 
4
 
                                 
Total liabilities
 
$
14
 
 
$
899
 
 
$
21
 
 
$
934
 
                                 
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 $262 million and $220 million of assets at September 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.
 
 
44
 

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
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Beginning balance
 
$
75
 
  $
119
   
$
64
 
  $
150
 
Total realized and unrealized gains (losses):
 
 
 
   
   
 
 
   
 
Included in earnings:
 
 
 
   
   
 
 
   
 
Operating revenue
 
 
 
   
   
 
2
 
   
(2
)
Purchased gas
 
 
 
   
   
 
1
 
   
 
Electric fuel and other energy-related purchases
 
 
(5
)
   
(7
)  
 
(12
)
   
(25
)
Included in other comprehensive income
 
 
 
   
   
 
 
   
1
 
Included in regulatory assets/liabilities
 
 
(76
)
   
(16
)  
 
(51
)
   
(26
)
Settlements
 
 
5
 
   
(4
)  
 
7
 
   
(7
)
Purchases
 
 
 
   
   
 
(10
)
   
 
Transfers out of Level 3
 
 
 
   
   
 
(2
)
   
1
 
                                 
Ending balance
 
$
(1
)
  $
92
   
$
(1
)
  $
92
 
                                 
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
 
  $
 
Purchased gas
 
 
 
   
   
 
1
 
   
 
                                 
Total
 
$
 
  $
   
$
3
 
  $
 
                                 
 
Virginia Power
The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at September 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)
 
 
$                12
 
 
Discounted cash flow
 
Market price (per Dth)
(3)
   
(1) - 3
     
 
FTRs
 
 
5
 
 
Discounted cash flow
 
Market price (per MWh)
(3)
   
(2) - 8
     
1
 
Total assets
 
 
$                17
 
 
 
   
     
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Physical and financial forwards:
 
 
 
 
 
   
     
 
Natural gas
(2)
 
 
$                10
 
 
Discounted cash flow
 
Market price (per Dth)
(3)
   
(2) - 6
     
(1
)
FTRs
 
 
5
 
 
Discounted cash flow
 
Market price (per MWh)
(3)
   
(5) - 3
     
 
Physical options:
 
 
 
 
 
   
     
 
Natural gas
 
 
1
 
 
Option model
 
Market price (per Dth)
(3)
   
1 - 6
     
3
 
 
 
 
 
 
Price volatility
(4)
   
24%
 -
 52%
     
35
%
Total liabilities
 
 
$                16
 
 
 
   
     
 
 
 
 
 
 
 
(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.
 
 
45
 

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 September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
   
     
     
     
 
Commodity
 
$
 
 
$
3
 
 
$
17
 
 
$
20
 
Investments
(1)
:
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
 
 
1,783
 
 
 
 
 
 
 
 
 
1,783
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt instruments
 
 
 
 
 
273
 
 
 
 
 
 
273
 
Government securities
 
 
184
 
 
 
337
 
 
 
 
 
 
521
 
Cash equivalents and other
 
 
6
 
 
 
 
 
 
 
 
 
6
 
                                 
Total assets
 
$
         1,973
 
 
$
613
 
 
$
17
 
 
$
2,603
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity
 
$
 
 
$
17
 
 
$
16
 
 
$
33
 
Interest rate
 
 
 
 
 
521
 
 
 
 
 
 
521
 
                                 
Total liabilities
 
$
 
 
$
538
 
 
$
16
 
 
$
554
 
                                 
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 $152 million and $160 million of assets at September 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 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
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Beginning balance
 
$
77
 
  $
115
   
$
60
 
  $
147
 
Total realized and unrealized losses:
 
 
 
   
   
 
 
   
 
Included in earnings:
 
 
 
   
   
 
 
   
 
Electric fuel and other energy-related purchases
 
 
(5
)
   
(6
)  
 
(12
)
   
(25
)
Included in regulatory assets/liabilities
 
 
(76
)
   
(19
)  
 
(50
)
   
(30
)
Settlements
 
 
5
 
   
(4
)  
 
3
 
   
(6
)
                                 
Ending balance
 
$
1
 
  $
86
   
$
1
 
  $
86
 
                                 
 
 
 
 
 
 
 
 
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 nine months ended September 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 September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Commodity
 
$
 
 
$
2
 
 
$
 
 
$
2
 
Foreign currency
 
 
 
 
 
3
 
 
 
 
 
 
3
 
                                 
Total assets
 
$
 
 
$
5
 
 
$
 
 
$
5
 
                                 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
$
 
 
$
113
 
 
$
 
 
$
113
 
Foreign currency
 
 
 
 
 
4
 
 
 
 
 
 
4
 
                                 
Total liabilities
 
$
 
 
$
117
 
 
$
 
 
$
117
 
                                 
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 nine months ended September 30, 2019 and the three months ended September 30, 2018.
         
 
Nine Months Ended
September 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
  $
 
         
 
 
 
 
47
 

There were no gains or losses included in earnings in the Level 3 fair value category for the nine months ended September 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 nine months ended September 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:
 
September 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)
 
$
34,662
 
 
$
38,894
 
  $
29,952
    $
31,045
 
Credit facility borrowings
 
 
 
 
 
 
   
73
     
73
 
Junior subordinated notes
(3)
 
 
3,797
 
 
 
3,951
 
   
3,430
     
3,358
 
Remarketable subordinated notes
(3)
 
 
 
 
 
 
   
1,386
     
1,340
 
Virginia Power
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including securities due within one year
(3)
 
$
11,795
 
 
$
13,732
 
  $
11,671
    $
12,400
 
Dominion Energy Gas
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including securities due within one year
(4)
 
$
4,478
 
 
$
4,745
 
  $
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 September 30, 2019 and December 31, 2018, includes the valuation of certain fair value hedges associated with fixed rate debt of $6 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 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 19 for further information regarding credit-related contingent features for the Companies’ derivative instruments.
 
48
 

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:
 
 
 
September 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
 
$
39
 
 
$
18
 
 
$
 
 
$
21
 
  $
175
    $
12
    $
    $
163
 
Exchange
 
 
37
 
 
 
26
 
 
 
 
 
 
11
 
   
68
     
68
     
     
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
10
 
 
 
4
 
 
 
 
 
 
6
 
   
18
     
1
     
     
17
 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
3
 
 
 
3
 
 
 
 
 
 
 
   
26
     
2
     
     
24
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
89
 
 
$
51
 
 
$
 
 
$
38
 
  $
287
    $
83
    $
    $
204
 
                                                                 
(1)
Excludes $
4
million and $
7
million of derivative assets at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
 
 
 
September 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
 
$
43
 
 
$
18
 
 
$
1
 
 
$
24
 
  $
19
    $
12
    $
    $
7
 
Exchange
 
 
34
 
 
 
26
 
 
 
8
 
 
 
 
   
115
     
68
     
47
     
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
850
 
 
 
4
 
 
 
41
 
 
 
805
 
   
142
     
1
     
     
141
 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
4
 
 
 
3
 
 
 
 
 
 
1
 
   
2
     
2
     
     
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
931
 
 
$
51
 
 
$
50
 
 
$
830
 
  $
278
    $
83
    $
47
    $
148
 
                                                                 
(1)
Excludes $
3
million and $
1
million of derivative liabilities at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
 
49
 

V
olumes
The following table presents the volume of Dominion Energy’s derivative activity at September 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)
 
 
125
 
 
 
63
 
Basis
 
 
256
 
 
 
541
 
Electricity (MWh):
 
 
 
 
 
 
Fixed price
 
 
3,262,550
 
 
 
369,850
 
FTRs
 
 
74,936,524
 
 
 
 
NGLs (Gal)
 
 
17,892,000
 
 
 
 
Interest rate
(2)
 
$
     850,000,000
 
 
$
     5,384,447,114
 
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 September 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
)
 
$
(5
)
 
 
27 months
 
Electricity
 
 
9
 
 
 
8
 
 
 
15 months
 
Other
 
 
              2
 
 
 
            2
 
 
 
6 months
 
Interest rate
 
 
(512
)
 
 
(49
)
 
 
387 months
 
Foreign currency
 
 
5
 
 
 
(3
)
 
 
81 months
 
                         
Total
 
$
(502
)
 
$
(47
)
 
 
 
                         
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 nine months ended September 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)
 
 
September 30, 2019
 
 
December 31, 2018
   
September 30, 2019
 
 
December 31, 2018
 
(millions)
 
 
 
 
 
 
 
 
Long-term debt
 
$
(1,156
)
  $
(1,631
)  
$
(6
)
  $
20
 
(1)
Includes $(
396
) million and $(
892
) million related to discontinued hedging relationships at September 30, 2019 and December 31, 2018, respectively.
 
50
 

(2)
Includes $
4
million and $
8
million of hedging adjustments on discontinued hedging relationships at September 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)
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Commodity
 
$
18
 
 
$
53
 
 
$
71
 
Interest rate
 
 
2
 
 
 
 
 
 
2
 
                         
Total current derivative assets
(1)
 
 
20
 
 
 
53
 
 
 
73
 
                         
Noncurrent Assets
 
 
 
 
 
 
 
 
 
Commodity
 
 
2
 
 
 
7
 
 
 
9
 
Interest rate
 
 
8
 
 
 
 
 
 
8
 
Foreign currency
 
 
3
 
 
 
 
 
 
3
 
                         
Total noncurrent derivative assets
(2)
 
 
13
 
 
 
7
 
 
 
20
 
                         
Total derivative assets
 
$
33
 
 
$
60
 
 
$
93
 
                         
LIABILITIES
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
$
9
 
 
$
50
 
 
$
59
 
Interest rate
 
 
200
 
 
 
2
 
 
 
202
 
Foreign currency
 
 
4
 
 
 
 
 
 
4
 
                         
Total current derivative liabilities
(3)
 
 
213
 
 
 
52
 
 
 
265
 
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
 
2
 
 
 
19
 
 
 
21
 
Interest rate
 
 
627
 
 
 
21
 
 
 
648
 
                         
Total noncurrent derivative liabilities
(4)
 
 
629
 
 
 
40
 
 
 
669
 
                         
Total derivative liabilities
 
$
                 842
 
 
$
                  92
 
 
$
                 934
 
                         
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
 
                         
 
51
 

(1)
Current derivative assets include amounts presented in assets held for sale 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.
(3)
Current derivative liabilities include $
242
million and $
157
​​​​​​​ million in other current liabilities at September 30, 2019 and December 31. 2018, respectively, with the remainder recorded in liabilities held for sale 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 September 30, 2019
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Commodity:
   
     
     
 
Operating revenue
 
 
 
 
$
35
 
 
 
 
Purchased gas
 
 
 
 
 
(2
)
 
 
 
                         
Total commodity
 
$
(5
)
 
$
33
 
 
$
 
                         
Interest rate
(3)
 
 
(124
)
 
 
(14
)
 
 
(190
)
Foreign currency
(4)
 
 
(15
)
 
 
(12
)
 
 
 
                         
Total
 
$
(144
)
 
$
7
 
 
$
(190
)
                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Commodity:
   
     
     
 
Operating revenue
   
    $
(26
)    
 
                         
Total commodity
  $
(58
)   $
(26
)   $
 
                         
Interest rate
(3)
   
23
     
(12
)    
48
 
Foreign currency
(4)
   
(1
)    
(2
)    
 
                         
Total
  $
(36
)   $
(40
)   $
                         48
 
                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Commodity:
   
     
     
 
Operating revenue
 
 
 
 
$
127
 
 
 
 
Purchased gas
 
 
 
 
 
1
 
 
 
 
                         
Total commodity
 
$
                         96
 
 
$
                     128
 
 
$
 
                         
Interest rate
(3)
 
 
(350
)
 
 
(37
)
 
 
(405
)
Foreign currency
(4)
 
 
(24
)
 
 
(14
)
 
 
 
                         
Total
 
$
(278
)
 
$
77
 
 
$
(405
)
                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Commodity:
   
     
     
 
Operating revenue
   
    $
(55
)    
 
Purchased gas
   
     
(2
)    
 
Electric fuel and other energy-related purchases
   
     
8
     
 
                         
Total commodity
  $
(1
)   $
(49
)   $
 
                         
Interest rate
(3)
   
70
     
(36
)    
141
 
Foreign currency
(4)
   
(1
)    
(10
)    
 
                         
Total
  $
68
    $
(95
)   $
141
 
                         
(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.
 
52
 

Derivatives not designated as hedging instruments
 
Amount of Gain (Loss) Recognized
in Income on Derivatives
(1)
 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
  2019  
 
 
  2018  
   
  2019  
 
 
  2018  
 
(millions)
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
     
 
Commodity:
   
     
   
 
 
   
 
Operating revenue
 
$
7
 
  $
(5
)  
$
37
 
  $
(8
)
Purchased gas
 
 
(10
)
   
1
   
 
(18
)
   
5
 
Electric fuel and other energy-related purchases
 
 
(6
)
   
(7
)  
 
(18
)
   
(23
)
                                 
Total
 
$
(9
)
  $
(11
)  
$
1
 
  $
(26
)
                                 
(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:
 
 
 
September 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
 
$
17
 
 
$
15
 
 
$
 
 
$
2
 
  $
64
    $
6
    $
    $
58
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
 
 
 
 
 
 
 
 
 
 
   
3
     
     
     
3
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
             17
 
 
$
         15
 
 
$
         —
 
 
$
2
 
  $
             67
    $
             6
    $
         —
    $
         61
 
                                                                 
(1)
Excludes $3 million and $26 million of derivative assets at September 30, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.
 
 
 
September 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
 
$
16
 
 
$
15
 
 
$
 
 
$
1
 
  $
6
    $
6
    $
    $
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
521
 
 
 
 
 
 
 
 
 
521
 
   
88
     
     
     
88
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
             537
 
 
$
         15
 
 
$
         —
 
 
$
         522
 
  $
             94
    $
         6
    $
         —
    $
         88
 
                                                                 
 
53
 

(1)
Excludes $17 million and $9 million of derivative liabilities at September 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 September 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)
 
 
44
 
 
 
16
 
Basis
 
 
151
 
 
 
472
 
Electricity (MWh):
 
 
 
 
 
 
FTRs
 
 
74,936,524
 
 
 
 
Interest rate
(2)
 
$
     550,000,000
 
 
$
     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 September 30, 2019:
 
AOCI
    
After-Tax
    
 
 
  Amounts Expected to be  
Reclassified to Earnings
During the Next 12
Months After-Tax
 
 
    Maximum Term    
 
(millions)
 
 
 
 
 
 
Interest rate
 
$
(46
)
 
$
(1
)
 
 
387
 months
 
                         
Total
 
$
(46
)
 
$
(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.
 
54
 

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)
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Commodity
 
$
 
 
$
19
 
 
$
19
 
                         
Total current derivative assets
(1)
 
 
 
 
 
19
 
 
 
19
 
                         
Noncurrent Assets
 
 
 
 
 
 
 
 
 
Commodity
 
 
 
 
 
1
 
 
 
1
 
                         
Total noncurrent derivative assets
(2)
 
 
 
 
 
1
 
 
 
1
 
                         
Total derivative assets
 
$
 
 
$
20
 
 
$
20
 
                         
LIABILITIES
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
$
 
 
$
16
 
 
$
16
 
Interest rate
 
 
149
 
 
 
 
 
 
149
 
                         
Total current derivative liabilities
 
 
149
 
 
 
16
 
 
 
165
 
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Commodity
 
 
 
 
 
17
 
 
 
17
 
Interest rate
 
 
372
 
 
 
 
 
 
372
 
                         
Total noncurrent derivatives liabilities
(3)
 
 
372
 
 
 
17
 
 
 
389
 
                         
Total derivative liabilities
 
$
521
 
 
$
33
 
 
$
554
 
                         
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
   
10
     
15
     
25
 
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Interest rate
   
78
     
     
78
 
                         
Total noncurrent derivatives liabilities
(3)
   
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)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets.
 
55
 

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 September 30, 2019
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Interest rate
(3)
 
$
(21
)
 
$
 
 
$
(190
)
                         
Total
 
$
(21
)
 
$
 
 
$
(190
)
                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Interest rate
(3)
  $
4
    $
    $
48
 
                         
Total
  $
4
    $
    $
48
 
                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Interest rate
(3)
 
$
(45
)
 
$
(1
)
 
$
(408
)
                         
Total
 
$
(45
)
 
$
(1
)
 
$
(408
)
                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
 
Interest rate
(3)
  $
13
    $
    $
141
 
                         
Total
  $
13
    $
    $
141
 
                         
(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
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Derivative type and location of gains (losses):
   
     
     
     
 
Commodity
(2)
 
$
(6
)
  $
(9
)  
$
(18
)
  $
(12
)
                                 
Total
 
$
(6
)
  $
(9
)  
$
(18
)
  $
(12
)
                                 
(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.
 
56
 

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:
 
 
 
September 30, 2019
Gross Amounts Not Offset
in the Consolidated
Balance Sheet
   
 
 
   
December 31, 2018
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
 
 
3
 
 
 
3
 
 
 
 
 
 
 
   
26
     
2
     
     
24
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
5
 
 
$
3
 
 
$
 
 
$
2
 
  $
31
    $
2
    $
    $
29
 
                                                                 
 
 
 
September 30, 2019
Gross Amounts Not
Offset
in the Consolidated
Balance Sheet
   
 
 
 
 
December 31, 2018
    
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
 
$
113
 
 
$
 
 
$
 
 
$
113
 
  $
17
    $
    $
    $
17
 
Foreign currency contracts:
 
 
 
 
 
 
 
 
 
 
 
 
   
     
     
     
 
Over-the-counter
 
 
4
 
 
 
3
 
 
 
 
 
 
1
 
   
2
     
2
     
     
 
                                                                 
Total derivatives, subject to a master netting or similar arrangement
 
$
117
 
 
$
3
 
 
$
 
 
$
114
 
  $
19
    $
2
    $
    $
17
 
                                                                 
Volumes
The following table presents the volume of Dominion Energy Gas’ derivative activity at September 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
 
NGLs (Gal)
 
 
17,892,000
 
 
 
 
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​​​​​​​.
 
57
 

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 September 30, 2019:
 
AOCI
      After-Tax      
 
 
Amounts Expected
to be Reclassified to
Earnings During the
  Next 12 Months After-  
Tax
 
 
  Maximum Term  
 
(millions)
 
 
 
 
 
 
Commodities:
   
     
     
 
NGLs
 
$
2
 
 
$
2
 
 
 
6 months
 
Interest rate
 
 
(108
)
 
 
(7
)
 
 
303 months
 
Foreign currency
 
 
5
 
 
 
(3
)
 
 
81 months
 
                         
Total
 
$
(101
)
 
$
(8
)
 
 
 
                         
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.
 
58
 

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)
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Commodity
 
$
2
 
 
$
 
 
$
2
 
                         
Total current derivative assets
(1)
 
 
2
 
 
 
 
 
 
2
 
                         
Noncurrent Assets
 
 
 
 
 
 
 
 
 
Foreign currency
 
 
3
 
 
 
 
 
 
3
 
                         
Total noncurrent derivative assets
(2)
 
 
3
 
 
 
 
 
 
3
 
                         
Total derivative assets
 
$
5
 
 
$
 
 
$
5
 
                         
LIABILITIES
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Interest rate
 
$
47
 
 
$
 
 
$
47
 
Foreign currency
 
 
4
 
 
 
 
 
 
4
 
                         
Total current derivative liabilities
(3)
 
 
51
 
 
 
 
 
 
51
 
                         
Noncurrent Liabilities
 
 
 
 
 
 
 
 
 
Interest rate
 
 
66
 
 
 
 
 
 
66
 
                         
Total noncurrent derivative liabilities
(4)
 
 
66
 
 
 
 
 
 
66
 
                         
Total derivative liabilities
 
$
117
 
 
$
 
 
$
117
 
                         
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 in Dominion Energy Gas’ Consolidated Balance Sheets at September 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.
 
 
59
 

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 September 30, 2019
   
     
 
Derivative Type and Location of Gains (Losses):
   
     
 
Commodity:
   
     
 
Net income from discontinued operations
 
 
 
 
$
2
 
                 
Total commodity
 
$
1
 
 
$
2
 
                 
Interest rate
(2)
 
 
(36
)
 
 
(2
)
Foreign currency
(3)
 
 
(14
)
 
 
(12
)
                 
Total
 
$
(49
)
 
$
(12
)
                 
Three Months Ended September 30, 2018
 
 
 
 
 
 
Derivative Type and Location of Gains (Losses):
 
 
 
 
 
 
Commodity:
 
 
 
 
 
 
Net income from discontinued operations
 
 
 
  $
(3
)
                 
Total commodity
  $
(5
)   $
(3
)
                 
Interest rate
(2)
   
12
     
(1
)
Foreign currency
(3)
   
(1
)    
(2
)
                 
Total
  $
6
    $
(6
)
                 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
Derivative Type and Location of Gains (Losses):
 
 
 
 
 
 
Commodity:
 
 
 
 
 
 
Net income from discontinued operations
 
 
 
 
$
4
 
                 
Total commodity
 
$
3
 
 
$
4
 
                 
Interest rate
(2)
 
 
(96
)
 
 
(3
)
Foreign currency
(3)
 
 
(24
)
 
 
(14
)
                 
Total
 
$
(117
)
 
$
(13
)
                 
Nine Months Ended September 30, 2018
   
     
 
Derivative Type and Location of Gains (Losses):
   
     
 
Commodity:
   
     
 
Net income from discontinued operations
   
    $
(8
)
                 
Total commodity
  $
(11
)   $
(8
)
                 
Interest rate
(2)
   
9
     
(3
)
Foreign currency
(3)
   
(1
)    
(10
)
                 
Total
  $
(3
)   $
(21
)
                 
(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 $114 million and $111 million at September 30, 2019 and December 31, 2018, respectively.
 
60
 

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)
 
 
 
 
 
 
 
 
September 30, 2019
   
     
     
     
 
Equity securities:
(1)
   
     
     
     
 
U.S.
 
$
1,787
 
 
$
2,169
 
 
$
(30
)
 
$
3,926
 
Fixed income securities:
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt instruments
 
 
442
 
 
 
30
 
 
 
 
 
 
472
 
Government securities
 
 
1,082
 
 
 
44
 
 
 
(4
)
 
 
1,122
 
Common/collective trust funds
 
 
105
 
 
 
4
 
 
 
 
 
 
109
 
Insurance contracts
 
 
210
 
 
 
 
 
 
 
 
 
210
 
Cash equivalents and other
(3)
 
 
21
 
 
 
 
 
 
 
 
 
21
 
                                 
Total
 
$
3,647
 
 
$
2,247
 
 
$
(34
)
 (4)
 
$
5,860
 
                                 
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 September 30, 2019.
(4)
The fair value of securities in an unrealized loss position was $
277
million and $
833
million at September 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 September 30,
   
Nine Months Ended September 30,
 
 
            2019            
 
 
            2018            
   
            2019            
   
            2018            
 
(millions)
 
 
 
   
 
 
 
 
 
Net gains recognized during the period
 
$
40
 
  $
243
   
 
 
 
$
         610
 
  $
267
 
Less: Net gains recognized during the period on securities sold during the period
 
 
(17
)
   
(7
)  
 
 
 
 
(61
)
   
(42
)
                                         
Unrealized gains recognized during the period on securities still held at September 30, 2019 and 2018
(1)
 
$
23
 
  $
236
   
 
 
 
$
549
 
  $
225
 
                                         
(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 September 30, 2019 by contractual maturity is as follows:
 
                Amount                
 
(millions)
 
 
Due in one year or less
 
$
212
 
Due after one year through five years
 
 
412
 
Due after five years through ten years
 
 
360
 
Due after ten years
 
 
719
 
         
Total
 
$
1,703
 
         
 
61
 

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 September 30,
   
Nine Months Ended September 30,
 
 
            2019            
 
 
            2018            
   
            2019            
   
            2018            
 
(millions)
 
 
 
 
 
 
 
 
 
 
Proceeds from sales
 
$
429
 
  $
457
     
   
$
       1,311
 
  $
1,301
 
Realized gains
(1)
 
 
53
 
   
24
     
   
 
152
 
   
96
 
Realized losses
(1)
 
 
25
 
   
18
     
   
 
75
 
   
60
 
(1)
Includes realized gains and losses recorded to the nuclear decommissioning trust regulatory liability.
Dominion Energy recorded other-than-temporary impairment losses on investments held in nuclear decommissioning trust funds as follows:
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
 
(millions)
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses
 
$
1
 
  $
8
   
$
1
 
  $
25
 
Losses recognized in other comprehensive income (before taxes)
 
 
(1
)
   
(8
)  
 
(1
)
   
(25
)
                                 
Net impairment losses recognized in earnings
 
$
 
  $
   
$
 
  $
 
                                 
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)
 
 
 
 
 
 
 
 
September 30, 2019
   
     
     
     
 
Equity securities:
(1)
   
     
     
     
 
U.S.
 
$
890
 
 
$
1,013
 
 
$
(15
)
 
$
1,888
 
Fixed income securities:
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt instruments
 
 
257
 
 
 
16
 
 
 
 
 
 
273
 
Government securities
 
 
504
 
 
 
17
 
 
 
(1
)
 
 
520
 
Common/collective trust funds
 
 
46
 
 
 
 
 
 
 
 
 
46
 
Cash equivalents and other
(3)
 
 
11
 
 
 
 
 
 
 
 
 
11
 
                                 
Total
 
$
1,708
 
 
$
1,046
 
 
$
(16
)
 (4)
 
$
2,738
 
                                 
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 $
5
million and $
6
million at September 30, 2019 and December 31, 2018, respectively.
(4)
The fair value of securities in an unrealized loss position was $
164
million and $
404
million at September 30, 2019 and December 31, 2018, respectively.
 
62
 

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 September 30,    
   
    Nine Months Ended September 30,    
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Net gains recognized during the period
 
$
30
 
  $
106
   
$
286
 
  $
118
 
Less: Net gains recognized during the period on securities sold during the period
 
 
(7
)
   
(3
)  
 
(15
)
   
(26
)
                                 
Unrealized gains recognized during the period on securities still held at September 30, 2019 and 2018
(1)
 
$
23
 
  $
103
   
$
271
 
  $
92
 
                                 
(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 September 30, 2019 by contractual maturity is as follows:
 
            Amount            
 
(millions)
 
 
Due in one year or less
 
$
99
 
Due after one year through five years
 
 
183
 
Due after five years through ten years
 
 
180
 
Due after ten years
 
 
377
 
         
Total
 
$
839
 
         
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 September 30,    
   
    Nine Months Ended September 30,    
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Proceeds from sales
 
$
230
 
  $
237
   
$
677
 
  $
651
 
Realized gains
(1)
 
 
21
 
   
11
   
 
46
 
   
44
 
Realized losses
(1)
 
 
6
 
   
5
   
 
18
 
   
17
 
(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 nine months ended September 30, 2019 and 2018.
 
63
 

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 September 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 $47 million and $147 million during the three months ended September 30, 2019 and 2018, respectively, and $175 million and $306 million during the nine months ended September 30, 2019 and 2018, respectively, to Atlantic Coast Pipeline. At September 30, 2019, Dominion Energy had $10 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 $24 million and $50 million for the three months ended September 30, 2019 and 2018, respectively, and $81 million and $156 million for the nine months ended September 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 $9 million and $13 million at September 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.
Atlantic Coast Pipeline is the subject of challenges in state and federal courts and agencies, including, among others, challenges of the Atlantic Coast Pipeline Project’s biological opinion and incidental take statement, permits providing right of way crossings of certain federal lands, the U.S. Army Corps of Engineers 404 permit, the air permit for a compressor station at Buckingham, Virginia, the FERC Environmental Impact Statement order and the FERC order approving the CPCN. Each of these challenges alleges non-compliance on the part of federal and state permitting authorities and adverse ecological consequences if the Atlantic Coast Pipeline Project is permitted to proceed. Since December 2018, notable developments in these challenges include a stay in December 2018 issued by the U.S. Court of Appeals for the Fourth Circuit and the same court’s July 2019 vacatur of the biological opinion and incidental take statement (which stay and subsequent vacatur halted most project construction activity), a U.S. Court of Appeals for the Fourth Circuit decision vacating the permits to cross certain federal forests, the U.S. Court of Appeals for the Fourth Circuit’s remand to U.S. Army Corps of Engineers of Atlantic Coast Pipeline’s Huntington District 404 verification and the U.S. Court of Appeals for the Fourth Circuit’s remand to the National Park Service of Atlantic Coast Pipeline’s Blue Ridge Parkway right-of-way. Atlantic Coast Pipeline is vigorously defending these challenges and coordinating with the federal and state authorities which are the direct parties to the challenges. In June 2019, the Solicitor General of the U.S. and Atlantic Coast Pipeline filed petitions requesting that the Supreme Court of the U.S. hear the case regarding the Appalachian Trail crossing. In October 2019, the Supreme Court of the U.S. agreed to hear the case. A ruling is expected no later than June 2020. Atlantic Coast Pipeline is also evaluating possible legislative remedies to this issue.
In anticipation of the U.S. Court of Appeals for the Fourth Circuit’s vacatur of the biological opinion and incidental take statement, Atlantic Coast Pipeline and the U.S. Fish and Wildlife Service commenced work in mid-May of 2019 to set the basis for a reissued biological opinion and incidental take statement. Atlantic Coast Pipeline continues coordinating and working with U.S. Fish and Wildlife Service and other parties in preparation for a reissuance of the biological opinion and incidental take statement.
Given the legal challenges described above and ongoing discussions with customers, project construction is expected to be completed by the end of 2021, with full in-service in early 2022.
The delays resulting from the legal challenges described above have impacted the cost and schedule for the Atlantic Coast Pipeline Project. Project cost estimates are $7.3 billion to $7.8 billion, excluding financing costs. Given the status of current discussions with U.S. Fish and Wildlife Service regarding a new biological opinion and incidental take statement, as well as discussions with contractors regarding efficiencies which may be realized going forward, these estimates are under review and subject to upward pressure. Project construction activities, schedules and costs are also 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
 
64
 

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.
Other – Catalyst Old River Hydroelectric Limited Partnership
In September 2018, Dominion Energy completed the sale of its 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership and received proceeds of $91 million. The sale resulted in a gain of $87 million ($63 million after-tax), which is included in other income in Dominion Energy’s Consolidated Statement of Income.
Wrangler
In September 2019, Dominion Energy entered into an agreement to form Wrangler, a partnership with Interstate Gas Supply, Inc. Wrangler will operate a nonregulated natural gas retail energy marketing business with Dominion Energy contributing its nonregulated retail energy marketing operations and Interstate Gas Supply, Inc. contributing cash.
Dominion Energy expects the initial contribution, consisting of SCANA Energy Marketing, Inc., to close in the fourth quarter of 2019, subject to approval from the Georgia Public Service Commission and clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. Dominion Energy will receive approximately $250 million in cash proceeds, subject to working capital adjustments, and expects to recognize a gain of approximately $135 million ($75 million after-tax), net of an approximately $70 million write-off of goodwill.
Dominion Energy will have a 20% noncontrolling ownership interest in Wrangler which will be accounted for as an equity method investment as Dominion Energy has the ability to exercise significant influence, but not control, over the investee.
In the third quarter of 2019, SCANA Energy Marketing, Inc.’s assets and liabilities to be contributed were classified as held for sale on the Consolidated Balance Sheet. SCANA Energy Marketing, Inc. is included in Dominion Energy’s Southeast Energy segment and is primarily comprised of intangible assets related to acquired customer lists in the SCANA Combination, trade accounts receivable, gas inventory and trade accounts payable.
Over the next three years, Dominion Energy expects to contribute its remaining nonregulated retail energy marketing operations to Wrangler under the terms of the September 2019 agreement. As a result, Dominion Energy will receive additional cash consideration which will be based upon future financial performance. When these future contributions occur, Dominion Energy expects to retain a 20% noncontrolling ownership interest in Wrangler.
Dominion Energy Gas
Iroquois and White River Hub
Dominion Energy Gas’ equity earnings totaled $30 million and $41 million for the nine months ended September 30, 2019 and 2018, respectively. Dominion Energy Gas recorded contributions of $4 million for the nine months ended September 30, 2019. Dominion Energy Gas received distributions of $60 million and $47 million for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of Dominion Energy Gas’ investment of $313 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.
 
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Note 11. Property, Plant and Equipment
Dominion Energy and Virginia Power
Acquisitions of Solar Projects
The following table presents acquisitions by Virginia Power of solar projects. Virginia Power expects to claim federal investmen​​​​​​​t tax ​​​​​​​credits on the projects.
Date Agreement
Entered
 
 
Date Agreement
Closed
 
 
Project Location
 
 
Project Name
 
 
Project Cost​​​​​​​
(millions)
(1)
 
 
Date of Commercial​​​​​​​
Operations
 
 
MW Capacity
 
 
September 2017
     
June 2019
     
North Carolina
     
Gutenberg
    $
                 142
     
September 2019
     
80
 
 
June 2018
     
February 2019
     
Virginia
     
Gloucester
     
37
     
April 2019
     
20
 
 
August 2018
     
March 2019
     
Virginia
     
Grasshopper
     
130
     
Expected 2020​​​​​​​
     
80
 
 
August 2018
     
May 2019
     
North Carolina
     
Chestnut
     
130
     
Expected 2019
     
75
 
 
June 2019
     
June 2019
     
Virginia
     
Ft. Powhatan
     
270
     
Expected 2021
     
150
 
 
June 2019
     
August 2019
     
Virginia
     
Belcher
     
160
     
Expected 2020
     
88
 
 
August 2019
     
Pending
     
Virginia
     
Bedford
     
110
     
Expected 2021
     
70
 
 
October 2019
     
October 2019
     
Virginia
     
Maplewood
     
190
     
Expected 2022
     
120
 
(1)
Includes acquisition cost.
Dominion Energy
Acquisitions of Solar Projects
The following table presents acquisitions by Dominion Energy of solar projects. Dominion Energy expects to claim federal investment tax credits on the projects.
Date Agreement
Entered
 
 
Date Agreement
Closed
 
 
Project Location
 
 
Project Name
 
 
Project Cost
(millions)
(1)
 
 
Date of Commercial
Operations
 
 
MW Capacity
 
 
August 2019
     
August 2019
     
Virginia
     
Greensville
    $
                 130
     
Expected 2020
     
80
 
 
August 2019
     
August 2019
     
Virginia
     
Myrtle
     
35
     
Expected 2020
     
15
 
 
September 2019
     
September 2019
     
South Carolina
     
Seabrook
     
105
     
Expected 2019
     
72
 
(1)
Includes acquisition cost.
Dominion Energy Gas
Assignment of Shale Development Rights
In December 2013, Dominion Energy closed on agreements with natural gas producers to convey over time approximately 100,000 acres of
Marcellus
Shale development rights underneath several of its natural gas storage fields. The agreements provided for payments to Dominion Energy Gas, subject to customary adjustments, of up to approximately $200 million over a period of nine years, and an overriding royalty interest in gas produced from the acreage. In August 2017, Dominion Energy Gas and a natural gas producer signed an amendment to the agreement, which included the finalization of contractual matters on previous conveyances, the conveyance of Dominion Energy Gas’ remaining 68% interest in approximately 70,000 acres and the elimination of Dominion Energy Gas’ overriding royalty interest in gas produced from all acreage. Dominion Energy Gas received total consideration of $130 million, with $65 million received in the fourth quarter of 2017 and $65 million received in September 2018 in connection with the final conveyance. In September 2018, Dominion Energy Gas recognized a $65 million ($47 million after-tax) gain included in gains on sales of assets in Dominion Energy Gas’ Consolidated Statements of Income associated with the final conveyance of acreage.
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
 
66
 

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.
Note 12. Regulatory Assets and Liabilities
Regulatory assets and liabilities include the following:
 
  September 30, 2019  
 
 
  December 31, 2018  
 
(millions)
 
 
 
 
Dominion Energy
 
 
 
 
 
 
Regulatory assets:
 
 
 
   
 
Deferred cost of fuel used in electric generation
(1)
 
$
78
 
  $
174
 
Deferred project costs and DSM programs for gas utilities
(2)
 
 
29
 
   
17
 
Unrecovered gas costs
(3)
 
 
118
 
   
14
 
Deferred rate adjustment clause costs for Virginia electric utility
(4)(5)
 
 
226
 
   
78
 
Deferred nuclear refueling outage costs
(6)
 
 
50
 
   
69
 
NND Project costs
(7)
 
 
138
 
   
 
PJM transmission rates
(8)
 
 
69
 
   
45
 
Other
 
 
258
 
   
99
 
                 
Regulatory assets-current
 
 
966
 
   
496
 
                 
Deferred cost of fuel used in electric generation
(1)
 
 
 
   
83
 
Unrecognized pension and other postretirement benefit costs
(9)
 
 
1,331
 
   
1,497
 
Deferred rate adjustment clause costs for Virginia electric utility
(4)(5)(10)
 
 
88
 
   
230
 
Deferred project costs for gas utilities
(2)
 
 
482
 
   
335
 
PJM transmission rates
(8)
 
 
169
 
   
192
 
Interest rate hedges
(11)
 
 
897
 
   
184
 
AROs and related funding
(12)
 
 
330
 
   
 
Cost of reacquired debt
(13)(14)
 
 
283
 
   
3
 
NND Project costs
(7)
 
 
2,537
 
   
 
Ash pond and landfill closure costs
(15)
 
 
1,003
 
   
27
 
Other
 
 
549
 
   
125
 
                 
Regulatory assets-noncurrent
 
 
7,669
 
   
2,676
 
                 
Total regulatory assets
 
$
8,635
 
  $
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)
 
 
215
 
   
71
 
Cost-of-service impact of 2017 Tax Reform Act
(18)
 
 
2
 
   
104
 
Income taxes refundable through future rates
(19)
 
 
82
 
   
 
Monetization of guarantee settlement
(20)
 
 
67
 
   
 
Other
 
 
64
 
   
64
 
                 
Regulatory liabilities-current
 
 
547
 
   
356
 
                 
Income taxes refundable through future rates
(19)
 
 
5,007
 
   
4,071
 
Provision for future cost of removal and AROs
(16)
 
 
2,315
 
   
1,409
 
Nuclear decommissioning trust
(21)
 
 
1,354
 
   
1,070
 
Monetization of guarantee settlement
(20)
 
 
987
 
   
 
Reserve for refunds and rate credits to electric utility customers
(17)
 
 
707
 
   
 
Overrecovered other postretirement benefit costs
(22)
 
 
151
 
   
120
 
Other
 
 
405
 
   
170
 
                 
Regulatory liabilities-noncurrent
 
 
10,926
 
   
6,840
 
                 
Total regulatory liabilities
 
$
11,473
 
  $
7,196
 
                 
 
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(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.
(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
27
years as of September 30, 2019.
(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 26 years as of September 30, 2019.
(14)
During 2019, DESC purchased certain of its first mortgage bonds as discussed in Note 17. As a result of these transactions, DESC incurred net costs, including write-offs of unamortized discount, premium and debt issuance costs, of $
270
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 for the year ended December 31,
2018, as updated in Current Report on Form 8-K, filed on November 18, 2019, and Note 3 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 on November 18, 2019, and Note 13 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.
 
68
 

 
September 30, 2019
 
 
December 31, 2018
 
(millions)
 
 
 
 
Virginia Power
   
     
 
Regulatory assets:
   
     
 
Deferred cost of fuel used in electric generation
(1)
 
$
78
 
  $
174
 
Deferred rate adjustment clause costs
(2)(3)
 
 
226
 
   
78
 
Deferred nuclear refueling outage costs
(4)
 
 
50
 
   
69
 
PJM transmission rates
(5)
 
 
69
 
   
45
 
Other
 
 
46
 
   
58
 
                 
Regulatory assets-current
(6)
 
 
469
 
   
424
 
                 
Deferred rate adjustment clause costs
(2)(3)(7)
 
 
88
 
   
230
 
PJM transmission rates
(5)
 
 
169
 
   
192
 
Interest rate hedges
(8)
 
 
555
 
   
151
 
Deferred cost of fuel used in electric generation
(1)
 
 
 
   
83
 
Ash pond and landfill closure costs
(9)
 
 
1,003
 
   
27
 
Other
 
 
102
 
   
54
 
                 
Regulatory assets-noncurrent
 
 
1,917
 
   
737
 
                 
Total regulatory assets
 
$
2,386
 
  $
1,161
 
                 
Regulatory liabilities:
 
 
 
   
 
Provision for future cost of removal
(10)
 
$
92
 
  $
92
 
Cost-of-service impact of 2017 Tax Reform Act
(11)
 
 
2
 
   
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
 
 
180
 
   
299
 
                 
Income taxes refundable through future rates
(13)
 
 
2,405
 
   
2,579
 
Nuclear decommissioning trust
(14)
 
 
1,354
 
   
1,070
 
Provision for future cost of removal
(10)
 
 
1,056
 
   
940
 
Other
 
 
163
 
   
58
 
                 
Regulatory liabilities-noncurrent
 
 
4,978
 
   
4,647
 
                 
Total regulatory liabilities
 
$
5,158
 
  $
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 24 years as of September 30, 2019.
(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 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.
 
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(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.
 
 
 
 
                 
 
September 30, 2019
 
 
December 31, 2018
 
(millions)
 
 
 
 
Dominion Energy Gas
   
     
 
Regulatory assets:
   
     
 
Unrecovered gas costs
(1)
 
$
2
 
  $
1
 
Other
 
 
8
 
   
7
 
                 
Regulatory assets-current
(2)
 
 
10
 
   
8
 
                 
Unrecognized pension and other postretirement benefit costs
(3)
 
 
4
 
   
15
 
Interest rate hedges
(4)
 
 
32
 
   
33
 
Other
 
 
10
 
   
4
 
                 
Regulatory assets-noncurrent
(5)
 
 
46
 
   
52
 
                 
Total regulatory assets
 
$
56
 
  $
60
 
                 
Regulatory liabilities:
 
 
 
   
 
Provision for future cost of removal and AROs
(6)
 
$
10
 
  $
9
 
Overrecovered gas costs
(1)
 
 
7
 
   
7
 
Other
 
 
13
 
   
8
 
                 
Regulatory liabilities-current
(7)
 
 
30
 
   
24
 
                 
Income taxes refundable through future rates
(8)
 
 
560
 
   
530
 
Provision for future cost of removal and AROs
(6)
 
 
110
 
   
113
 
Overrecovered other postretirement benefit costs
(9)
 
 
125
 
   
106
 
Other
 
 
12
 
   
16
 
                 
Regulatory liabilities-noncurrent
 
 
807
 
   
765
 
                 
Total regulatory liabilities
 
$
837
 
  $
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 September 30, 2019, Dominion Energy, Virginia Power and Dominion Energy Gas’ regulatory assets include $2.4 billion, $1.3 billion and $50 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.
 
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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. In October 2019, PJM submitted a settlement offer to FERC which is pending approval. Based on the terms of the proposed settlement, the impact to Virginia Power is expected to be immaterial.
 
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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.
 
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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 Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, as updated in Current Report on Forms 8-K, filed on November 18, 2019.
Virginia Regulation
Grid Transformation and Security Act of 2018
In July 2018, Virginia Power filed a petition with the Virginia Commission for approval of the first three years of its ten-year plan for electric distribution grid transformation projects as authorized by the GTSA. During the first three years of the plan, Virginia Power proposed to focus on the following seven foundational components of the overall grid transformation plan: (i) smart meters; (ii) customer information platform; (iii) reliability and resilience; (iv) telecommunications infrastructure; (v) cyber and physical security; (vi) predictive analytics; and (vii) emerging technology. The total estimated capital investment during 2019-2021 was $816 million and the proposed operations and maintenance expenses were $102 million. In January 2019, the Virginia Commission issued its final order approving capital spending for the first three years of the plan totaling $68 million on cyber and physical security and related telecommunications infrastructure (Phase IA). The Virginia Commission declined to approve the remainder of the proposed components for the first three years of the plan, the proposed spending for which was not found reasonable and prudent based on the record in the proceeding.
In September 2019, Virginia Power filed a revised plan which includes six components: (i) smart meters; (ii) customer information platform; (iii) grid improvement projects; (iv) telecommunications infrastructure; (v) cyber security; and (vi) a smart charging electric vehicle infrastructure pilot program (Phase IB). For Phase IB, the total proposed capital investment during 2019 – 2021 is $511 million and the proposed operations and maintenance investment is $83 million. This matter is pending.
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. In August 2019, the Virginia Commission approved Virginia Power’s fuel rate.
Battery Storage Pilot
In August 2019, Virginia Power filed an application with the Virginia Commission to participate in a pilot program for electric power storage batteries, which includes three projects for deployment of battery energy storage systems. Virginia Power also requested an amended CPCN to construct and operate a battery energy storage system at Scott Solar. The projects are estimated to cost approximately $35 million. These matters are pending.
Rate Adjustment Clauses
In December 2018, Virginia Power filed a petition requesting approval of Rider E and proposed a $114 million total revenue requirement for the rate year beginning November 1, 2019. In August 2019, the Virginia Commission issued an order approving in part and denying in part the petition. As a result, Virginia Power recorded a $21 million ($16 million after-tax) charge in impairment of assets and other charges in the Consolidated Statements of Income for the three and nine months ended September 30, 2019 to write-off certain disallowed environmental property, plant and equipment and regulatory assets. In August 2019, the Virginia Commission granted Virginia Power’s petition for reconsideration of the disallowed amount and stayed the order issued earlier in August 2019. In October 2019, the Virginia Commission approved Virginia Power’s request to implement a total revenue requirement of $104 million, subject to true-up, pending resolution of the petition for reconsideration. This matter is pending.
The Virginia Commission previously approved Rider U in conjunction with cost recovery to move certain electric distribution facilities underground as authorized by Virginia legislation. In October 2019, The Virginia Commission approved Virginia Power’s proposed fourth phase of conversions totaling $123 million and a total $52 million revenue requirement for the rate year beginning February 1, 2020 for continuing recovery of the previously approved phase conversions and the proposed fourth phase conversions.
 
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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 2019
     
Pending
     
September 2020
    $
120
    $
1
 
Rider US-2
   
October 2019
     
Pending
     
September 2020
     
10
     
(5
)
 
 
 
 
 
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.
Virginia Power electric transmission projects approved or applied for are as follows:
                                         
Description and Location
of Project
 
Application
Date
 
 
Approval
Date
 
 
Type of
Line
 
 
Miles of
Lines
 
 
Cost Estimate
(millions)
 
Rebuild and operate the Glebe substation and relocate and operate in Arlington County, Virginia and the City of Alexandria, Virginia existing overhead line underground
   
March 2019
     
September 2019
     
230 kV
     
<1
    $
125
 
Rebuild and operate five segments between the Loudoun and Ox substations
   
August 2019
     
Pending
     
230 kV
     
19
     
70
 
 
 
 
 
 
North Carolina Regulation
North Carolina Base Rate Case
In March 2019, Virginia Power filed its base rate case and schedules with the North Carolina Commission. Virginia Power proposed a non-fuel, base rate increase of $27 million effective November 1, 2019 on an interim basis subject to refund, with any permanent rates ordered by the North Carolina Commission effective January 1, 2020. The base rate increase was proposed to recover the significant investments in generation, transmission and distribution infrastructure for the benefit of North Carolina customers. Virginia Power presented an earned return of 7.52% based upon a fully-adjusted test period, compared to its authorized 9.90% return, and proposed a 10.75% ROE. In September 2019, Virginia Power revised its filing to reduce the non-fuel base rate increase to $24 million. This matter is pending.
North Carolina Fuel Filing
In August 2019, Virginia Power submitted its annual filing to the North Carolina Commission to adjust the fuel component of its electric rates. Virginia Power proposed a total $18 million decrease to the fuel component of its electric rates for the rate year beginning February 1, 2020. This matter is pending.
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. In October 2019, the South Carolina Commission approved a total revenue requirement of $436 million effective with the first billing cycle of November 2019.
 
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Ohio Regulation
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 July 2019, the Ohio Commission approved East Ohio’s application 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 for the rate year beginning August 1, 2019.
West Virginia Regulation
PREP
In May 2019, Hope filed a PREP application with the West Virginia Commission 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. In October 2019, the West Virginia Commission approved PREP rates effective November 1, 2019.
Utah Regulation
In April 2019, Questar Gas filed a request with the Utah Commission for pre-approval to construct an LNG storage facility with a liquefaction rate of 8.2 million cubic feet per day. In October 2019, the Utah Commission granted pre-approval to construct the LNG storage facility.
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 not to 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 its project scope. In August 2019, Cove Point received FERC authorization and the Eastern Market Access Project commenced commercial operations in September 2019.
In connection with the Eastern Market Access Project, in August 2019, Cove Point filed to update its annual electric power cost adjustment requesting FERC approval to recover $25 million, representing an increase of $1 million from the adjustment approved in March 2019. FERC approved the adjustment in August 2019.
DETI
In September 2019, DETI submitted its annual transportation cost rate adjustment to FERC requesting approval to recover $38 million. Also in September 2019, DETI submitted its annual electric power cost adjustment to FERC requesting approval to recover $10 million. In October 2019, FERC approved these adjustments.
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
 
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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 Facility, 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)
 
 
2,404
 
Obligations settled during the period
 
 
(100
)
AROs acquired in the SCANA Combination
 
 
577
 
Revisions in estimated cash flows
(2)
 
 
(229
)
Accretion
 
 
153
 
         
AROs at September 30, 2019
(1)
 
$
                                     5,337
 
         
Virginia Power
 
 
 
AROs at December 31, 2018
(3)
  $
1,445
 
Obligations incurred during the period
(2)
 
 
2,403
 
Obligations settled during the period
 
 
(60
)
Revisions in estimated cash flows
(2)
 
 
(202
)
Accretion
 
 
94
 
         
AROs at September 30, 2019
(3)
 
$
3,680
 
         
Dominion Energy Gas
 
 
 
AROs at December 31, 2018
(4)
  $
88
 
Obligations settled during the period
 
 
(2
)
Accretion
 
 
3
 
         
AROs at September 30, 2019
(4)
 
$
89
 
         
(1)
Includes $
282
million and $
317
million reported in other current liabilities at December 31, 2018 and September 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 September 30, 2019, respectively.
(4)
Includes $
79
 million and $
76
 million reported in other deferred credits and other liabilities, with the remainder recorded in other current liabilities, at December 31, 2018 and September 30, 2019, respectively.
Dominion Energy and Virginia Power have established trusts dedicated to funding the future decommissioning of their nuclear plants. At September 30, 2019 and December 31, 2018, the aggregate fair value of Dominion Energy’s trusts, consisting primarily of equity and debt securities, totaled $5.9 billion and $4.9 billion, respectively. At September 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.
 
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Note 15. Leases
At September 30, 2019, the Companies had the following lease assets and liabilities recorded in the Consolidated Balance Sheets:
 
            September 30, 2019            
 
(millions)
 
 
Dominion Energy
   
 
Lease assets:
   
 
Operating lease assets
 
$
455
 
Finance lease assets
(1)
 
 
159
 
         
Total lease assets
 
$
614
 
         
Lease liabilities:
 
 
 
Operating lease liabilities
(2)
 
$
58
 
Finance lease liabilities
(3)
 
 
30
 
         
Total lease liabilities - current
 
 
88
 
         
Operating lease liabilities
 
 
394
 
Finance lease liabilities
(4)
 
 
132
 
         
Total lease liabilities - noncurrent
 
 
526
 
         
Total lease liabilities
 
$
614
 
         
Virginia Power
 
 
 
Operating lease assets
 
$
184
 
Finance lease assets
(1)
 
 
15
 
         
Total lease assets
 
$
199
 
         
Lease liabilities:
 
 
 
Operating lease liabilities
(2)
 
$
30
 
Finance lease liabilities
(3)
 
 
3
 
         
Total lease liabilities - current
 
 
33
 
         
Operating lease liabilities
 
 
152
 
Finance lease liabilities
(4)
 
 
11
 
         
Total lease liabilities - noncurrent
 
 
163
 
         
Total lease liabilities
 
$
196
 
         
Dominion Energy Gas
 
 
 
Operating lease assets
 
$
37
 
Finance lease assets
(1)
 
 
4
 
         
Total lease assets
(5)
 
$
41
 
         
Lease liabilities:
 
 
 
Operating lease liabilities
(2)
 
$
6
 
Finance lease liabilities
(3)
 
 
1
 
         
Total lease liabilities - current
 
 
7
 
         
Operating lease liabilities
 
 
31
 
Finance lease liabilities
(4)
 
 
4
 
         
Total lease liabilities - noncurrent
 
 
35
 
         
Total lease liabilities
(5)
 
$
42
 
         
(1)
Included in property, plant and equipment in the Companies’ Consolidated Balance Sheets, net of $
39
million, $
3
million and $
1
million of accumulated amortization at Dominion Energy, Virginia Power and Dominion Energy Gas, respectively, at September 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 $
26
million of lease assets recorded in assets of discontinued operations and $
24
million for lease liabilities recorded in liabilities of discontinued operations.
In addition to the amounts disclosed above, Dominion Energy’s Consolidated Balance Sheet at September 30, 2019 includes property, plant and equipment and accumulated depreciation of $2.8 billion and $341 million, respectively, related to facilities subject to power purchase agreements under which Dominion Energy is the lessor.
 
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For the three and nine months ended September 30, 2019, total lease cost associated with the Companies’ lessee leasing arrangements consisted of the following:
                 
 
    Three Months Ended    
September 30, 2019
 
 
    Nine Months Ended    
September 30, 2019
 
(millions)
 
 
 
 
Dominion Energy
 
 
 
 
 
 
Finance lease cost:
   
     
 
Amortization
 
$
7
 
 
$
14
 
Interest
 
 
1
 
 
 
3
 
Operating lease cost
 
 
20
 
 
 
64
 
Short-term lease cost
 
 
7
 
 
 
20
 
Variable lease cost
 
 
1
 
 
 
4
 
                 
Total lease cost
 
$
36
 
 
$
105
 
                 
Virginia Power
 
 
 
 
 
 
Operating lease cost
 
$
10
 
 
$
31
 
Short-term lease cost
 
 
3
 
 
 
7
 
Variable lease cost
 
 
1
 
 
 
2
 
                 
Total lease cost
 
$
14
 
 
$
40
 
                 
Dominion Energy Gas
 
 
 
 
 
 
Operating lease cost
 
$
1
 
 
$
5
 
Short-term lease cost
 
 
2
 
 
 
5
 
                 
Total lease cost
 
$
3
 
 
$
10
 
                 
 
 
 
For the nine months ended September 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:
         
 
        Nine Months Ended        
    September 30, 2019    
 
(millions)
 
 
Dominion Energy
 
 
 
Operating cash flows for finance leases
 
$
3
 
Operating cash flows for operating leases
 
 
89
 
Financing cash flows for finance leases
 
 
12
 
Virginia Power
 
 
 
Operating cash flows for operating leases
 
 
40
 
Dominion Energy Gas
 
 
 
Operating cash flows for operating leases
 
 
10
 
 
 
 
In addition to the amounts disclosed above, Dominion Energy’s Consolidated Statement of Income for the three and nine months ended September 30, 2019 includes $64 million and $146 million, respectively, of rental revenue included in operating revenue and $23 million and $70 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.
 
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At September 30, 2019, the weighted average remaining lease term and weighted discount rate for the Companies’ finance and operating leases were as follows:
         
 
        September 30, 2019        
 
Dominion Energy
 
 
 
Weighted average remaining lease term - finance leases
 
 
6 years
 
Weighted average remaining lease term - operating leases
 
 
21 years
 
Weighted average discount rate - finance leases
 
 
4.36%
 
Weighted average discount rate - operating leases
 
 
4.58%
 
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
 
 
4.65%
 
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
 
 
4.55%
 
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
  $
18
    $
10
    $
8
    $
1
    $
5
    $
1
 
2020
   
68
     
39
     
33
     
3
     
13
     
2
 
2021
   
61
     
33
     
29
     
3
     
11
     
2
 
2022
   
50
     
31
     
23
     
3
     
9
     
2
 
2023
   
40
     
28
     
18
     
2
     
6
     
2
 
After 2023
   
538
     
49
     
160
     
4
     
25
     
3
 
                                                 
Total undiscounted lease payments
   
775
     
190
     
271
     
16
     
69
     
12
 
                                                 
Present value adjustment
   
(323
)    
(28
)    
(89
)    
(2
)    
(13
)    
(2
)
                                                 
Present value of lease liabilities
  $
452
    $
162
    $
182
    $
14
    $
56
    $
10
 
                                                 
 
 
(1)
Includes amounts reflected in discontinued operations.
 
 
 
 
Corporate Office 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 provided equity and obtained financing commitments from debt investors, totaling $365 million, which funded total project costs. The project became substantially complete in August 2019 at which point the facility was available for Dominion Energy’s use and the five-year lease term commenced.
Upon commencement, the lease for the facility was 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. No end-of-term options were deemed reasonably certain of exercise at commencement date. At commencement, Dominion Energy recorded a right-of-use asset and offsetting lease obligation of $67 million, representing the present value of consideration over the five-year term at the rate implicit in the lease.
 
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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 September 30, 2019 and December 31, 2018, Dominion Energy’s securities due within one year includes $31 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 during the second quarter of 2019. Virginia Power paid $13 million for electric capacity and $4 million for electric energy to the non-utility generator in the three months ended September 30, 2018. Virginia Power paid $13 million and $38 million for electric capacity and $1 million and $14 million for electric energy to the non-utility generator in the nine months ended September 30, 2019 and 2018, respectively.
Dominion Energy Gas
Dominion Energy Gas purchased shared services from DECGS and DEQPS of $4 million and $8 million for the three months ended September 30, 2019, $4 million and $7 million for the three months ended September 30, 2018, $13 million and $28 million for the nine months ended September 30, 2019 and $13 million and $22 million for the nine months ended September 30, 2018, respectively. Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DECGS and DEQPS of $10 million and $6
million at September 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 $83 million and $25 million for the three months ended September 30, 2019, $79 million and $26 million for the three months ended September 30, 2018, $301 million and $92 million for the nine months ended September 30, 2019 and $251 million and $80 million for the nine months ended September 30, 2018, respectively. Virginia Power’s Consolidated Balance Sheets included amounts due to DES of $50 million and $107 million at September 30, 2019 and December 31, 2018, respectively, recorded in payables to affiliates. At September 30, 2019 and December 31, 2018, Dominion Energy Gas’ Consolidated Balance Sheets included amounts due to DES of $15 million and $44 million, recorded in payables to affiliates, and $8 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.
 
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Dominion Energy
At September 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
 
 
$
2,394
 
 
$
81
 
 
$
3,525
 
(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 September 30, 2019, Dominion Energy had $21 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 September 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 September 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.
In September 2019, Dominion Energy Questar Corporation borrowed $3.0 billion under a 364-Day Term Loan Agreement that bears interest at a variable rate. The proceeds from the borrowing were used to repay the principal of Cove Point’s $3.0 billion term loan due in 2021. Dominion Energy has provided a guarantee to support Dominion Energy Questar Corporation’s obligation under the 364-Day Term Loan Agreement.
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 September 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
 
 
$
685
 
 
$
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 September 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.
 
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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 September 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
 
 
$
280
 
 
$
 
(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 September 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.
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.
In August 2019, Dominion Energy issued $1.0 billion of 2.45% senior notes that mature in 2023 through a private placement.
In September 2019, DESC purchased certain of its first mortgage bonds with an outstanding principal balance of $552 million pursuant to a tender offer that expired in the third quarter of 2019.
In October 2019, Dominion Energy Terminal Company remarketed its $27 million Peninsula Ports Authority of Virginia Coal Terminal Revenue Refunding Bonds, Series 2003 due in 2033 resulting in a reset of the interest rate from 1.55% to 1.70% until 2022.
In October 2019, Dominion Energy Gas provided notice to holders to redeem its $450 million 2014 Series A 2.50% senior notes in full in November 2019 that would have otherwise matured in December 2019.
 
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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 September 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 belonged 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 were applied on behalf of investors on the settlement date of the related stock purchase contracts to pay the purchase price to Dominion Energy for the issuance of 18.5 million shares of its common stock in August 2019. 
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 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,
 
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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
(2)
 
 
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
 
(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.
(2)
Payments of $
17
million were made in September 2019. The stock purchase contract liability was $
233
million at September 30, 2019.
Issuance of Common Stock
See Note 3 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.
In August 2019, Dominion Energy issued 18.5 million shares to settle the stock purchase contracts entered into as part of the 2016 Equity Units and received proceeds of $1.4 billion.
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.
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
 
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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.
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 Dominion Energy and Virginia Power are complying with the applicable requirements of the rule and do not expect any adverse impacts to their 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.
 
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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 another 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. The amended portions of the 2016 rule were effective immediately upon publication. Until the proposed rule regarding reconsideration 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 ACE Rule became effective in September 2019. The final ACE Rule 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 by January 2024. 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 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 28.0 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 19.6 million tons. The final rule includes a provision for VDEQ to delay implementation of the rule and possible adjustments to the baseline cap pending authorization from the General Assembly and Governor of Virginia. Once VDEQ is authorized to begin implementation of the rule, the impacts of this program could be material to Dominion Energy and Virginia Power’s results of operations, financial condition and/or cash flows; however, 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.
 
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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 13 and
seven
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 EPA’s request for a stay of the pending consolidated litigation challenging the rule while the EPA addresses the petitions for reconsideration. In September 2017, the EPA signed a rule to postpone the earliest compliance dates for certain waste streams regulations in the 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 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.
 
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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 $386 million included primarily within other current liabilities and insurance receivables of $173 million included within other receivables at September 30, 2019. During the three and nine months ended September 30, 2019, Dominion Energy’s Consolidated Statements of Income include charges of $38 million ($28 million after-tax) and $316 million ($236 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 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 is in the process of being transferred to the plaintiffs in coordination with the court-appointed real estate trustee 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. In October 2019, Santee Cooper voluntarily consented to stay its cross claims against DESC pending the outcome of the trial of the underlying case. This case is pending.
 
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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. In August 2019, DESC, SCANA and Dominion Energy were voluntarily dismissed from the case. 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. In August 2019, the individual defendants filed motions to dismiss. 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. In October 2019, the parties reached a settlement in principle pursuant to which SCANA will pay $192.5 million, up to $32.5 million of which can be satisfied through the issuance of shares of Dominion Energy common stock, subject to approval by the U.S. District Court for the District of South Carolina.
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 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. In September 2019, the court granted the defendants’ motion for judgment and the complaint was dismissed.
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 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
 
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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 September 2019, the U.S. District Court for the District of South Carolina granted the plaintiffs’ motion to consolidate the City of Warren Lawsuit and the Metzler Lawsuit. In October 2019, the plaintiffs filed an amended complaint against certain former directors and executive officers of SCANA and DESC, which stated substantially similar allegations to those in the City of Warren Lawsuit and the Metzler Lawsuit.
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, which case has been dismissed and the plaintiffs have joined the case filed August 2017. The plaintiffs allege, among other things, that SCANA, DESC, Fluor Corporation and Fluor Enterprises, Inc. violated the Worker Adjustment and Retraining Notification Act in connection with the decision to stop construction at the NND Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment and are seeking damages, which could be as much as $100 million for 100% of the NND Project.
In 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.
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
 
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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 Energy believes it is unlikely that it will be required to make payments on account of such claims.
 
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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.
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.
 
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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.
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 September 30, 2019, Atlantic Coast Pipeline has borrowed $1.7 billion against the revolving credit facility and borrowed an additional $41 million in October 2019. Dominion Energy’s Consolidated Balance Sheets include a liability of $15 million and $21 million associated with this guarantee agreement at September 30, 2019 and December 31, 2018, respectively.
In addition, at September 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.
 
93
 

At September 30, 2019, Dominion Energy had issued the following subsidiary guarantees:
 
        Maximum        
Exposure
 
(millions)
 
 
Commodity transactions
(1)
 
$
2,517
 
Nuclear obligations
(2)
 
 
204
 
Cove Point
(3)
 
 
1,900
 
Solar
(4)
 
 
652
 
Other
(5)
 
 
390
 
         
Total
(6)
 
$
                         5,663
 
         
(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 primarily 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 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, and guarantees for debt of certain subsidiaries discussed in Note 17.
Additionally, at September 30, 2019, Dominion Energy had purchased $185 million of surety bonds, including $81 million at Virginia Power and $31 million at Dominion Energy Gas, and authorized the issuance of letters of credit by financial institutions of $81 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 September 30, 2019, Dominion Energy’s gross credit exposure related to energy marketing and price risk management activities totaled $149 million. Of this amount, investment grade counterparties, including those internally rated, represented 91%.
No
single counterparty, whether investment grade or non-investment grade, exceeded $33 million of exposure. At September 30, 2019, Virginia Power’s exposure related to wholesale customers totaled $46 million. Of this amount, investment grade counterparties, including those internally rated, represented 88%.
No
single counterparty, whether investment grade or non-investment grade, exceeded $32 million of exposure. At September 30, 2019, Dominion Energy Gas’ exposure primarily related to wholesale customers totaled $32 million. Of this amount, investment grade counterparties, including those internally rated, represented 90%.
No
single counterparty, whether investment grade or non-investment grade, exceeded $6 million of exposure.
For the three and nine months ended September 30, 2019, the Export Customers comprised approximately 37% and 34%, respectively, of Dominion Energy Gas’ total operating revenue, with Dominion Energy Gas’ largest customer representing approximately 19% and 18% of such amounts during the periods. For the three and nine months ended September 30, 2018, the Export Customers comprised approximately 32% and 21%, respectively, of Dominion Energy Gas’ total operating revenue, with Dominion Energy Gas’ largest customer representing approximately 17% and 11% 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 September 30, 2019 and December 31, 2018, Dominion Energy would have been required to post $4 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 September 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 September 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 September 30, 2019 and December 31, 2018. See Note 9 for further information about derivative instruments.
 
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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 September 30, 2019, Virginia Power’s derivative assets and liabilities with affiliates were $3 million and $18 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 September 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 $750 million and $632 million, respectively. At September 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 $272 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.
Presented below are Virginia Power’s significant transactions with DES and other affiliates:
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
      2019      
 
 
      2018      
   
      2019      
 
 
      2018      
 
(millions)
 
 
 
 
 
 
 
 
Commodity purchases from affiliates
 
$
170
 
  $
196
   
$
561
 
  $
733
 
Services provided by affiliates
(1)
 
 
107
 
   
106
   
 
387
 
   
338
 
Services provided to affiliates
 
 
5
 
   
6
   
 
19
 
   
17
 
(1)
Includes capitalized expenditures of $33 million and $34 million for the three months ended September 30, 2019 and 2018, respectively, and $100 million and $109 million for the nine months ended September 30, 2019 and 2018, respectively.
Virginia Power has borrowed funds from Dominion Energy under short-term borrowing arrangements. There were $9 million and $224 million in short-term demand note borrowings from Dominion Energy as of September 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 September 30, 2019 and December 31, 2018. Interest charges related to Virginia Power’s borrowings from Dominion Energy were immaterial for the three and nine months ended September 30, 2019 and 2018.
There were no issuances of Virginia Power’s common stock to Dominion Energy for the three and nine months ended September 30, 2019 and 2018.
 
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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 September 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 September 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 $323 million and $319 million, respectively. At September 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 $15 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 September 30, 2019 and December 31, 2018, there was $455 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 September 30, 2019 and December 31, 2018, were $4 million
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
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
(millions)
 
 
 
 
 
 
 
 
Sales of natural gas and transportation and storage services to affiliates
 
$
60
 
  $
39
   
$
187
 
  $
124
 
Services provided by related parties
(1)
 
 
41
 
   
40
   
 
145
 
   
128
 
Services provided to related parties
(2)
 
 
38
 
   
65
   
 
128
 
   
197
 
(1)
Includes capitalized expenditures of $9 million
for both the three months ended September 30, 2019 and 2018 and
$20 million and $27
million for the nine months ended September 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:
 
                                            
 
      September 30, 2019      
 
 
      December 31, 2018      
 
(millions)
 
 
 
 
 
Other receivables
(1)
 
 
$
9
 
  $
13
 
Imbalances receivable from affiliates
 
 
 
7
 
   
16
 
Imbalances payable to affiliates
(2)
 
 
 
1
 
   
4
 
 
96
 

(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 September 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 were $160
m
illion
and $218 million as
 of September 30, 2019 and December 31, 2018
, respectively
. Interest charges related to Dominion Energy Gas’ total borrowings from Dominion Energy were
less than
$1 million for the three months ended September 30, 2019 and 2018 and $2 million and
less than
$1 million for the nine months ended September 30, 2019 and 2018, respectively.
DCPI’s borrowings under intercompany revolving credit agreements with Dominion Energy totaled $2.9 billion at both September 30, 2019 and December 31, 2018. Interest charges related to DCPI’s total borrowings from Dominion Energy and subsidiaries totaled $30 million and $88 million for the three and nine months ended September 30, 2019, respectively, and totaled $25 million and $72 million for the three and nine months ended September 30, 2018, respectively. In October 2019, DCPI repaid the outstanding balance and accrued interest utilizing funds from a capital contribution from Dominion Energy.
DMLPHCII’s total borrowings under an intercompany revolving credit agreement with Dominion Energy totaled $22 million at both September 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 months ended September 30, 2019 and 2018 and were $1 million for both the nine months ended September 30, 2019 and 2018. In October 2019, DMLPHCII repaid the outstanding balance and accrued interest utilizing funds from a capital contribution from Dominion Energy.
Affiliated notes receivable
 
from East Ohio and DGP for borrowings under intercompany revolving credit agreements with Dominion Energy Gas were $
655
million and $
704
million as of September 
30
,
2019
and December 
31
,
2018
, respectively.
Interest income the promissory notes receivable was
$50 million and $148 million for the three and nine months ended September 30, 2019 and $22 million and $60 million for three and nine months ended September 30, 2018, respectively.
In September 2019, Dominion Energy repaid its $3.0 billion promissory note to Cove Point and the proceeds were used
by Cove Point to
repay the $3.0 billion term loan. 
Total interest income earned on the promissory note for the three and nine months ending September 30, 2019 were
$
30
million and $
88
 million, respectively.
In January
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 September 30, 2019, $395 million of the promissory note remained outstanding. Interest
charges
of $4 million and $9 million were incurred for the three and nine months ended September 30, 2019, respectively. In October 2019, Dominion Energy Midstream repaid the outstanding balance and accrued
interest utilizing funds from a capital contribution from Dominion Energy.
For the nine months ended September 30, 2019 and 2018, Dominion Energy Gas, including entities acquired in the Dominion Energy Gas Restructuring, distributed $551 million and $143 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 September 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
41
 
  $
39
   
$
7
 
  $
7
 
Interest cost
 
 
97
 
   
85
   
 
17
 
   
14
 
Expected return on plan assets
 
 
(177
)
   
(165
)  
 
(37
)
   
(36
)
Amortization of prior service credit
 
 
 
   
   
 
(13
)
   
(13
)
Amortization of net actuarial loss
 
 
42
 
   
48
   
 
2
 
   
3
 
Settlements
(1)
 
 
2
 
   
   
 
 
   
 
                                 
Net periodic benefit cost (credit)
 
$
5
 
  $
7
   
$
(24
)
  $
(25
)
                                 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
           121
 
  $
           118
   
$
20
 
  $
             20
 
Interest cost
 
 
296
 
   
253
   
 
            51
 
   
42
 
Expected return on plan assets
 
 
(530
)
   
(498
)  
 
(105
)
   
(107
)
Amortization of prior service cost (credit)
 
 
1
 
   
1
   
 
(39
)
   
(39
)
Amortization of net actuarial loss
 
 
124
 
   
145
   
 
9
 
   
8
 
Settlements and curtailment
(1)
 
 
75
 
   
   
 
42
 
   
 
                                 
Net periodic benefit cost (credit)
 
$
87
 
  $
19
   
$
(22
)
  $
(76
)
                                 
 
 
 
 
 
(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.
In the third quarter of 2019, Dominion Energy remeasured a pension plan as a result of a settlement from the voluntary retirement program at SCANA. The settlement and related remeasurement resulted in an increase in the pension benefit obligation of $37 million and an increase in the fair value of the pension plan assets of $51 million for Dominion Energy. 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 $7 million. The discount rate used for the remeasurement was 3.57%. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018. 
 
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Employer Contributions
During the nine months ended September 30, 2019, Dominion Energy made no contributions to its defined benefit pension plans or other postretirement benefit plans. Dominion Energy made a contribution of $21 million to its defined benefit pension plans in October 2019 and expects to make a $12 million contribution to its other postretirement benefit plans through VEBAs during the remainder of 2019.
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 September 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
4
 
  $
4
   
$
 
  $
1
 
Interest cost
 
 
7
 
   
7
   
 
3
 
   
3
 
Expected return on plan assets
 
 
(38
)
   
(36
)  
 
(6
)
   
(7
)
Amortization of prior service credit
 
 
 
   
   
 
(1
)
   
(1
)
Amortization of net actuarial loss
 
 
5
 
   
4
   
 
 
   
 
                                 
Net periodic benefit credit
 
$
(22
)
  $
(21
)  
$
(4
)
  $
(4
)
                                 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
12
 
  $
13
   
$
2
 
  $
3
 
Interest cost
 
 
            23
 
   
            21
   
 
              8
 
   
              8
 
Expected return on plan assets
 
 
(116
)
   
(111
)  
 
(20
)
   
(21
)
Amortization of prior service credit
 
 
 
   
   
 
(3
)
   
(3
)
Amortization of net actuarial loss
 
 
15
 
   
14
   
 
2
 
   
2
 
Curtailment
(1)
 
 
1
 
   
   
 
1
 
   
 
                                 
Net periodic benefit credit
 
$
(65
)
  $
(63
)  
$
(10
)
  $
(11
)
                                 
 
 
 
 
 
(1)
Related to a voluntary retirement program.
 
Employer Contributions
During the nine months ended September 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.
 
99
 

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.
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 nine months ended September 30, 2019, Dominion Energy reported after-tax net expenses of $2.1 billion for specific items in the Corporate and Other segment, with $2.0 billion of net expenses attributable to its operating segments. In the nine months ended September 30, 2018, Dominion Energy reported after-tax net expenses of $253 million for specific items in the Corporate and Other segment, with $188 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;
 
 
 
 
 
 
$570 million ($429 million after-tax) of merger and integration-related costs associated with the SCANA Combination, including a $444 million ($332 million after-tax) charge related to a voluntary retirement program, attributable to:
 
 
 
 
 
 
  Power Delivery ($77 million after-tax);
 
 
 
 
 
 
  Power Generation ($110 million after-tax);
 
 
 
 
 
 
  Gas Infrastructure ($82 million after-tax); and
 
 
 
 
 
 
  Southeast Energy ($160 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;
 
 
 
 
 
 
$316 million ($237 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;
 
 
100
 

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 $364 million ($272 million after-tax) net gain related to investments in nuclear decommissioning trust funds, attributable to Power Generation; and
 
 
 
 
 
 
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 $156 million ($121 million after-tax) increased net investment earnings on nuclear decommissioning trust funds attributable to Power Generation;
 
 
 
 
 
 
A $124 million ($88 million after-tax) charge for disallowance of FERC-regulated plant, attributable to Gas Infrastructure; and
 
 
 
 
 
 
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.
 
 
101
 

The following table presents segment information pertaining to Dominion Energy’s operations:
                                                         
 
Power
Delivery
 
 
Power
Generation
 
 
Gas
Infrastructure
 
 
Southeast
Energy
 
 
Corporate
and Other
 
 
Adjustments/
Eliminations
 
 
Consolidated
Total
 
(millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
 
$
678
 
 
$
1,848
 
 
$
788
 
 
$
973
 
 
$
(18
)
 
$
 
 
$
4,269
 
Intersegment revenue
 
 
5
 
 
 
6
 
 
 
28
 
 
 
 
 
 
164
 
 
 
(203
)
 
 
 
                                                         
Total operating revenue
 
 
683
 
 
 
1,854
 
 
 
816
 
 
 
973
 
 
 
146
 
 
 
(203
)
 
 
4,269
 
Net income (loss) attributable to Dominion Energy
 
 
185
 
 
 
490
 
 
 
232
 
 
 
147
 
 
 
(79
)
 
 
 
 
 
975
 
                                                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
  $
596
    $
2,021
    $
836
     
    $
    $
(2
)   $
3,451
 
Intersegment revenue
   
5
     
3
     
7
     
     
160
     
(175
)    
 
                                                         
Total operating revenue
   
601
     
2,024
     
843
     
     
160
     
(177
)    
3,451
 
Net income attributable to Dominion Energy
   
163
     
414
     
264
     
     
13
     
     
854
 
                                                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
 
$
1,861
 
 
$
5,191
 
 
$
3,042
 
 
$
3,070
 
 
$
(1,067
)
 
$
 
 
$
12,097
 
Intersegment revenue
 
 
17
 
 
 
15
 
 
 
83
 
 
 
 
 
 
611
 
 
 
(726
)
 
 
 
                                                         
Total operating revenue
 
 
1,878
 
 
 
5,206
 
 
 
3,125
 
 
 
3,070
 
 
 
(456
)
 
 
(726
)
 
 
12,097
 
Net income (loss) attributable to Dominion Energy
 
 
496
 
 
 
1,048
 
 
 
838
 
 
 
361
 
 
 
(2,394
)
 
 
 
 
 
349
 
                                                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue from external customers
  $
1,687
    $
5,516
    $
2,972
     
    $
(210
)   $
40
    $
10,005
 
Intersegment revenue
   
17
     
8
     
21
     
     
505
     
(551
)    
 
                                                         
Total operating revenue
   
1,704
     
5,524
     
2,993
     
     
295
     
(511
)    
10,005
 
Net income (loss) attributable to Dominion Energy
   
464
     
1,038
     
840
     
     
(536
)    
     
1,806
 
                                                         
 
 
 
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 nine months ended September 30, 2019, Virginia Power reported after-tax net expenses of $673 million for specific items in the Corporate and Other segment, with $653 million of net expenses attributable to its operating segments. In the nine months ended September 30, 2018, Virginia Power reported after-tax net expenses of $229 million for specific items in the Corporate and Other segment, with $226 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 $197 million ($146 million after-tax) charge related to a voluntary retirement program, attributable to:
 
 
 
 
102
 

  Power Delivery ($74 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); and
 
 
 
 
 
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 September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
677
 
 
$
1,587
 
 
$
 
 
$
2,264
 
Net income (loss)
 
 
184
 
 
 
444
 
 
 
(26
)
 
 
602
 
                                 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
  $
595
    $
1,637
    $
    $
2,232
 
Net income
   
163
     
347
     
        10
     
        520
 
                                 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,860
 
 
$
4,336
 
 
$
(29
)
 
$
6,167
 
Net income (loss)
 
 
494
 
 
 
885
 
 
 
(657
)
 
 
722
 
                                 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
  $
         1,686
    $
       4,338
    $
(215
)   $
5,809
 
Net income (loss)
   
462
     
796
     
(215
)    
1,043
 
                                 
 
 
 
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 nine months ended September 30, 2019, Dominion Energy Gas reported after-tax net expense of $66 million for specific items in the Corporate and Other segment, all of which are attributable to its operating segment. In the nine months ended September 30, 2018, Dominion Energy Gas reported after-tax net expenses of $98 million for specific items in the Corporate and Other segment, with $97 million of net expenses attributable to its operating segment.
 
103
 

The net expense for specific items in 2019 primarily related to the impact of a
$42 million ($31
million after-tax) charge related to a voluntary retirement program.
The net expense for specific items attributable to Dominion Energy Gas’ operating segment in 2018 primarily related to a $124 million ($88 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 September 30, 2019
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
525
 
 
$
(23
)
 
$
502
 
Net income from discontinued operations
 
 
 
 
 
45
 
 
 
45
 
Net income
 
attributable to Dominion Energy Gas
 
 
134
 
 
 
17
 
 
 
151
 
                         
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Operating revenue
  $
533
    $
    $
533
 
Net income from discontinued operations
   
     
33
     
33
 
Net income attributable to Dominion Energy Gas
   
173
     
18
     
191
 
                         
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,621
 
 
$
(23
)
 
$
1,598
 
Net income from discontinued operations
 
 
 
 
 
125
 
 
 
125
 
Net income attributable to Dominion Energy Gas
 
 
423
 
 
 
37
 
 
 
460
 
                         
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
Operating revenue
  $
         1,431
    $
    $
1,431
 
Net income from discontinued operations
   
     
        135
     
        135
 
Net income attributable to Dominion Energy Gas
   
426
     
28
     
454
 
                         
 
 
 
 
104
 

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
   
AFUDC
 
Allowance for funds used during construction
   
Align RNG
 
Align RNG, LLC, a joint venture between Dominion Energy and Smithfield Foods, Inc.
   
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
   
DETI
 
Dominion Energy Transmission, Inc.
   
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
   
Dth
 
Dekatherm
 
 
 
 
 
 
1
 

Abbreviation or Acronym          
 
Definition
   
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
   
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
   
Millstone
 
Millstone nuclear power station
   
MW
 
Megawatt
   
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
   
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
   
PURA
 
Connecticut’s Public Utility Regulatory Authority
   
RSN
 
Remarketable subordinated note
   
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.
   
Virginia Commission
 
Virginia State Corporation Commission
 
 
 
 
 
 
 
2
 

     
Abbreviation or Acronym          
 
Definition
   
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
 
 
 
 
 
 
3
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A discusses Dominion Energy’s results of operations and general financial condition and Virginia Power’s 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;
 
4
 

 
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;
 
5
 

 
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 September 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)                     
Third Quarter
                          
Net income attributable to Dominion Energy
  
$
975
 
   $ 854      $ 121  
Diluted EPS
  
 
1.17
 
     1.30        (0.13
Year-To-Date
                          
Net income attributable to Dominion Energy
  
$
349
 
   $ 1,806      $ (1,457
Diluted EPS
  
 
0.39
 
     2.77        (2.38
Overview
Third Quarter 2019 vs. 2018
Net income attributable to Dominion Energy increased 14%, primarily due to operations acquired in the SCANA Combination, higher renewable energy investment tax credits, decreased Virginia Power electric capacity expense and an increase in cooling degree days in Virginia Power’s service territory. These increases were partially offset by a decrease in net investment earnings on nuclear decommissioning trust funds, the absence of a gain on sale of an equity method investment and the absence of gains related to agreements to convey shale development rights under natural gas storage fields.
Year-To-Date
2019 vs. 2018
Net income attributable to Dominion Energy decreased $1.5 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, Virginia Power’s contract termination with a
non-utility
generator and the absence of gains related to agreements to convey shale development rights under natural gas storage fields. These decreases were partially offset by an increase in net investment earnings on nuclear decommissioning trust funds, the operations acquired in the SCANA Combination, 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 the absence of disallowance of FERC-regulated plant.
 
6
 

Analysis of Consolidated Operations
Presented below are selected amounts related to Dominion Energy’s results of operations​​​​​​​:
 
    
Third Quarter
   
Year-To-Date
 
    
    2019    
         2018              $ Change        
    2019    
         2018              $ Change      
(millions)                                         
Operating revenue
  
$
    4,269
 
   $     3,451      $ 818    
$
    12,097
 
   $     10,005      $ 2,092  
Electric fuel and other energy-related purchases
  
 
774
 
     761        13    
 
2,283
 
     2,128        155  
Purchased electric capacity
  
 
11
 
     50        (39  
 
74
 
     87        (13
Purchased gas
  
 
153
 
     5        148    
 
1,110
 
     409        701  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Net revenue
  
 
3,331
 
     2,635        696    
 
8,630
 
     7,381        1,249  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Other operations and maintenance
  
 
1,010
 
     770        240    
 
3,295
 
     2,438        857  
Depreciation, depletion and amortization
  
 
679
 
     526        153    
 
1,991
 
     1,487        504  
Other taxes
  
 
243
 
     177        66    
 
819
 
     542        277  
Impairment of assets and other charges
  
 
85
 
     12        73    
 
1,232
 
     147        1,085  
Other income
  
 
173
 
     373        (200  
 
653
 
     658        (5
Interest and related charges
  
 
451
 
     378        73    
 
1,372
 
     1,053        319  
Income tax expense
  
 
51
 
     262        (211  
 
208
 
     485        (277
Noncontrolling interests
  
 
10
 
     29        (19  
 
17
 
     81        (64
An analysis of Dominion Energy’s results of operations follows:
Third Quarter 2019 vs. 2018
Net revenue
increased 26%, primarily due to:
 
 
A $607 million increase from operations acquired in the SCANA Combination;
 
 
A $96 million increase from Virginia Power rate adjustment clauses;
 
 
A $40 million decrease in Virginia Power electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($27 million) and a contract termination with a
non-utility
generator ($13 million); and
 
 
A $31 million increase in sales to Virginia Power retail customers, primarily due to an increase in cooling degree days during the cooling season.
These increases were partially offset by:
 
 
A $67 million decrease from the absence of certain merchant generation facilities sold in 2018; and
 
 
A $26 million decrease in services performed for Atlantic Coast Pipeline.
Other operations and maintenance
increased 31%, primarily reflecting:
 
 
A $165 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 ($65 million);
 
 
A $47 million increase in certain Virginia Power transmission-related expenditures. These expenses are primarily recovered through state and FERC rates and do not impact net income; and
 
 
An increase in merger and integration-related costs associated with the SCANA Combination ($26 million); partially offset by
 
7
 

 
A $26 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 29%, primarily due to property, plant and equipment acquired in the SCANA Combination, including amortization of NND Project costs.
Other taxes
increased 37%, primarily due to the SCANA Combination.
Impairment of assets and other charges
increased $73 million, primarily due to a charge associated with litigation acquired in the SCANA Combination ($38 million), the abandonment of certain property, plant and equipment ($26 million) and a $21 million charge for disallowance of Virginia Power state-regulated plant.
Other income
decreased 54%, primarily due to a decrease in net investment earnings on nuclear decommissioning trust funds ($124 million) and the absence of a gain on the sale of Dominion Energy’s 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership ($87 million).
Interest and related charges
increased 19%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first and third quarters of 2019.
Income tax expense
decreased 81%, primarily due to lower
pre-tax
income ($146 million), higher renewable energy investment tax credits ($38 million) and the absence of impacts from the 2017 Tax Reform Act ($31 million).
Noncontrolling interests
decreased 66%, 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 17%, primarily reflecting:
 
 
A $741 million increase from the SCANA Combination, due to operations acquired ($1.8 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;
 
 
A $236 million increase from the Liquefaction Facility, including terminalling services provided to the
Export Customers ($190 million), a decrease in credits associated with the 
start-up
 phase ($25 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 $198 million increase from Virginia Power rate adjustment clauses;
 
 
A $48 million increase due to favorable pricing at merchant generation facilities; and
 
 
A $34 million decrease in Virginia Power electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($35 million) and a contract termination with a
non-utility
generator ($25 million), partially offset by the annual PJM capacity performance market effective June 2018 ($26 million).
These increases were partially offset by:
 
 
A $166 million decrease from the absence of certain merchant generation facilities sold in 2018;
 
 
A $75 million decrease in services performed for Atlantic Coast Pipeline;
 
 
A $33 million decrease in sales to Virginia Power retail customers from lower heating degree days during the heating season, partially offset by a $25 million increase from higher cooling degree days during the cooling season; and
 
 
A $30 million decrease due to an increase in planned outage days at certain merchant generation facilities.
Other operations and maintenance
increased 35%, primarily reflecting:
 
 
A $539 million increase from operations acquired in the SCANA Combination;
 
 
An increase in merger and integration-related costs associated with the SCANA Combination ($435 million), including a charge related to a voluntary retirement program ($291 million);
 
 
The absence of gains related to agreements to convey shale development rights under natural gas storage fields ($115 million);
 
8
 

 
A $45 million increase from additional planned outage days at certain generation facilities;
 
 
A $44 million increase in certain Virginia Power transmission-related expenditures. These expenses are primarily recovered through state and FERC rates and do not impact net income; 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;
 
 
A $74 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 $33 million decrease from the absence of certain merchant generation facilities sold in 2018.
Depreciation, depletion and amortization
increased 34%, primarily due to property, plant and equipment acquired in the SCANA Combination ($421 million), including amortization of NND Project costs ($92 million), an increase from various growth projects being placed into service ($112 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 51%, primarily due to the SCANA Combination ($215 million) and a charge related to a voluntary retirement program ($24 million).
Impairment of assets and other charges
increased $1.1 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 ($316 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;
 
 
A $62 million charge related to the abandonment of a project at a Virginia Power electric generating facility; and
 
 
The abandonment of certain property, plant and equipment ($39 million); partially offset by
 
 
The absence of a $135 million charge for disallowance of FERC-regulated plant.
Other income
remained substantially unchanged, primarily reflecting a charge related to a voluntary retirement program ($112 million), the absence of a gain on the sale of Dominion Energy’s 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership ($87 million) and the absence of equity earnings due to the sale of Blue Racer in December 2018 ($40 million). These decreases were substantially offset by an increase in net investment earnings on nuclear decommissioning trust funds ($210 million) and an increase in equity earnings from Atlantic Coast Pipeline ($42 million).
Interest and related charges
increased 30%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first and third quarters of 2019 ($245 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 ($32 million).
Income tax expense
decreased 57%, primarily due to lower
pre-tax
income ($452 million) and the absence of impacts from the 2017 Tax Reform Act ($31 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 ($20 million).
 
 
9
 

Noncontrolling interests
decreased 79%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.
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 attributable to Dominion Energy:
 
                                                 
    
Net Income (Loss) Attributable to
Dominion Energy
   
Diluted EPS
 
    
      2019      
          2018               $ Change        
      2019      
          2018               $ Change      
(millions, except EPS)
                                                
Third Quarter
                                                
Power Delivery
  
$
185
 
  $ 163     $ 22    
$
0.23
 
  $ 0.25     $ (0.02
Power Generation
  
 
490
 
    414       76    
 
0.60
 
    0.63       (0.03
Gas Infrastructure
  
 
232
 
    264       (32  
 
0.29
 
    0.40       (0.11
Southeast Energy
  
 
147
 
 
 
 
    147    
 
0.18
 
 
 
 
    0.18  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Primary operating segments
  
 
1,054
 
    841       213    
 
1.30
 
    1.28       0.02  
Corporate and Other
  
 
(79
    13       (92  
 
(0.13
    0.02       (0.15
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated
  
$
975
 
  $ 854     $ 121    
$
1.17
 
  $ 1.30     $ (0.13
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
             
Year-To-Date
                                                
Power Delivery
  
$
496
 
  $ 464     $ 32    
$
0.62
 
  $ 0.71     $ (0.09
Power Generation
  
 
1,048
 
    1,038       10    
 
1.30
 
    1.59       (0.29
Gas Infrastructure
  
 
838
 
    840       (2  
 
1.04
 
    1.29       (0.25
Southeast Energy
  
 
361
 
 
 
 
    361    
 
0.45
 
 
 
 
    0.45  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Primary operating segments
  
 
2,743
 
    2,342       401    
 
3.41
 
    3.59       (0.18
Corporate and Other
  
 
(2,394
    (536     (1,858  
 
(3.02
    (0.82     (2.20
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated
  
$
349
 
  $ 1,806     $ (1,457  
$
0.39
 
  $ 2.77     $ (2.38
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
Power Delivery
Presented below are selected operating statistics related to Power Delivery’s operations:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
           2018                % Change        
      2019      
           2018                % Change      
Electricity delivered (million MWh)
  
 
24.4
 
     24.0        2  
 
66.8
 
     67.0        —%  
Degree days (electric distribution service area):
                                                    
Cooling
  
 
1,299
 
     1,271        2    
 
1,948
 
     1,890        3  
Heating
  
 
 
               
 
2,042
 
     2,306        (11
Average electric distribution customer accounts (thousands)
(1)
  
 
2,629
 
     2,603        1    
 
2,623
 
     2,597        1  
 
 
 
 
 
(1)
Period average.
 
 
 
 
 
 
10
 

Presented below, on an
after-tax
basis, are the key factors impacting Power Delivery’s net income contribution:
 
                                 
    
Third 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
   $ 7     $ 0.01     $ (2   $  
Other
     2             7       0.01  
Rate adjustment clause equity return
     17       0.02       40       0.06  
Storm damage and service restoration
     5       0.01       (5     (0.01
Other
     (9     (0.01     (8     (0.01
Share dilution
           (0.05           (0.14
    
 
 
   
 
 
   
 
 
   
 
 
 
Change in net income contribution
   $ 22     $ (0.02   $ 32     $ (0.09
    
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
Power Generation
Presented below are selected operating statistics related to Power Generation’s operations:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
           2018                % Change        
      2019      
           2018                % Change      
Electricity supplied (million MWh):
                                                    
Utility
  
 
24.5
 
     24.0        2  
 
67.3
 
     67.1        —%  
Merchant
  
 
5.6
 
     8.1        (31  
 
15.2
 
     23.1        (34
Degree days (electric utility service area):
                                                    
Cooling
  
 
1,299
 
     1,271        2    
 
1,948
 
     1,890        3  
Heating
  
 
 
               
 
2,042
 
     2,306        (11
 
 
 
 
Presented below, on an
after-tax
basis, are the key factors impacting Power Generation’s net income contribution:
 
                                 
    
Third 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
   $ 16     $ 0.02     $ (3   $  
Other
     (3           (9     (0.01
Planned outage costs
     3             (32     (0.05
Electric capacity
     30       0.05       27       0.04  
Sale of certain merchant generation facilities
     (36     (0.05     (69     (0.11
Expiration of energy supply contract
     13       0.02       22       0.03  
Renewable energy investment tax credits
     22       0.03       30       0.04  
Interest expense
     6       0.01       19       0.03  
Other
     25       0.04       25       0.04  
Share dilution
           (0.15           (0.30
    
 
 
   
 
 
   
 
 
   
 
 
 
Change in net income contribution
   $ 76     $ (0.03   $ 10     $ (0.29
    
 
 
   
 
 
   
 
 
   
 
 
 
 
11
 

Gas Infrastructure
Presented below are selected operating statistics related to Gas Infrastructure’s operations:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
           2018                % Change        
      2019      
           2018                % Change      
Gas distribution throughput (bcf):
                                                    
Sales
  
 
9
 
     9        —%    
 
92
 
     85        8
Transportation
  
 
168
 
     153        10    
 
538
 
     525        2  
Heating degree days (gas distribution service area):
                                                    
Eastern region
  
 
5
 
     48        (90  
 
3,446
 
     3,633        (5
Western region
  
 
86
 
     18        378    
 
3,290
 
     2,518        31  
Average gas distribution customer accounts (thousands)
(1)
:
                                                    
Sales
  
 
1,273
 
     1,253        2    
 
1,271
 
     1,254        1  
Transportation
  
 
1,104
 
     1,092        1    
 
1,110
 
     1,097        1  
Average retail energy marketing customer accounts (thousands)
(1)
  
 
379
 
     867        (56  
 
375
 
     864        (57
 
 
 
 
(1)
Period average.
 
 
 
 
Presented below, on an
after-tax
basis, are the key factors impacting Gas Infrastructure’s net income contribution:
 
                                 
    
Third 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
   $ 10     $ 0.01     $ 158     $ 0.24  
Noncontrolling interest
(1)
     15       0.03       45       0.07  
Interest expense, net
     (8     (0.01     (72     (0.11
Assignment of shale development rights
     (47     (0.07     (83     (0.13
State legislative change
                 (18     (0.03
Other
     (2           (32     (0.05
Share dilution
           (0.07           (0.24
    
 
 
   
 
 
   
 
 
   
 
 
 
Change in net income contribution
   $ (32   $ (0.11   $ (2   $ (0.25
    
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
 
(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:
 
                 
    
      Third Quarter      

2019
    
      Year-To-Date      

2019
 
Electricity delivered (million MWh)
  
 
6.8
 
  
 
17.7
 
Electricity supplied (million MWh)
  
 
7.2
 
  
 
18.6
 
Degree days (electric distribution service area):
                 
Cooling
  
 
645
 
  
 
913
 
Heating
  
 
 
  
 
698
 
Average electric distribution customer accounts (thousands)
(1)
  
 
742
 
  
 
738
 
Gas distribution throughput (bcf):
                 
Sales
  
 
18
 
  
 
80
 
Transportation
  
 
17
 
  
 
48
 
Heating degree days (gas distribution service area)
  
 
 
  
 
808
 
Average gas distribution customer accounts (thousands)
(1)
  
 
964
 
  
 
963
 
Average retail energy marketing customer accounts (thousands)
(1)
  
 
406
 
  
 
415
 
 
12
 

(1)        Period average.
Presented below, on an
after-tax
basis, are the key factors impacting Southeast Energy’s net income contribution:
 
                                 
    
Third Quarter
2019 vs. 2018
Increase (Decrease)
   
Year-To-Date
2019 vs. 2018
Increase (Decrease)
 
    
        Amount        
   
          EPS          
   
        Amount        
   
          EPS          
 
(millions, except EPS)                         
SCANA Combination
   $ 147     $ 0.18     $ 361     $ 0.45  
    
 
 
   
 
 
   
 
 
   
 
 
 
Change in net income contribution
   $     147     $     0.18     $     361     $     0.45  
    
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
Corporate and Other
Presented below are the Corporate and Other segment’s
after-tax
results:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
          2018               $ Change        
      2019      
          2018               $ Change      
(millions, except EPS)                                     
Specific items attributable to operating segments
  
$
(80
  $ 122     $ (202  
$
(1,955
  $ (188   $ (1,767
Specific items attributable to Corporate and Other segment
  
 
88
 
    (26     114    
 
(155
    (65     (90
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total specific items
  
 
8
 
    96       (88  
 
(2,110
    (253     (1,857
Other corporate operations
(1)
  
 
(87
    (83     (4  
 
(284
    (283     (1
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net income (expense)
  
$
(79
  $ 13     $ (92  
$
    (2,394
  $ (536   $     (1,858
EPS impact
  
$
    (0.13
  $     0.02     $     (0.15  
$
(3.02
  $     (0.82   $ (2.20
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
(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:
 
                                                 
    
Third Quarter
    
Year-To-Date
 
    
      2019      
           2018                $ Change         
      2019      
           2018                $ Change      
(millions)                                          
Net income
  
$
    602
 
   $     520      $     82     
$
    722
 
   $     1,043      $     (321
 
 
 
 
Overview
Third Quarter 2019 vs. 2018
Net income increased 16%, primarily due to an increase in cooling degree days in the service territory, a decrease in net electric capacity expense and higher renewable energy investment tax credits. These increases were partially offset by increases in charges related to the abandonment and disallowance of certain property, plant and equipment.
Year-To-Date
2019 vs. 2018
Net income decreased 31%, primarily due to charges associated with the planned early retirement of certain electric generation facilities and certain automated meter reading infrastructure, a voluntary retirement program and a contract termination with a
non-utility
generator. These decreases were partially offset by increases related to 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:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
          2018                $ Change        
      2019      
           2018                $ Change      
(millions)                                        
Operating revenue
  
$
    2,264
 
  $     2,232      $ 32    
$
    6,167
 
   $     5,809      $ 358  
Electric fuel and other energy-related purchases
  
 
559
 
    648        (89  
 
1,691
 
     1,747        (56
Purchased (excess) electric capacity
  
 
(1
    50        (51  
 
45
 
     87        (42
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Net revenue
  
 
1,706
 
    1,534        172    
 
4,431
 
     3,975        456  
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Other operations and maintenance
  
 
453
 
    404        49    
 
1,297
 
     1,242        55  
Depreciation and amortization
  
 
313
 
    295        18    
 
916
 
     839        77  
Other taxes
  
 
82
 
    79        3    
 
257
 
     241        16  
Impairment of assets and other charges
  
 
38
 
           38    
 
781
 
            781  
Other income
  
 
15
 
    25        (10  
 
68
 
     49        19  
Interest and related charges
  
 
138
 
    130        8    
 
408
 
     388        20  
Income tax expense
  
 
95
 
    131        (36  
 
118
 
     271        (153
 
 
 
 
An analysis of Virginia Power’s results of operations follows:
Third Quarter 2019 vs. 2018
Net revenue
increased 11%, primarily reflecting:
 
 
A $96 million increase from rate adjustment clauses;
 
 
 
 
 
 
A $40 million decrease in electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($27 million) and a contract termination with a
non-utility
generator ($13 million); and
 
 
 
 
 
 
A $31 million increase in sales to retail customers, primarily due to an increase in cooling degree days during the cooling season.
 
 
 
 
Other operations and maintenance
increased 12%, primarily reflecting an increase in certain transmission-related expenses. These expenses were primarily recovered through state and FERC rates and did not impact net income.
Depreciation and amortization
increased 6%, primarily due to various projects being placed into service ($22 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 $38 million, reflecting charges related to a $21 million charge for disallowance of state-regulated plant and the abandonment of certain property, plant and equipment ($17 million).
Other income
decreased 40%, primarily reflecting a decrease in net investment earnings on nuclear decommissioning trust funds.
Income tax expense
decreased 27%, primarily due to higher renewable energy investment tax credits.
Year-To-Date
2019 vs. 2018
Net revenue
increased 11%, 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;
 
 
 
 
 
 
A $198 million increase from rate adjustment clauses; and
 
 
 
 
 
 
A $34 million decrease in electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($35 million) and a contract termination with a
non-utility
generator ($25 million), partially offset by the annual PJM capacity performance market effective June 2018 ($26 million); partially offset by
 
14
 

 
 
 
 
 
 
A $33 million decrease in sales to retail customers from lower heating degree days during the heating season partially offset by a $25 million increase from higher cooling degree days during the cooling season.
 
 
 
 
Other operations and maintenance
increased 4%, primarily reflecting:
 
 
A $190 million charge related to a voluntary retirement program; and
 
 
 
 
 
 
A $44 million increase in certain transmission-related expenses. These expenses were primarily recovered through state and FERC rates and did not impact net income; 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; and
 
 
 
 
 
 
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 9%, due to various projects being placed into service ($71 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 ($29 million).
Impairment of assets and other charges
increased $781 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;
 
 
 
 
 
 
A $62 million charge related to the abandonment of a project at an electric generating facility;
 
 
 
 
 
 
A $21 million charge for disallowance of state-regulated plant; and
 
 
 
 
 
 
A $17 million charge related to the abandonment of certain property, plant and equipment.
 
 
 
 
Other income
increased 39%, primarily reflecting an increase in net investment earnings on nuclear decommissioning trust funds.
Income tax expense
decreased 56%, primarily due to lower
pre-tax
income ($122 million) and higher renewable energy investment tax credits ($26 million).
Dominion Energy Gas
Results of Operations
Presented below is a summary of Dominion Energy Gas’ consolidated results:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
           2018                $ Change        
      2019      
           2018                $ Change      
(millions)                                         
Net income attributable to Dominion Energy Gas
  
$
    151
 
   $     191      $     (40  
$
    460
 
   $     454      $     6  
 
 
 
 
Overview
Third Quarter 2019 vs. 2018
Net income attributable to Dominion Energy Gas decreased 21%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.
Year-To-Date
2019 vs. 2018
 
 
15
 

Net income increased 1%, 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 the absence of gains related to agreements to convey shale development rights under natural gas storage fields and a charge related to a voluntary retirement program.
Analysis of Consolidated Operations
Presented below are selected amounts related to Dominion Energy Gas’ results of operations:
 
                                                 
    
Third Quarter
   
Year-To-Date
 
    
      2019      
          2018               $ Change        
      2019      
          2018               $ Change      
(millions)                                     
Operating revenue
  
$
502
 
  $ 533     $ (31  
$
1,598
 
  $ 1,431     $ 167  
Purchased (excess) gas
  
 
3
 
    (10     13    
 
12
 
    (2     14  
Other energy-related purchases
  
 
1
 
    1       —      
 
2
 
    3       (1
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net revenue
  
 
498
 
    542       (44  
 
1,584
 
    1,430       154  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Other operations and maintenance
  
 
166
 
    178       (12  
 
552
 
    532       20  
Depreciation and amortization
  
 
92
 
    91       1    
 
274
 
    241       33  
Other taxes
  
 
40
 
    35       5    
 
118
 
    87       31  
Impairment of assets and other charges
  
 
 
    1       (1  
 
13
 
    127       (114
Gains on sales of assets
  
 
(2
    (65     63    
 
(2
    (116     114  
Earnings from equity method investees
  
 
8
 
    10       (2  
 
30
 
    41       (11
Other income
  
 
46
 
    18       28    
 
131
 
    51       80  
Interest and related charges
  
 
88
 
    52       36    
 
261
 
    102       159  
Income tax expense
  
 
38
 
    69       (31  
 
104
 
    100       4  
Net income from discontinued operations
  
 
45
 
    33       12    
 
125
 
    135       (10
Noncontrolling interests
  
 
24
 
    51       (27  
 
90
 
    130       (40
 
 
An analysis of Dominion Energy Gas’ results of operations follows:
Third Quarter 2019 vs. 2018
Net revenue
decreased 8%, primarily reflecting:
 
 
A $26 million decrease in services performed for Atlantic Coast Pipeline;
 
 
 
 
A $12 million increase in net fuel costs; and
 
 
 
 
A $10 million increase in credits associated with the start-up phase of the Liquefaction Facility.
 
 
Other operations and maintenance
decreased 7%, primarily due to a decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income.
Gains on sales of assets
decreased 97%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.
 
 
16
 

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 69%, primarily due to Cove Point’s term loan borrowings ($34 million) and higher interest expense due to increased affiliate borrowings ($4 million).
Income tax expense
decreased 45%, primarily due to lower
pre-tax
income ($20 million) and the absence of impacts from the 2017 Tax Reform Act ($15 million).
Noncontrolling interests
decreased 53%, 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 11%, primarily reflecting:
 
 
A $236 million increase from the Liquefaction Facility, including terminalling services provided to the Export Customers ($190 million), a decrease in credits associated with the
start-up
phase ($25 million) and regulated gas transportation contracts to serve the Export Customers ($23 million); partially offset by
 
 
 
 
A $75 million decrease in services performed for Atlantic Coast Pipeline; and
 
 
 
 
A $24 million increase in net fuel costs.
 
 
Other operations and maintenance
increased 4% 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 $20 million increase in salaries, wages and benefits and general administrative expenses, partially offset by
 
 
 
 
A $74 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 14%, primarily due to growth projects being placed into service, including the Liquefaction Facility.
Other taxes
increased 36%, primarily due to property taxes associated with the Liquefaction Facility.
Impairment of assets and other charges
decreased 90%, due to the absence of a charge for disallowance of FERC-regulated plant ($127 million), partially offset by the abandonment of the Sweden Valley project ($13 million).
Gains on sales of assets
decreased 98%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.
Earnings from equity method investee
s
decreased 27%, primarily due to lower earnings from unsubscribed capacity as a result of a decrease in heating degree days at Iroquois.
Other income
increased $80 million, primarily due to interest income from Cove Point’s promissory notes receivable from Dominion Energy issued in 2018.
Interest and related charges
increased $159 million, primarily due to Cove Point’s term loan borrowings ($101 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 increased affiliate borrowings ($16 million).
Income tax expense
increased 4%, primarily due to the absence of impacts from the 2017 Tax Reform Act ($15 million), substantially offset by the absence of a state legislative change ($18 million).
 
 
17
 

Noncontrolling interests
decreased 31%, 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 September 30, 2019, Dominion Energy had $3.5 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
  
 
3,709
 
    3,711  
Investing activities
  
 
(3,160
    (3,369
Financing activities
  
 
(500
    (140
    
 
 
   
 
 
 
Net increase in cash, restricted cash and equivalents
  
 
49
 
    202  
    
 
 
   
 
 
 
Cash, restricted cash and equivalents at September 30
  
$
440
 
  $ 387  
    
 
 
   
 
 
 
 
 
Operating Cash Flows
Net cash provided by Dominion Energy’s operating activities was substantially consistent as increases in property tax payments
,
decreased customer deposits, increased interest payments, higher customer refunds, a contract termination payment to a
non-utility
generator and an increase in merger and integration-related costs associated with the SCANA Combination were substantially offset by higher deferred fuel cost recoveries at Virginia Power, the commencement of commercial operations of the Liquefaction Facility and operations acquired from the SCANA Combination.
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 September 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)
  
$
88
 
  
$
 
  
$
88
 
Non-investment
grade
(2)
  
 
 
  
 
 
  
 
 
No external ratings:
                          
Internally rated—investment grade
(3)
  
 
48
 
  
 
 
  
 
48
 
Internally
rated—non-investment
grade
(4)
  
 
13
 
  
 
 
  
 
13
 
    
 
 
    
 
 
    
 
 
 
Total
(5)
  
$
149
 
  
$
 
  
$
149
 
    
 
 
    
 
 
    
 
 
 
 
18
 

(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 36% of the total net credit exposure.
 
 
(2)
The five largest counterparty exposures, combined, for this category represented less than 1% of the total net credit exposure.
 
 
(3)
The five largest counterparty exposures, combined, for this category represented approximately 32% of the total net credit exposure.
 
 
(4)
The five largest counterparty exposures, combined, for this category represented approximately 6% of the total net credit exposure.
 
 
(5)
Excludes agreements approved by PURA, which commenced in October 2019, with Eversource Energy and The United Illuminating Company for Millstone to provide an estimated nine million MWh per year of electricity for ten years.
 
 
Investing Cash Flows
Net cash used in Dominion Energy’s investing activities decreased $209 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 $360 million, primarily due to net debt repayments in 2019, compared to net debt issuances in 2018 and higher common dividend payments, partially offset by higher issuance of common stock and 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 Investment
SM
. 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 September 30, 2019 was $26 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.
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.
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.
In August 2019, Dominion Energy issued 18.5 million shares to settle the stock purchase contracts entered into as part of the 2016 Equity Units and received proceeds of $1.4 billion.
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 September 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, as filed on November 18, 2019, there is a discussion on the various covenants present in the enabling agreements underlying Dominion Energy’s debt. As of September 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 September 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, as filed on November 18, 2019.
Use of
Off-Balance
Sheet Arrangements
In August 2019, construction of the new corporate office property was substantially complete and the facility was able to be occupied resulting in the commencement of the five-year lease term. See Note 15 to the Consolidated Financial Statements in this report for additional information. As of September 30, 2019, there have been no other 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, as filed on 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, as filed on November 18, 2019,
Future Issues and Other Matters
in MD&A in the Companies’ Quarterly Reports on Form
10-Q
for the quarters ended March 31, 2019 and June 30, 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, as filed on 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, Note 18 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form
10-Q
for the quarter ended June 30, 2019 and Note 18 in this report for additional information on various environmental matters.
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, as filed on 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, Notes 13 and 18 to the Consolidated Financial Statements and
Item 1. Legal Proceedings
in the Companies’ Quarterly Report on Form
10-Q
for the quarter ended June 30, 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, as filed on November 18, 2019, Note 13 to the Consolidated Financial Statements in the Companies’ Quarterly Reports on Form
10-Q
for the quarters ended March 31, 2019 and June 30, 2019 and Note 13 to the Consolidated Financial Statements in this report for additional information on various regulatory matters.
Atlantic Coast Pipeline
 
20
 

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. Atlantic Coast Pipeline has continued to experience delays in obtaining permits necessary for construction along with construction delays due to judicial actions. In October 2019, the Supreme Court of the U.S. agreed to hear Atlantic Coast Pipeline’s request to hear the case regarding the Appalachian Trail crossing. The Supreme Court of the U.S. is expected to issue a ruling by June 2020. Atlantic Coast Pipeline is also evaluating possible legislative remedies to this issue. Given the legal challenges and ongoing discussions with customers, project construction is expected to be completed by the end of 2021, with full
in-service
in early 2022. Project cost estimates are $7.3 billion to $7.8 billion, excluding financing costs. 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. See Note 10 to the Consolidated Financial Statements in this report for more information.
Supply Header Project
In December 2014, DETI entered into a precedent agreement with Atlantic Coast Pipeline for the Supply Header project, a project to provide approximately 1,500,000 Dths per day of firm transportation service to various customers. Atlantic Coast Pipeline has continued to experience delays in obtaining permits necessary for construction and delays in construction due to judicial actions. As a result, project cost estimates are $725 million to $775 million, excluding financing costs. Project construction is expected to be completed by the end of 2021 with full
in-service
in early 2022.
Millstone Agreement
In November 2017, Connecticut adopted the Act Concerning Zero Carbon Solicitation and Procurement, which allows nuclear generating facilities to compete for power purchase agreements in a state sponsored procurement for electricity. In February 2018, Connecticut regulators recommended pursuing the procurement. In May 2018, Millstone petitioned to be considered an “existing resource confirmed at risk” and subsequently participated in the state sponsored procurement for electricity. Being considered “at risk” allows the Department of Energy and Environmental Protection to consider factors other than price, such as environmental and economic benefits, when evaluating Dominion Energy’s bids. In December 2018, PURA confirmed that Millstone should be considered an “existing resource confirmed at risk” in the state’s Department of Energy and Environmental Protection zero carbon procurement. An agreement was reached in March 2019 between Dominion Energy, Eversource Energy and The United Illuminating Company for Millstone to provide nine million MWh per year of electricity for ten years. In September 2019, PURA approved the agreement, which commenced in October 2019.
Coastal Virginia Offshore Wind Project
In November 2018, Virginia Power received approval from the Virginia Commission to develop two 6 MW wind turbines off the coast of Virginia for the Coastal Virginia Offshore Wind project, expected to cost approximately $300 million and to be in service in late 2020. In September 2019, Virginia Power filed an application with PJM to interconnect 2,640 MW of wind energy between 2024 and 2026 off the coast of Virginia as an expansion of the Coastal Virginia Offshore Wind project, expected to increase the total cost by up to approximately $8 billion.
Align RNG
In November 2018, Dominion Energy announced the formation of Align RNG, an equal partnership with Smithfield Foods, Inc. As announced in October 2019, Align RNG expects to invest $500 million to develop assets to capture methane from hog farms across Virginia, North Carolina, Utah, Arizona and California and convert it into pipeline quality natural gas.
 
 
21

Exhibit 99.2

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

AFUDC

 

Allowance for funds used during construction

Align RNG

 

Align RNG, LLC, a joint venture between Dominion Energy and Smithfield Foods, Inc.

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

DETI

 

Dominion Energy Transmission, Inc.

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

Dth

 

Dekatherm

 

1


Abbreviation or Acronym          

 

Definition

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

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

Millstone

 

Millstone nuclear power station

MW

 

Megawatt

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

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

PURA

 

Connecticut’s Public Utility Regulatory Authority

RSN

 

Remarketable subordinated note

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.

Virginia Commission

 

Virginia State Corporation Commission

 

2


Abbreviation or Acronym          

 

Definition

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

 

3


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses Dominion Energy’s results of operations and general financial condition and Virginia Power’s 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;

 

4


 

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;

 

5


 

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 September 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)                     

Third Quarter

        

Net income attributable to Dominion Energy

   $ 975      $ 854      $ 121  

Diluted EPS

     1.17        1.30        (0.13

Year-To-Date

        

Net income attributable to Dominion Energy

   $ 349      $ 1,806      $ (1,457

Diluted EPS

     0.39        2.77        (2.38

Overview

Third Quarter 2019 vs. 2018

Net income attributable to Dominion Energy increased 14%, primarily due to operations acquired in the SCANA Combination, higher renewable energy investment tax credits, decreased Virginia Power electric capacity expense and an increase in cooling degree days in Virginia Power’s service territory. These increases were partially offset by a decrease in net investment earnings on nuclear decommissioning trust funds, the absence of a gain on sale of an equity method investment and the absence of gains related to agreements to convey shale development rights under natural gas storage fields.

Year-To-Date 2019 vs. 2018

Net income attributable to Dominion Energy decreased $1.5 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, Virginia Power’s contract termination with a non-utility generator and the absence of gains related to agreements to convey shale development rights under natural gas storage fields. These decreases were partially offset by an increase in net investment earnings on nuclear decommissioning trust funds, the operations acquired in the SCANA Combination, 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 the absence of disallowance of FERC-regulated plant.

 

6


Analysis of Consolidated Operations

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

 

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

Operating revenue

   $     4,269      $     3,451      $ 818     $     12,097      $     10,005      $ 2,092  

Electric fuel and other energy-related purchases

     774        761        13       2,283        2,128        155  

Purchased electric capacity

     11        50        (39     74        87        (13

Purchased gas

     153        5        148       1,110        409        701  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Net revenue

     3,331        2,635        696       8,630        7,381        1,249  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Other operations and maintenance

     1,010        770        240       3,295        2,438        857  

Depreciation, depletion and amortization

     679        526        153       1,991        1,487        504  

Other taxes

     243        177        66       819        542        277  

Impairment of assets and other charges

     85        12        73       1,232        147        1,085  

Other income

     173        373        (200     653        658        (5

Interest and related charges

     451        378        73       1,372        1,053        319  

Income tax expense

     51        262        (211     208        485        (277

Noncontrolling interests

     10        29        (19     17        81        (64

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

Third Quarter 2019 vs. 2018

Net revenue increased 26%, primarily due to:

 

 

A $607 million increase from operations acquired in the SCANA Combination;

 

 

A $96 million increase from Virginia Power rate adjustment clauses;

 

 

A $40 million decrease in Virginia Power electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($27 million) and a contract termination with a non-utility generator ($13 million); and

 

 

A $31 million increase in sales to Virginia Power retail customers, primarily due to an increase in cooling degree days during the cooling season.

These increases were partially offset by:

 

 

A $67 million decrease from the absence of certain merchant generation facilities sold in 2018; and

 

 

A $26 million decrease in services performed for Atlantic Coast Pipeline.

Other operations and maintenance increased 31%, primarily reflecting:

 

 

A $165 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 ($65 million);

 

 

A $47 million increase in certain Virginia Power transmission-related expenditures. These expenses are primarily recovered through state and FERC rates and do not impact net income; and

 

 

An increase in merger and integration-related costs associated with the SCANA Combination ($26 million); partially offset by

 

7


 

A $26 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 29%, primarily due to property, plant and equipment acquired in the SCANA Combination, including amortization of NND Project costs.

Other taxes increased 37%, primarily due to the SCANA Combination.

Impairment of assets and other charges increased $73 million, primarily due to a charge associated with litigation acquired in the SCANA Combination ($38 million), the abandonment of certain property, plant and equipment ($26 million) and a $21 million charge for disallowance of Virginia Power state-regulated plant.

Other income decreased 54%, primarily due to a decrease in net investment earnings on nuclear decommissioning trust funds ($124 million) and the absence of a gain on the sale of Dominion Energy’s 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership ($87 million).

Interest and related charges increased 19%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first and third quarters of 2019.

Income tax expense decreased 81%, primarily due to lower pre-tax income ($146 million), higher renewable energy investment tax credits ($38 million) and the absence of impacts from the 2017 Tax Reform Act ($31 million).

Noncontrolling interests decreased 66%, 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 17%, primarily reflecting:

 

 

A $741 million increase from the SCANA Combination, due to operations acquired ($1.8 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;

 

 

A $236 million increase from the Liquefaction Facility, including terminalling services provided to the Export Customers ($190 million), a decrease in credits associated with the start-up phase ($25 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 $198 million increase from Virginia Power rate adjustment clauses;

 

 

A $48 million increase due to favorable pricing at merchant generation facilities; and

 

 

A $34 million decrease in Virginia Power electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($35 million) and a contract termination with a non-utility generator ($25 million), partially offset by the annual PJM capacity performance market effective June 2018 ($26 million).

These increases were partially offset by:

 

 

A $166 million decrease from the absence of certain merchant generation facilities sold in 2018;

 

 

A $75 million decrease in services performed for Atlantic Coast Pipeline;

 

 

A $33 million decrease in sales to Virginia Power retail customers from lower heating degree days during the heating season, partially offset by a $25 million increase from higher cooling degree days during the cooling season; and

 

 

A $30 million decrease due to an increase in planned outage days at certain merchant generation facilities.

Other operations and maintenance increased 35%, primarily reflecting:

 

 

A $539 million increase from operations acquired in the SCANA Combination;

 

 

An increase in merger and integration-related costs associated with the SCANA Combination ($435 million), including a charge related to a voluntary retirement program ($291 million);

 

 

The absence of gains related to agreements to convey shale development rights under natural gas storage fields ($115 million);

 

8


 

A $45 million increase from additional planned outage days at certain generation facilities;

 

 

A $44 million increase in certain Virginia Power transmission-related expenditures. These expenses are primarily recovered through state and FERC rates and do not impact net income; 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;

 

 

A $74 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 $33 million decrease from the absence of certain merchant generation facilities sold in 2018.

Depreciation, depletion and amortization increased 34%, primarily due to property, plant and equipment acquired in the SCANA Combination ($421 million), including amortization of NND Project costs ($92 million), an increase from various growth projects being placed into service ($112 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 51%, primarily due to the SCANA Combination ($215 million) and a charge related to a voluntary retirement program ($24 million).

Impairment of assets and other charges increased $1.1 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 ($316 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;

 

 

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

 

 

The abandonment of certain property, plant and equipment ($39 million); partially offset by

 

 

The absence of a $135 million charge for disallowance of FERC-regulated plant.

Other income remained substantially unchanged, primarily reflecting a charge related to a voluntary retirement program ($112 million), the absence of a gain on the sale of Dominion Energy’s 25% limited partnership interest in Catalyst Old River Hydroelectric Limited Partnership ($87 million) and the absence of equity earnings due to the sale of Blue Racer in December 2018 ($40 million). These decreases were substantially offset by an increase in net investment earnings on nuclear decommissioning trust funds ($210 million) and an increase in equity earnings from Atlantic Coast Pipeline ($42 million).

Interest and related charges increased 30%, primarily due to debt acquired in the SCANA Combination net of debt redeemed in the first and third quarters of 2019 ($245 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 ($32 million).

Income tax expense decreased 57%, primarily due to lower pre-tax income ($452 million) and the absence of impacts from the 2017 Tax Reform Act ($31 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 ($20 million).

 

9


Noncontrolling interests decreased 79%, primarily due to the acquisition of the public interest in Dominion Energy Midstream in January 2019.

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 attributable to Dominion Energy:

 

    

Net Income (Loss) Attributable to

Dominion Energy

    Diluted EPS  
           2019                 2018               $ Change               2019                 2018               $ Change      

(millions, except EPS)

            

Third Quarter

            

Power Delivery

   $ 185     $ 163     $ 22     $ 0.23     $ 0.25     $ (0.02

Power Generation

     490       414       76       0.60       0.63       (0.03

Gas Infrastructure

     232       264       (32     0.29       0.40       (0.11

Southeast Energy

     147             147       0.18             0.18  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary operating segments

     1,054       841       213       1.30       1.28       0.02  

Corporate and Other

     (79     13       (92     (0.13     0.02       (0.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 975     $ 854     $ 121     $ 1.17     $ 1.30     $ (0.13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year-To-Date

            

Power Delivery

   $ 496     $ 464     $ 32     $ 0.62     $ 0.71     $ (0.09

Power Generation

     1,048       1,038       10       1.30       1.59       (0.29

Gas Infrastructure

     838       840       (2     1.04       1.29       (0.25

Southeast Energy

     361             361       0.45             0.45  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Primary operating segments

     2,743       2,342       401       3.41       3.59       (0.18

Corporate and Other

     (2,394     (536     (1,858     (3.02     (0.82     (2.20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 349     $ 1,806     $ (1,457   $ 0.39     $ 2.77     $ (2.38
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Power Delivery

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

 

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

Electricity delivered (million MWh)

     24.4        24.0        2     66.8        67.0        —%  

Degree days (electric distribution service area):

                

Cooling

     1,299        1,271        2       1,948        1,890        3  

Heating

                         2,042        2,306        (11

Average electric distribution customer accounts (thousands)(1)

     2,629        2,603        1       2,623        2,597        1  

 

(1)

Period average.

 

10


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

 

    

Third 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

   $ 7     $ 0.01     $ (2   $  

Other

     2             7       0.01  

Rate adjustment clause equity return

     17       0.02       40       0.06  

Storm damage and service restoration

     5       0.01       (5     (0.01

Other

     (9     (0.01     (8     (0.01

Share dilution

           (0.05           (0.14
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ 22     $ (0.02   $ 32     $ (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Power Generation

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

 

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

Electricity supplied (million MWh):

                

Utility

     24.5        24.0        2     67.3        67.1        —%  

Merchant

     5.6        8.1        (31     15.2        23.1        (34

Degree days (electric utility service area):

                

Cooling

     1,299        1,271        2       1,948        1,890        3  

Heating

                         2,042        2,306        (11

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

 

    

Third 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

   $ 16     $ 0.02     $ (3   $  

Other

     (3           (9     (0.01

Planned outage costs

     3             (32     (0.05

Electric capacity

     30       0.05       27       0.04  

Sale of certain merchant generation facilities

     (36     (0.05     (69     (0.11

Expiration of energy supply contract

     13       0.02       22       0.03  

Renewable energy investment tax credits

     22       0.03       30       0.04  

Interest expense

     6       0.01       19       0.03  

Other

     25       0.04       25       0.04  

Share dilution

           (0.15           (0.30
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ 76     $ (0.03   $ 10     $ (0.29
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


Gas Infrastructure

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

 

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

Gas distribution throughput (bcf):

                

Sales

     9        9        —%       92        85        8

Transportation

     168        153        10       538        525        2  

Heating degree days (gas distribution service area):

                

Eastern region

     5        48        (90     3,446        3,633        (5

Western region

     86        18        378       3,290        2,518        31  

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

                

Sales

     1,273        1,253        2       1,271        1,254        1  

Transportation

     1,104        1,092        1       1,110        1,097        1  

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

     379        867        (56     375        864        (57
(1)

Period average.

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

 

    

Third 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

   $ 10     $ 0.01     $ 158     $ 0.24  

Noncontrolling interest(1)

     15       0.03       45       0.07  

Interest expense, net

     (8     (0.01     (72     (0.11

Assignment of shale development rights

     (47     (0.07     (83     (0.13

State legislative change

                 (18     (0.03

Other

     (2           (32     (0.05

Share dilution

           (0.07           (0.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $ (32   $ (0.11   $ (2   $ (0.25
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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:

 

           Third Quarter      
2019
           Year-To-Date      
2019
 

Electricity delivered (million MWh)

     6.8        17.7  

Electricity supplied (million MWh)

     7.2        18.6  

Degree days (electric distribution service area):

     

Cooling

     645        913  

Heating

            698  

Average electric distribution customer accounts (thousands)(1)

     742        738  

Gas distribution throughput (bcf):

     

Sales

     18        80  

Transportation

     17        48  

Heating degree days (gas distribution service area)

            808  

Average gas distribution customer accounts (thousands)(1)

     964        963  

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

     406        415  

 

12


(1)        Period average.

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

 

    

Third Quarter

2019 vs. 2018

Increase (Decrease)

   

Year-To-Date

2019 vs. 2018

Increase (Decrease)

 
             Amount                       EPS                       Amount                       EPS            
(millions, except EPS)                         

SCANA Combination

   $ 147     $ 0.18     $ 361     $ 0.45  
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net income contribution

   $     147     $     0.18     $     361     $     0.45  
  

 

 

   

 

 

   

 

 

   

 

 

 

Corporate and Other

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

 

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

Specific items attributable to operating segments

   $ (80   $ 122     $ (202   $ (1,955   $ (188   $ (1,767

Specific items attributable to Corporate and Other segment

     88       (26     114       (155     (65     (90
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total specific items

     8       96       (88     (2,110     (253     (1,857

Other corporate operations(1)

     (87     (83     (4     (284     (283     (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net income (expense)

   $ (79   $ 13     $ (92   $     (2,394   $ (536   $     (1,858

EPS impact

   $     (0.13   $     0.02     $     (0.15   $ (3.02   $     (0.82   $ (2.20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(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:

 

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

Net income

   $     602      $     520      $     82      $     722      $     1,043      $     (321

Overview

Third Quarter 2019 vs. 2018

Net income increased 16%, primarily due to an increase in cooling degree days in the service territory, a decrease in net electric capacity expense and higher renewable energy investment tax credits. These increases were partially offset by increases in charges related to the abandonment and disallowance of certain property, plant and equipment.

Year-To-Date 2019 vs. 2018

Net income decreased 31%, primarily due to charges associated with the planned early retirement of certain electric generation facilities and certain automated meter reading infrastructure, a voluntary retirement program and a contract termination with a non-utility generator. These decreases were partially offset by increases related to the revision of future ash pond and landfill closure costs

 

13


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:

 

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

Operating revenue

   $     2,264     $     2,232      $ 32     $     6,167      $     5,809      $ 358  

Electric fuel and other energy-related purchases

     559       648        (89     1,691        1,747        (56

Purchased (excess) electric capacity

     (1     50        (51     45        87        (42
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Net revenue

     1,706       1,534        172       4,431        3,975        456  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Other operations and maintenance

     453       404        49       1,297        1,242        55  

Depreciation and amortization

     313       295        18       916        839        77  

Other taxes

     82       79        3       257        241        16  

Impairment of assets and other charges

     38              38       781               781  

Other income

     15       25        (10     68        49        19  

Interest and related charges

     138       130        8       408        388        20  

Income tax expense

     95       131        (36     118        271        (153

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

Third Quarter 2019 vs. 2018

Net revenue increased 11%, primarily reflecting:

 

 

A $96 million increase from rate adjustment clauses;

 

 

A $40 million decrease in electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($27 million) and a contract termination with a non-utility generator ($13 million); and

 

 

A $31 million increase in sales to retail customers, primarily due to an increase in cooling degree days during the cooling season.

Other operations and maintenance increased 12%, primarily reflecting an increase in certain transmission-related expenses. These expenses were primarily recovered through state and FERC rates and did not impact net income.

Depreciation and amortization increased 6%, primarily due to various projects being placed into service ($22 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 $38 million, reflecting charges related to a $21 million charge for disallowance of state-regulated plant and the abandonment of certain property, plant and equipment ($17 million).

Other income decreased 40%, primarily reflecting a decrease in net investment earnings on nuclear decommissioning trust funds.

Income tax expense decreased 27%, primarily due to higher renewable energy investment tax credits.

Year-To-Date 2019 vs. 2018

Net revenue increased 11%, 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;

 

 

A $198 million increase from rate adjustment clauses; and

 

 

A $34 million decrease in electric capacity expense related to the annual PJM capacity performance market effective June 2019 ($35 million) and a contract termination with a non-utility generator ($25 million), partially offset by the annual PJM capacity performance market effective June 2018 ($26 million); partially offset by

 

14


 

A $33 million decrease in sales to retail customers from lower heating degree days during the heating season partially offset by a $25 million increase from higher cooling degree days during the cooling season.

Other operations and maintenance increased 4%, primarily reflecting:

 

 

A $190 million charge related to a voluntary retirement program; and

 

 

A $44 million increase in certain transmission-related expenses. These expenses were primarily recovered through state and FERC rates and did not impact net income; 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; and

 

 

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 9%, due to various projects being placed into service ($71 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 ($29 million).

Impairment of assets and other charges increased $781 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;

 

 

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

 

 

A $21 million charge for disallowance of state-regulated plant; and

 

 

A $17 million charge related to the abandonment of certain property, plant and equipment.

Other income increased 39%, primarily reflecting an increase in net investment earnings on nuclear decommissioning trust funds.

Income tax expense decreased 56%, primarily due to lower pre-tax income ($122 million) and higher renewable energy investment tax credits ($26 million).

Dominion Energy Gas

Results of Operations

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

 

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

Net income attributable to Dominion Energy Gas

   $     151      $     191      $     (40   $     460      $     454      $     6  

Overview

Third Quarter 2019 vs. 2018

Net income attributable to Dominion Energy Gas decreased 21%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.

Year-To-Date 2019 vs. 2018

 

15


Net income increased 1%, 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 the absence of gains related to agreements to convey shale development rights under natural gas storage fields and a charge related to a voluntary retirement program.

Analysis of Consolidated Operations

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

 

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

Operating revenue

   $ 502     $ 533     $ (31   $ 1,598     $ 1,431     $ 167  

Purchased (excess) gas

     3       (10     13       12       (2     14  

Other energy-related purchases

     1       1       —         2       3       (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     498       542       (44     1,584       1,430       154  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operations and maintenance

     166       178       (12     552       532       20  

Depreciation and amortization

     92       91       1       274       241       33  

Other taxes

     40       35       5       118       87       31  

Impairment of assets and other charges

           1       (1     13       127       (114

Gains on sales of assets

     (2     (65     63       (2     (116     114  

Earnings from equity method investees

     8       10       (2     30       41       (11

Other income

     46       18       28       131       51       80  

Interest and related charges

     88       52       36       261       102       159  

Income tax expense

     38       69       (31     104       100       4  

Net income from discontinued operations

     45       33       12       125       135       (10

Noncontrolling interests

     24       51       (27     90       130       (40

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

Third Quarter 2019 vs. 2018

Net revenue decreased 8%, primarily reflecting:

 

 

A $26 million decrease in services performed for Atlantic Coast Pipeline;

 

 

A $12 million increase in net fuel costs; and

 

 

A $10 million increase in credits associated with the start-up phase of the Liquefaction Facility.

Other operations and maintenance decreased 7%, primarily due to a decrease in services performed for Atlantic Coast Pipeline. These expenses are billed to Atlantic Coast Pipeline and do not significantly impact net income.

Gains on sales of assets decreased 97%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.

 

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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 69%, primarily due to Cove Point’s term loan borrowings ($34 million) and higher interest expense due to increased affiliate borrowings ($4 million).

Income tax expense decreased 45%, primarily due to lower pre-tax income ($20 million) and the absence of impacts from the 2017 Tax Reform Act ($15 million).

Noncontrolling interests decreased 53%, 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 11%, primarily reflecting:

 

 

A $236 million increase from the Liquefaction Facility, including terminalling services provided to the Export Customers ($190 million), a decrease in credits associated with the start-up phase ($25 million) and regulated gas transportation contracts to serve the Export Customers ($23 million); partially offset by

 

 

A $75 million decrease in services performed for Atlantic Coast Pipeline; and

 

 

A $24 million increase in net fuel costs.

Other operations and maintenance increased 4% 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 $20 million increase in salaries, wages and benefits and general administrative expenses, partially offset by

 

 

A $74 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 14%, primarily due to growth projects being placed into service, including the Liquefaction Facility.

Other taxes increased 36%, primarily due to property taxes associated with the Liquefaction Facility.

Impairment of assets and other charges decreased 90%, due to the absence of a charge for disallowance of FERC-regulated plant ($127 million), partially offset by the abandonment of the Sweden Valley project ($13 million).

Gains on sales of assets decreased 98%, primarily due to the absence of gains related to agreements to convey shale development rights under natural gas storage fields.

Earnings from equity method investees decreased 27%, primarily due to lower earnings from unsubscribed capacity as a result of a decrease in heating degree days at Iroquois.

Other income increased $80 million, primarily due to interest income from Cove Point’s promissory notes receivable from Dominion Energy issued in 2018.

Interest and related charges increased $159 million, primarily due to Cove Point’s term loan borrowings ($101 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 increased affiliate borrowings ($16 million).

Income tax expense increased 4%, primarily due to the absence of impacts from the 2017 Tax Reform Act ($15 million), substantially offset by the absence of a state legislative change ($18 million).

 

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Noncontrolling interests decreased 31%, 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 September 30, 2019, Dominion Energy had $3.5 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

     3,709       3,711  

Investing activities

     (3,160     (3,369

Financing activities

     (500     (140
  

 

 

   

 

 

 

Net increase in cash, restricted cash and equivalents

     49       202  
  

 

 

   

 

 

 

Cash, restricted cash and equivalents at September 30

   $ 440     $ 387  
  

 

 

   

 

 

 

Operating Cash Flows

Net cash provided by Dominion Energy’s operating activities was substantially consistent as increases in property tax payments, decreased customer deposits, increased interest payments, higher customer refunds, a contract termination payment to a non-utility generator and an increase in merger and integration-related costs associated with the SCANA Combination were substantially offset by higher deferred fuel cost recoveries at Virginia Power, the commencement of commercial operations of the Liquefaction Facility and operations acquired from the SCANA Combination.

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 September 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)

   $ 88      $      $ 88  

Non-investment grade(2)

                    

No external ratings:

        

Internally rated—investment grade(3)

     48               48  

Internally rated—non-investment grade(4)

     13               13  
  

 

 

    

 

 

    

 

 

 

Total(5)

   $ 149      $      $ 149  
  

 

 

    

 

 

    

 

 

 

 

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(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 36% of the total net credit exposure.

(2)

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

(3)

The five largest counterparty exposures, combined, for this category represented approximately 32% of the total net credit exposure.

(4)

The five largest counterparty exposures, combined, for this category represented approximately 6% of the total net credit exposure.

(5)

Excludes agreements approved by PURA, which commenced in October 2019, with Eversource Energy and The United Illuminating Company for Millstone to provide an estimated nine million MWh per year of electricity for ten years.

Investing Cash Flows

Net cash used in Dominion Energy’s investing activities decreased $209 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 $360 million, primarily due to net debt repayments in 2019, compared to net debt issuances in 2018 and higher common dividend payments, partially offset by higher issuance of common stock and 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 September 30, 2019 was $26 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.

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.

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.

In August 2019, Dominion Energy issued 18.5 million shares to settle the stock purchase contracts entered into as part of the 2016 Equity Units and received proceeds of $1.4 billion.

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

 

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Energy as well as the impact of credit ratings on the accessibility and costs of using these markets. As of September 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, as filed on November 18, 2019, there is a discussion on the various covenants present in the enabling agreements underlying Dominion Energy’s debt. As of September 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 September 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, as filed on November 18, 2019.

Use of Off-Balance Sheet Arrangements

In August 2019, construction of the new corporate office property was substantially complete and the facility was able to be occupied resulting in the commencement of the five-year lease term. See Note 15 to the Consolidated Financial Statements in this report for additional information. As of September 30, 2019, there have been no other 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, as filed on 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, as filed on November 18, 2019, Future Issues and Other Matters in MD&A in the Companies’ Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 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, as filed on 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, Note 18 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and Note 18 in this report for additional information on various environmental matters.

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, as filed on 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, Notes 13 and 18 to the Consolidated Financial Statements and Item 1. Legal Proceedings in the Companies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 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, as filed on November 18, 2019, Note 13 to the Consolidated Financial Statements in the Companies’ Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019 and Note 13 to the Consolidated Financial Statements in this report for additional information on various regulatory matters.

Atlantic Coast Pipeline

 

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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. Atlantic Coast Pipeline has continued to experience delays in obtaining permits necessary for construction along with construction delays due to judicial actions. In October 2019, the Supreme Court of the U.S. agreed to hear Atlantic Coast Pipeline’s request to hear the case regarding the Appalachian Trail crossing. The Supreme Court of the U.S. is expected to issue a ruling by June 2020. Atlantic Coast Pipeline is also evaluating possible legislative remedies to this issue. Given the legal challenges and ongoing discussions with customers, project construction is expected to be completed by the end of 2021, with full in-service in early 2022. Project cost estimates are $7.3 billion to $7.8 billion, excluding financing costs. 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. See Note 10 to the Consolidated Financial Statements in this report for more information.

Supply Header Project

In December 2014, DETI entered into a precedent agreement with Atlantic Coast Pipeline for the Supply Header project, a project to provide approximately 1,500,000 Dths per day of firm transportation service to various customers. Atlantic Coast Pipeline has continued to experience delays in obtaining permits necessary for construction and delays in construction due to judicial actions. As a result, project cost estimates are $725 million to $775 million, excluding financing costs. Project construction is expected to be completed by the end of 2021 with full in-service in early 2022.

Millstone Agreement

In November 2017, Connecticut adopted the Act Concerning Zero Carbon Solicitation and Procurement, which allows nuclear generating facilities to compete for power purchase agreements in a state sponsored procurement for electricity. In February 2018, Connecticut regulators recommended pursuing the procurement. In May 2018, Millstone petitioned to be considered an “existing resource confirmed at risk” and subsequently participated in the state sponsored procurement for electricity. Being considered “at risk” allows the Department of Energy and Environmental Protection to consider factors other than price, such as environmental and economic benefits, when evaluating Dominion Energy’s bids. In December 2018, PURA confirmed that Millstone should be considered an “existing resource confirmed at risk” in the state’s Department of Energy and Environmental Protection zero carbon procurement. An agreement was reached in March 2019 between Dominion Energy, Eversource Energy and The United Illuminating Company for Millstone to provide nine million MWh per year of electricity for ten years. In September 2019, PURA approved the agreement, which commenced in October 2019.

Coastal Virginia Offshore Wind Project

In November 2018, Virginia Power received approval from the Virginia Commission to develop two 6 MW wind turbines off the coast of Virginia for the Coastal Virginia Offshore Wind project, expected to cost approximately $300 million and to be in service in late 2020. In September 2019, Virginia Power filed an application with PJM to interconnect 2,640 MW of wind energy between 2024 and 2026 off the coast of Virginia as an expansion of the Coastal Virginia Offshore Wind project, expected to increase the total cost by up to approximately $8 billion.

Align RNG

In November 2018, Dominion Energy announced the formation of Align RNG, an equal partnership with Smithfield Foods, Inc. As announced in October 2019, Align RNG expects to invest $500 million to develop assets to capture methane from hog farms across Virginia, North Carolina, Utah, Arizona and California and convert it into pipeline quality natural gas.

 

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