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Fair Value Measurements
6 Months Ended
Jun. 30, 2021
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, 2020. 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, 2021.  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)

 

$

53

 

 

Discounted cash flow

 

Market price (per Dth)

(3)

 

(2) - 4

 

 

(1

)

FTRs

 

 

30

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

0 - 6

 

 

1

 

Electricity

 

 

12

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

22 - 83

 

 

35

 

Physical options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

 

1

 

 

Option model

 

Market price (per Dth)

(3)

 

2 - 7

 

 

4

 

 

 

 

 

 

 

 

 

Price volatility

(4)

 

4% - 27%

 

 

16

%

Total assets

 

$

96

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical and financial forwards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas(2)

 

$

7

 

 

Discounted cash flow

 

Market price (per Dth)

(3)

 

(2) - 3

 

 

(1

)

FTRs

 

 

3

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

(3) - 4

 

 

1

 

Electricity

 

 

24

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

23 - 96

 

 

35

 

Total liabilities

 

$

34

 

 

 

 

 

 

 

 

 

 

 

 

(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)

Nonrecurring Fair Value Measurements

In the second quarter of 2021, Dominion Energy recorded a charge of $20 million ($15 million after-tax) in impairment of assets and other charges in its Consolidated Statements of Income to write off substantially all of the long-lived assets of its nonregulated retail software development operations to their estimated fair value, using a market approach, of less than $1 million. The valuation is considered a Level 2 fair value measurement given that it is based on bids received.  

See Note 3 for information on the nonrecurring fair value measurement associated with the acquisition of Birdseye.

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, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

52

 

 

$

96

 

 

$

148

 

Interest rate

 

 

 

 

 

468

 

 

 

 

 

 

468

 

Investments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

4,730

 

 

 

 

 

 

 

 

 

4,730

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt instruments

 

 

 

 

 

871

 

 

 

 

 

 

871

 

Government securities

 

 

783

 

 

 

744

 

 

 

 

 

 

1,527

 

Total assets

 

$

5,513

 

 

$

2,135

 

 

$

96

 

 

$

7,744

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

211

 

 

$

34

 

 

$

245

 

Interest rate

 

 

 

 

 

329

 

 

 

 

 

 

329

 

Total liabilities

 

$

 

 

$

540

 

 

$

34

 

 

$

574

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

57

 

 

$

110

 

 

$

167

 

Interest rate

 

 

 

 

 

230

 

 

 

 

 

 

230

 

Investments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

4,648

 

 

 

 

 

 

 

 

 

4,648

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt instruments

 

 

 

 

 

629

 

 

 

 

 

 

629

 

Government securities

 

 

508

 

 

 

730

 

 

 

 

 

 

1,238

 

Cash equivalents and other

 

 

32

 

 

 

15

 

 

 

 

 

 

47

 

Total assets

 

$

5,188

 

 

$

1,661

 

 

$

110

 

 

$

6,959

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

48

 

 

$

7

 

 

$

55

 

Interest rate

 

 

 

 

 

431

 

 

 

 

 

 

431

 

Total liabilities

 

$

 

 

$

479

 

 

$

7

 

 

$

486

 

(1)

Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $357 million and $340 million of assets at June 30, 2021 and December 31, 2020, 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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

56

 

 

$

43

 

 

$

103

 

 

$

(37

)

Total realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

Electric fuel and other energy-related purchases

 

 

4

 

 

 

(4

)

 

 

(17

)

 

 

(26

)

Included in regulatory assets/liabilities

 

 

8

 

 

 

80

 

 

 

(39

)

 

 

160

 

Settlements

 

 

(4

)

 

 

4

 

 

 

17

 

 

 

26

 

Ending balance

 

$

62

 

 

$

123

 

 

$

62

 

 

$

123

 

There are $(2) million of unrealized gains and losses included in operating revenue in the Level 3 fair value category related to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2021. There were no unrealized gains and losses included in earnings in the Level 3 fair value category related to assets/liabilities still held at the reporting date for the three and six months ended June 30, 2020.

 

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at June 30, 2021.  The range and weighted average are presented in dollars for market price inputs.

 

 

 

Fair Value

(millions)

 

 

Valuation Techniques

 

Unobservable Input

 

 

Range

 

Weighted

Average(1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical and financial forwards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas(2)

 

$

53

 

 

Discounted cash flow

 

Market price (per Dth)

(3)

 

(2) - 4

 

 

(1

)

FTRs

 

 

30

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

0 - 6

 

 

1

 

Physical options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

 

1

 

 

Option model

 

Market price (per Dth)

(3)

 

2 - 7

 

 

4

 

 

 

 

 

 

 

 

 

Price volatility

(4)

 

4% - 27%

 

 

16

%

Total assets

 

$

84

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical and financial forwards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas(2)

 

$

7

 

 

Discounted cash flow

 

Market price (per Dth)

(3)

 

(2) - 3

 

 

(1

)

FTRs

 

 

3

 

 

Discounted cash flow

 

Market price (per MWh)

(3)

 

(3) - 4

 

 

1

 

Total liabilities

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

27

 

 

$

84

 

 

$

111

 

Interest rate

 

 

 

 

 

172

 

 

 

 

 

 

172

 

Investments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

2,186

 

 

 

 

 

 

 

 

 

2,186

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt instruments

 

 

 

 

 

486

 

 

 

 

 

 

486

 

Government securities

 

 

387

 

 

 

282

 

 

 

 

 

 

669

 

Total assets

 

$

2,573

 

 

$

967

 

 

$

84

 

 

$

3,624

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

42

 

 

$

10

 

 

$

52

 

Interest rate

 

 

 

 

 

283

 

 

 

 

 

 

283

 

Total liabilities

 

$

 

 

$

325

 

 

$

10

 

 

$

335

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

5

 

 

$

110

 

 

$

115

 

Interest rate

 

 

 

 

 

66

 

 

 

 

 

 

66

 

Investments(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

2,171

 

 

 

 

 

 

 

 

 

2,171

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt instruments

 

 

 

 

 

348

 

 

 

 

 

 

348

 

Government securities

 

 

201

 

 

 

309

 

 

 

 

 

 

510

 

Cash equivalents and other

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Total assets

 

$

2,385

 

 

$

728

 

 

$

110

 

 

$

3,223

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity

 

$

 

 

$

22

 

 

$

7

 

 

$

29

 

Interest rate

 

 

 

 

 

376

 

 

 

 

 

 

376

 

Total liabilities

 

$

 

 

$

398

 

 

$

7

 

 

$

405

 

 

(1)

Includes investments held in the nuclear decommissioning trusts. Excludes $176 million and $167 million of assets at June 30, 2021 and December 31, 2020, 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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

56

 

 

$

43

 

 

$

103

 

 

$

(37

)

Total realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electric fuel and other energy-related purchases

 

 

4

 

 

 

(4

)

 

 

(17

)

 

 

(26

)

Included in regulatory assets/liabilities

 

 

18

 

 

 

80

 

 

 

(29

)

 

 

160

 

Settlements

 

 

(4

)

 

 

4

 

 

 

17

 

 

 

26

 

Ending balance

 

$

74

 

 

$

123

 

 

$

74

 

 

$

123

 

 

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, 2021 and 2020.

 

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, 2021

 

 

December 31, 2020

 

 

 

Carrying

Amount

 

 

Estimated

Fair

Value(1)

 

 

Carrying

Amount

 

 

Estimated

Fair

Value(1)

 

(millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dominion Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt(2)(3)

 

$

33,076

 

 

$

38,558

 

 

$

31,996

 

 

$

38,773

 

Supplemental credit facility borrowings(4)

 

 

250

 

 

 

250

 

 

 

225

 

 

 

225

 

Junior subordinated notes(5)

 

 

2,862

 

 

 

3,024

 

 

 

3,411

 

 

 

3,633

 

Virginia Power

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt(5)

 

$

13,210

 

 

$

15,668

 

 

$

13,207

 

 

$

16,455

 

 

(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 and discount or premium. At both June 30, 2021 and December 31, 2020, the carrying amount includes the valuation of certain fair value hedges associated with fixed rate debt of $3 million.

(3)

Includes amounts classified as held for sale, see Note 3.

(4)

Also includes Supplemental 364-Day credit facility borrowings.

(5)

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