Derivatives and Hedge Accounting Activities

Nov. 18, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedge Accounting Activities

Note 9. Derivatives and Hedge Accounting Activities

The Companies’ accounting policies, objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2018, as updated in Current Report on Form 8-K, filed November 18, 2019. See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Companies’ Consolidated Balance Sheets. Dominion Energy’s derivative contracts include both over-the-counter transactions and those that are executed on an exchange or other trading platform (exchange contracts) and centrally cleared. Virginia Power and Dominion Energy Gas’ derivative contracts include over-the-counter transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain over-the-counter and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral for over-the-counter and exchange contracts include cash, letters of credit, and in some cases other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on the Companies’ Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting or similar arrangements and would reduce the net exposure. See Note 18 for further information regarding credit-related contingent features for the Companies’ derivative instruments.

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:

			March 31, 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(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	$	77	$	5	$	—	$	72	$	175	$	12	$	—	$	163
Exchange		78		26		—		52		68		68		—		—
Interest rate contracts:
Over-the-counter		3		—		—		3		18		1		—		17
Foreign currency contracts:
Over-the-counter		13		7		—		6		26		2		—		24
Total derivatives, subject to a master netting or similar arrangement	$	171	$	38	$	—	$	133	$	287	$	83	$	—	$	204

(1) Excludes $2 million and $7 million of derivative assets at March 31, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.

			March 31, 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(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	$	19	$	5	$	1	$	13	$	19	$	12	$	—	$	7
Exchange		26		26		—		—		115		68		47		—
Interest rate contracts:
Over-the-counter		323		6		—		317		142		1		—		141
Foreign currency contracts:
Over-the-counter		1		1		—		—		2		2		—		—
Total derivatives, subject to a master netting or similar arrangement	$	369	$	38	$	1	$	330	$	278	$	83	$	47	$	148

(1) Excludes $— million and $1 million of derivative liabilities at March 31, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.

Volumes

The following table presents the volume of Dominion Energy’s derivative activity at March 31, 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)		78		61
Basis		277		547
Electricity (MWh):
Fixed price		7,915,870		1,100,600
FTRs		18,146,928		—
NGLs (Gal)		25,074,000		—
Interest rate(2)	$	2,554,400,000	$	5,001,010,256
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 March 31, 2019:

	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings During the Next 12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	2		$	1			43 months
Electricity		33			24			21 months
Interest rate		(333	)		(31	)		393 months
Foreign currency		8			(1	)		87 months
Total	$	(290	)	$	(7	)

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 months ended March 31, 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)						Cumulative Amount of Fair Value Hedging   Adjustments Included in the Carrying Amount of the Hedged Assets(Liabilities)
	March 31, 2019			December 31, 2018			March 31, 2019		December 31, 2018
(millions)
Long-term debt	$	(739	)	$	(731	)	$	11	$	19

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)
March 31, 2019
ASSETS
Current Assets
Commodity	$	35	$	59	$	94
Interest rate		2		—		2
Total current derivative assets(1)		37		59		96
Noncurrent Assets
Commodity		15		48		63
Interest rate		1		—		1
Foreign currency		13		—		13
Total noncurrent derivative assets(2)		29		48		77
Total derivative assets	$	66	$	107	$	173
LIABILITIES
Current Liabilities
Commodity	$	17	$	21	$	38
Interest rate		79		1		80
Foreign currency		1		—		1
Total current derivative liabilities(3)		97		22		119
Noncurrent Liabilities
Commodity		1		6		7
Interest rate		230		13		243
Total noncurrent derivative liabilities(4)		231		19		250
Total derivative liabilities	$	328	$	41	$	369
December 31, 2018
ASSETS
Current Assets
Commodity	$	55	$	154	$	209
Interest rate		14		—		14
Total current derivative assets(1)		69		154		223
Noncurrent Assets
Commodity		6		35		41
Interest rate		4		—		4
Foreign currency		26		—		26
Total noncurrent derivative assets(2)		36		35		71
Total derivative assets	$	105	$	189	$	294
LIABILITIES
Current Liabilities
Commodity	$	17	$	112	$	129
Interest rate		26		—		26
Foreign currency		2		—		2
Total current derivative liabilities(3)		45		112		157
Noncurrent Liabilities
Commodity		5		1		6
Interest rate		116		—		116
Total noncurrent derivative liabilities(4)		121		1		122
Total derivative liabilities	$	166	$	113	$	279

(1) Current derivative assets are presented in other current assets in Dominion Energy’s Consolidated Balance Sheets.

(2) Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion Energy’s Consolidated Balance Sheets.

(3) Current derivative liabilities are presented in other current liabilities in Dominion Energy’s Consolidated Balance Sheets.

(4) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy’s Consolidated Balance Sheets.

The following tables present the gains and losses on Dominion Energy’s derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income.

Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives(1)			Amount of Gain (Loss) Reclassified From AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment(2)
(millions)
Three Months Ended March 31, 2019
Derivative type and location of gains (losses):
Commodity:
Operating revenue				$	54
Purchased gas					3
Total commodity	$	66		$	57		$	—
Interest rate(3)		(84	)		(10	)		(84	)
Foreign currency(4)		(11	)		(6	)		—
Total	$	(29	)	$	41		$	(84	)
Three Months Ended March 31, 2018
Derivative type and location of gains (losses):
Commodity:
Operating revenue				$	(12	)
Purchased gas					(2	)
Electric fuel and other energy-related purchases					7
Total commodity	$	97		$	(7	)	$	—
Interest rate(3)		38			(12	)		68
Foreign currency(4)		13			8			—
Total	$	148		$	(11	)	$	68

(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.

Derivatives not designated as hedging instruments	Amount of Gain (Loss) Recognized in Income on Derivatives(1)
	Three Months Ended
	March 31,
	2019			2018
(millions)
Derivative type and location of gains (losses):
Commodity:
Operating revenue	$	3		$	6
Purchased gas		3			—
Electric fuel and other energy-related purchases		(9	)		(13	)
Total	$	(3	)	$	(7	)

(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:

			March 31, 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(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	$	61	$	2	$	—	$	59	$	64	$	6	$	—	$	58
Interest rate contracts:
Over-the-counter		—		—		—		—		3		—		—		3
Total derivatives, subject to a master netting or similar arrangement	$	61	$	2	$	—	$	59	$	67	$	6	$	—	$	61

(1) Excludes $5 million and $26 million of derivative assets at March 31, 2019 and December 31, 2018, respectively, which are not subject to master netting or similar arrangements.

			March 31, 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(1)		Financial Instruments		Cash Collateral Paid		Net Amounts		Gross Liabilities Presented in the Consolidated Balance Sheet(1)		Financial Instruments		Cash Collateral Paid		Net Amounts
(millions)
Commodity contracts:
Over-the-counter	$	3	$	2	$	1	$	—	$	6	$	6	$	—	$	—
Interest rate contracts:
Over-the-counter		181		—		—		181		88		—		—		88
Total derivatives, subject to a master netting or similar arrangement	$	184	$	2	$	1	$	181	$	94	$	6	$	—	$	88

(1) Excludes $6 million and $9​​​​​​​ million of derivative liabilities at March 31, 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 March 31, 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)		20		26
Basis		182		473
Electricity (MWh):
FTRs		18,146,928		—
Interest rate(2)	$	850,000,000	$	1,200,000,000

(1) Includes options.

(2) Maturity is determined based on final settlement period.

AOCI

The following table presents selected information related to losses on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at March 31, 2019:

	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings During the Next 12 Months After-Tax			Maximum Term
(millions)
Interest rate	$	(20	)	$	(1	)		393​​​​​​​ months
Total	$	(20	)	$	(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.

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)
March 31, 2019
ASSETS
Current Assets
Commodity	$	—	$	24	$	24
Total current derivative assets(1)		—		24		24
Noncurrent Assets
Commodity		—		42		42
Total noncurrent derivative assets(2)		—		42		42
Total derivative assets	$	—	$	66	$	66
LIABILITIES
Current Liabilities
Commodity	$	—	$	6	$	6
Interest rate		44		—		44
Total current derivative liabilities(3)		44		6		50
Noncurrent Liabilities
Commodity		—		3		3
Interest rate		137		—		137
Total noncurrent derivatives liabilities (4)		137		3		140
Total derivative liabilities	$	181	$	9	$	190
December 31, 2018
ASSETS
Current Assets
Commodity	$	—	$	60	$	60
Interest rate		3		—		3
Total current derivative assets(1)		3		60		63
Noncurrent Assets
Commodity		—		30		30
Total noncurrent derivative assets(2)		—		30		30
Total derivative assets	$	3	$	90	$	93
LIABILITIES
Current Liabilities
Commodity	$	—	$	15	$	15
Interest rate		10		—		10
Total current derivative liabilities(3)		10		15		25
Noncurrent Liabilities
Interest rate		78		—		78
Total noncurrent derivatives liabilities (4)		78		—		78
Total derivative liabilities	$	88	$	15	$	103

(1) Current derivative assets are presented in other current assets in Virginia Power’s Consolidated Balance Sheets.

(2) Noncurrent derivative assets are presented in other deferred charges and other assets in Virginia Power’s Consolidated Balance Sheets.

(3) Current derivative liabilities are presented in other current liabilities in Virginia Power’s Consolidated Balance Sheets.

(4) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power’s Consolidated Balance Sheets.

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 March 31, 2019
Derivative type and location of gains (losses):
Interest rate(3)	$	(9	)	$	—	$	(84	)
Total	$	(9	)	$	—	$	(84	)
Three Months Ended March 31, 2018
Derivative type and location of gains (losses):
Interest rate(3)	$	7		$	—	$	68
Total	$	7		$	—	$	68

(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 March 31,
	2019			2018
(millions)
Derivative type and location of gains (losses):
Commodity(2)	$	(9	)	$	—
Total	$	(9	)	$	—

(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.

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:

			March 31, 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	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	3
Interest rate contracts:
Over-the-counter		—		—		—		—		2		—		—		2
Foreign currency contracts:
Over-the-counter		13		7		—		6		26		2		—		24
Total derivatives, subject to a master netting or similar arrangement	$	13	$	7	$	—	$	6	$	31	$	2	$	—	$	29

			March 31, 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	$	41	$	6	$	—	$	35	$	17	$	—	$	—	$	17
Foreign currency contracts:
Over-the-counter		1		1		—		—		2		2		—		—
Total derivatives, subject to a master netting or similar arrangement	$	42	$	7	$	—	$	35	$	19	$	2	$	—	$	17

Volumes

The following table presents the volume of Dominion Energy Gas’ derivative activity at March 31, 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)		25,074,000		—
Interest rate(1)	$	300,000,000	$	1,000,000,000
Foreign currency(1)(2)	$	—	$	280,000,000

(1) Maturity is based on final settlement period.

(2) 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 Gas’ Consolidated Balance Sheet at March 31, 2019:

	AOCI     After-Tax			Amounts Expected to be Reclassified to Earnings During the Next 12 Months After- Tax			Maximum Term
(millions)
Interest rate	$	(56	)	$	(5	)		309 months
Foreign currency		8			(1	)		87 months
Total	$	(48	)	$	(6	)

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., interest payments) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices, interest rates and foreign currency exchange rates.

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)
March 31, 2019
ASSETS
Noncurrent Assets
Foreign currency	$	13	$	—	$	13
Total noncurrent derivative assets(1)		13		—		13
Total derivative assets	$	13	$	—	$	13
LIABILITIES
Current Liabilities
Interest rate	$	18	$	—	$	18
Foreign currency		1		—		1
Total current derivative liabilities(2)		19		—		19
Noncurrent Liabilities
Interest rate		23		—		23
Total noncurrent derivative liabilities(3)		23		—		23
Total derivative liabilities	$	42	$	—	$	42
December 31, 2018
ASSETS
Current Assets
Commodity	$	3	$	—	$	3
Interest rate		2		—		2
Total current derivative assets(4)		5		—		5
Noncurrent Assets
Foreign currency		26		—		26
Total noncurrent derivative assets(1)		26		—		26
Total derivative assets	$	31	$	—	$	31
LIABILITIES
Current Liabilities
Interest rate	$	9	$	—	$	9
Foreign currency		2		—		2
Total current derivative liabilities(2)		11		—		11
Noncurrent Liabilities
Interest rate		8		—		8
Total noncurrent derivative liabilities(3)		8		—		8
Total derivative liabilities	$	19	$	—	$	19

(1) Noncurrent derivatives assets are presented in other deferred charges and other assets in Dominion Energy Gas’ Consolidated Balance Sheets.

(2) Current derivative liabilities are presented in other current liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.

(3) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion Energy Gas’ Consolidated Balance Sheets.

(4) Current derivative assets include $2 million in other current assets, with the remainder recorded in current assets of discontinued operations in Dominion Energy Gas’ Consolidated Balance Sheets.

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 March 31, 2019
Derivative Type and Location of Gains (Losses):
Commodity:
Net income from discontinued operations				$	2
Total commodity	$	(1	)	$	2
Interest rate(2)		(24	)		1
Foreign currency(3)		(11	)		(6	)
Total	$	(36	)	$	(3	)
Three Months Ended March 31, 2018
Derivative Type and Location of Gains (Losses):
Commodity:
Net income from discontinued operations				$	(3	)
Total commodity	$	4		$	(3	)
Interest rate(2)		2			(2	)
Foreign currency(3)		13			8
Total	$	19		$	3

(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.