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Fair Value Measurements
Nov. 18, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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)
 
 
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.
 
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.
 
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.
 
 
 
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
  $
—
 
         
 
 
 
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.