XML 37 R20.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

6 Months Ended

Jun. 30, 2020

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, 2019. See Note 9 in this report 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 June 30, 2020. 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:
Natural gas⁽²⁾	$	112	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 3		(1	)
FTRs		18	Discounted cash flow	Market price (per MWh)	⁽³⁾	(1) - 5		1
Total assets	$	130
Liabilities
Financial forwards:
FTRs	$	5	Discounted cash flow	Market price (per MWh)	⁽³⁾	(5) - 5		—
Physical options:
Natural gas		2	Option model	Market price (per Dth)	⁽³⁾	1 - 5		2
				Price volatility	⁽⁴⁾	56% - 72%		66	%
Total liabilities	$	7

(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 June 30, 2020
Assets
Derivatives:
Commodity	$	—	$	52	$	130	$	182
Interest rate		—		34		—		34
Investments⁽¹⁾:
Equity securities:
U.S.		3,817		—		—		3,817
Fixed income:
Corporate debt instruments		—		624		—		624
Government securities		488		746		—		1,234
Cash equivalents and other		19		12		—		31
Total assets	$	4,324	$	1,468	$	130	$	5,922
Liabilities
Derivatives:
Commodity	$	—	$	43	$	7	$	50
Interest rate		—		1,272		—		1,272
Foreign currency		—		12		—		12
Total liabilities	$	—	$	1,327	$	7	$	1,334
At December 31, 2019
Assets
Derivatives:
Commodity	$	—	$	55	$	19	$	74
Interest rate		—		11		—		11
Foreign currency		—		8		—		8
Investments⁽¹⁾:
Equity securities:
U.S.		4,195		—		—		4,195
Fixed income:
Corporate debt instruments		—		463		—		463
Government securities		473		719		—		1,192
Cash equivalents and other		19		1		—		20
Total assets	$	4,687	$	1,257	$	19	$	5,963
Liabilities
Derivatives:
Commodity	$	—	$	75	$	56	$	131
Interest rate		—		606		—		606
Foreign currency		—		3		—		3
Total liabilities	$	—	$	684	$	56	$	740

(1)

Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $296 million and $274 million of assets at June 30, 2020 and December 31, 2019, 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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
(millions)
Beginning balance	$	43		$	53		$	(37	)	$	64
Total realized and unrealized gains (losses):
Included in earnings:
Operating revenue		—			3			—			2
Purchased gas		—			1			—			1
Electric fuel and other energy-related purchases		(4	)		(3	)		(26	)		(7	)
Included in regulatory assets/liabilities		80			18			160			25
Settlements		4			3			26			2
Purchases		—			—			—			(10	)
Transfers out of Level 3		—			—			—			(2	)
Ending balance	$	123		$	75		$	123		$	75
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		$	—		$	2
Purchased gas		—			1			—			1
Total	$	—		$	3		$	—		$	3

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 six months ended June 30, 2020 and 2019.

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at June 30, 2020. 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:
Natural gas⁽²⁾	$	112	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 2		(1	)
FTRs		18	Discounted cash flow	Market price (per MWh)	⁽³⁾	(1) - 5		1
Total assets	$	130
Liabilities
Financial forwards:
FTRs	$	5	Discounted cash flow	Market price (per MWh)	⁽³⁾	(5) - 5		—
Physical options:
Natural gas		2	Option model	Market price (per Dth)	⁽³⁾	1 - 5		2
				Price volatility	⁽⁴⁾	56% - 72%		66	%
Total liabilities	$	7

(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 June 30, 2020
Assets
Derivatives:
Commodity	$	—	$	3	$	130	$	133
Investments⁽¹⁾:
Equity securities:
U.S.		1,787		—		—		1,787
Fixed income:
Corporate debt instruments		—		354		—		354
Government securities		184		306		—		490
Total assets	$	1,971	$	663	$	130	$	2,764
Liabilities
Derivatives:
Commodity	$	—	$	17	$	7	$	24
Interest rate		—		980		—		980
Total liabilities	$	—	$	997	$	7	$	1,004
At December 31, 2019
Assets
Derivatives:
Commodity	$	—	$	3	$	19	$	22
Interest rate		—		2		—		2
Investments⁽¹⁾:
Equity securities:
U.S.		1,920		—		—		1,920
Fixed income:
Corporate debt instruments		—		256		—		256
Government securities		186		361		—		547
Cash equivalents and other		—		1		—		1
Total assets	$	2,106	$	623	$	19	$	2,748
Liabilities
Derivatives:
Commodity	$	—	$	47	$	56	$	103
Interest rate		—		363		—		363
Total liabilities	$	—	$	410	$	56	$	466

(1)

Includes investments held in the nuclear decommissioning trusts. Excludes $154 million and $159 million of assets at June 30, 2020 and December 31, 2019, 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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
(millions)
Beginning balance	$	43		$	59		$	(37	)	$	60
Total realized and unrealized gains (losses):
Included in earnings:
Electric fuel and other energy-related purchases		(4	)		(3	)		(26	)		(7	)
Included in regulatory assets/liabilities		80			18			160			26
Settlements		4			3			26			(2	)
Ending balance	$	123		$	77		$	123		$	77

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 June 30, 2020
Liabilities
Interest rate	$	—	$	192	$	—	$	192
Foreign currency		—		12		—		12
Total liabilities	$	—	$	204	$	—	$	204
At December 31, 2019
Assets
Foreign currency	$	—	$	8	$	—	$	8
Total assets	$	—	$	8	$	—	$	8
Liabilities
Interest rate	$	—	$	83	$	—	$	83
Foreign currency		—		3		—		3
Total liabilities	$	—	$	86	$	—	$	86

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, 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:

	June 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion Energy
Long-term debt⁽²⁾	$	36,060	$	42,151	$	32,055	$	36,155
Supplemental 364-Day credit facility borrowings		225		225		—		—
Junior subordinated notes⁽³⁾		3,408		3,554		4,797		4,953
Virginia Power
Long-term debt⁽³⁾	$	12,328	$	15,189	$	12,326	$	14,281
Dominion Energy Gas
Long-term debt⁽⁴⁾	$	5,523	$	5,891	$	5,520	$	5,738

(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 issuances with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.

(2)

Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium and foreign currency remeasurement adjustments. At June 30, 2020 and December 31, 2019, includes the valuation of certain fair value hedges associated with fixed rate debt of $4 million and $4 million, respectively.

(3)	Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium.

(4)	Carrying amount includes current portions included in securities due within one year and amounts which represent the unamortized debt issuance costs, discount or premium and foreign currency remeasurement adjustments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details