Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

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
Nine Months Ended September 30,	2023			2022			2023			2022
U.S. statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
Increases (reductions) resulting from:
Recognition of taxes - sale of    subsidiary stock		—			28.4
State taxes, net of federal benefit		3.9			13.1			4.6			4.4
Investment tax credits		(3.2	)		(23.6	)		(0.3	)		(8.9	)
Production tax credits		(0.6	)		(2.6	)		(0.9	)		(1.0	)
Reversal of excess deferred income    taxes		(2.6	)		(15.6	)		(2.6	)		(3.7	)
Changes in state deferred taxes associated    with assets held for sale		1.3			1.6
AFUDC - equity		(0.1	)		(1.6	)		—			(0.8	)
Other, net		(0.9	)		(1.6	)		(0.3	)		0.5
Effective tax rate		18.8	%		19.1	%		21.5	%		11.5	%

Dominion Energy’s effective tax rate for the nine months ended September 30, 2023 includes a net income tax expense of $29 million associated with the remeasurement of consolidated state deferred taxes as a result of the East Ohio, PSNC and Questar Gas Transactions and sale of Dominion Energy's 50% noncontrolling partnership interest in Cove Point as discussed in Notes 3 and 10, respectively.

In the first quarter of 2022, Dominion Energy entered into an agreement to sell 100% of the equity interests in Hope in a stock sale for income tax purposes. As of June 30, 2022, Dominion had established $90 million of deferred tax liabilities reflecting the excess of the financial reporting basis over the tax basis in Hope’s stock. These deferred taxes reversed upon closing of the sale in August 2022 and became a component of current income tax expense on the sale. See Note 3 to the Consolidated Financial Statements in Dominion Energy's Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding the sale of Hope.

As discussed in Note 3, Dominion Energy sold 100% of the equity interests in Hope in a stock sale for income tax purposes. Dominion Energy’s 2022 effective tax rate reflects the current income tax expense on the sale of Hope’s stock.

As of September 30, 2023, there have been no 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, 2022, for a discussion of these unrecognized tax benefits.

Discontinued operations

Income tax expense reflected in discontinued operations is $1.3 billion and $185 million for the nine months ended September 30, 2023 and 2022, respectively. As discussed in Note 3, Dominion Energy entered into agreements for the East Ohio, PSNC and Questar Gas Transactions in September 2023, each of which will be treated as a stock sale for income tax purposes. In connection with the pending sales, Dominion Energy established $939 million of deferred tax liabilities reflecting the excess of the financial reporting basis over the tax basis in the tax basis in the stock of the entities anticipated to be sold. These deferred taxes will reverse upon closing of the respective sales, all of which are expected to occur in 2024. In addition, Dominion Energy recorded tax expense of $278 million associated with completing the sale in September 2023 of its remaining 50% noncontrolling partnership interest in Cove Point to BHE as discussed in Note 10.