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DOMINION ENERGY GAS HOLDINGS, LLC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS

Source: 
Edgar Glimpses

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses Dominion Energy's results of operations and general financial condition and Virginia Power 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, climate changes and changes in water temperatures and availability that can cause outages and property damage to facilities;

• The impact of extraordinary external events, such as the current pandemic

health event resulting from COVID-19, and their collateral consequences,

including extended disruption of economic activity in our markets;

• 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 RTOs and ISOs in which Dominion Energy and Virginia Power

join and/or 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; 105

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• Risks associated with entities in which Dominion Energy and Dominion Energy

Gas share ownership with third parties, including risks that result from lack of sole decision making authority, disputes that may arise between Dominion Energy and 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;

• 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 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, divestitures, transfers of assets to joint ventures

and retirements of assets based on asset portfolio reviews;

• The expected timing and likelihood of completion of the proposed transaction

with BHE, including the ability to obtain the requisite regulatory approvals

and the terms and conditions of such regulatory approvals;

• Adverse outcomes in litigation matters or regulatory proceedings, including

matters acquired in the SCANA Combination;

• Counterparty credit and performance risk;

• 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; 106

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• Fluctuations in energy-related commodity prices and the effect these could

have on Dominion Energy's 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;

• Political and economic conditions, including inflation and deflation;

• Employee workforce factors including collective bargaining agreements and

labor negotiations with union employees; and

• Changes in financial or regulatory accounting principles or policies imposed

by governing bodies.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part I. Item 1A. Risk Factors in the Companies' Annual Report on Form 10-K for the year ended December 31, 2019 and Part II. Item 1A. Risk Factors in the Companies' Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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

Accounting Matters

Critical Accounting Policies and Estimates

As of June 30, 2020, 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, 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:

2020 2019 $ Change (millions, except EPS) Second Quarter Net income (loss) attributable to Dominion Energy $ (1,169 ) $ 54 $ (1,223 ) Diluted EPS (1.41 ) 0.05 (1.46 )

Year-To-Date

Net loss attributable to Dominion Energy $ (1,439 ) $ (626 ) $ (813 ) Diluted EPS (1.75 ) (0.78 ) (0.97 ) Overview Second Quarter 2020 vs. 2019

Net income attributable to Dominion Energy decreased $1.2 billion, primarily due to charges associated with the cancellation of the Atlantic Coast Pipeline Project and related portions of the Supply Header Project partially offset by an increase in net investment earnings on nuclear decommissioning trust funds, the absence of charges related to a voluntary retirement program, the absence of a charge for Virginia Power's contract termination with a non-utility generator, the absence of a charge for litigation acquired in the SCANA Combination and the absence of a charge for the abandonment of a project at a Virginia Power electric generating facility.

Year-To-Date 2020 vs. 2019

Net loss attributable to Dominion Energy increased $813 million, primarily due to charges associated with the cancellation of the Atlantic Coast Pipeline Project and related portions of the Supply Header Project, a decrease in net investment earnings on nuclear decommissioning trust funds and an increase in charges associated with the planned early retirements of certain electric generation facilities in Virginia. These increases in net loss were partially offset by the absence of charges for refunds of amounts previously

107

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collected from retail electric customers of DESC for the NND Project and for certain regulatory assets and property, plant and equipment acquired in the SCANA Combination for which Dominion Energy committed to forgo recovery, a decrease in charges associated with litigation acquired in the SCANA Combination, the absence of charges for the planned early retirement of certain Virginia Power automated meter reading infrastructure and the absence of charges related to a voluntary retirement program.

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