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Fair Value Measurements

9 Months Ended

Sep. 30, 2021

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 September 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⁾	$	52	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 6		(1	)
FTRs		64	Discounted cash flow	Market price (per MWh)	⁽³⁾	(1) - 6		2
Electricity		38	Discounted cash flow	Market price (per MWh)	⁽³⁾	24 - 97		37
Physical options:
Natural gas		6	Option model	Market price (per Dth)	⁽³⁾	4 - 10		7
				Price volatility	⁽⁴⁾	19% - 32%		24	%
Total assets	$	160
Liabilities
Physical and financial forwards:
Natural gas⁽²⁾	$	1	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 5		—
FTRs		6	Discounted cash flow	Market price (per MWh)	⁽³⁾	(3) - 6		1
Electricity		9	Discounted cash flow	Market price (per MWh)	⁽³⁾	24 - 111		39
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)

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.

In the third quarter of 2021, Dominion Energy recorded a charge of $16 million ($12 million after-tax) in impairment of assets and other charges in its Consolidated Statements of Income to adjust a corporate office building down to its estimated fair value, using both an income and market approach, of $26 million. The valuation is considered a Level 3 measurement due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates inherent in the future cash flows and market prices. The corporate office building is reflected in the Corporate and Other segment and presented as held for sale in Dominion Energy’s Consolidated Balance Sheets at September 30, 2021.

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

See Notes 10 and 11 for information on nonrecurring fair value measurements associated with charges recorded related to Fowler Ridge and non-wholly-owned nonregulated solar facilities, respectively.

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, 2021
Assets
Derivatives:
Commodity	$	—	$	125	$	160	$	285
Interest rate		—		371		—		371
Investments⁽¹⁾:
Equity securities:
U.S.		4,738		—		—		4,738
Fixed income:
Corporate debt instruments		—		879		—		879
Government securities		774		715		—		1,489
Cash equivalents and other		3		—		—		3
Total assets	$	5,515	$	2,090	$	160	$	7,765
Liabilities
Derivatives:
Commodity	$	—	$	607	$	16	$	623
Interest rate		—		327		—		327
Total liabilities	$	—	$	934	$	16	$	950
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 $382 million and $340 million of assets at September 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					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020
(millions)
Beginning balance	$	62		$	123	$	103		$	(37	)
Total realized and unrealized gains (losses):
Included in earnings:
Operating revenue		(6	)		—		(8	)		—
Electric fuel and other energy-related purchases		29			—		12			(26	)
Included in regulatory assets/liabilities		88			4		49			164
Settlements		(29	)		—		(12	)		26
Ending balance	$	144		$	127	$	144		$	127

There are $(6) million and $(8) 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 nine months ended September 30, 2021, respectively. 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 nine months ended September 30, 2020.

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at September 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⁾	$	52	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 6		(1	)
FTRs		64	Discounted cash flow	Market price (per MWh)	⁽³⁾	(1) - 6		2
Physical options:
Natural gas		6	Option model	Market price (per Dth)	⁽³⁾	4 - 10		7
				Price volatility	⁽⁴⁾	19% - 32%		24	%
Total assets	$	122
Liabilities
Physical and financial forwards:
Natural gas⁽²⁾	$	1	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 5		—
FTRs		6	Discounted cash flow	Market price (per MWh)	⁽³⁾	(3) - 6		1
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 September 30, 2021
Assets
Derivatives:
Commodity	$	—	$	67	$	122	$	189
Interest rate		—		170		—		170
Investments⁽¹⁾:
Equity securities:
U.S.		2,188		—		—		2,188
Fixed income:
Corporate debt instruments		—		516		—		516
Government securities		349		274		—		623
Total assets	$	2,537	$	1,027	$	122	$	3,686
Liabilities
Derivatives:
Commodity	$	—	$	164	$	7	$	171
Interest rate		—		282		—		282
Total liabilities	$	—	$	446	$	7	$	453
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 $183 million and $167 million of assets at September 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					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020
(millions)
Beginning balance	$	74		$	123	$	103		$	(37	)
Total realized and unrealized gains (losses):
Included in earnings:
Electric fuel and other energy-related purchases		27			—		10			(26	)
Included in regulatory assets/liabilities		41			4		12			164
Settlements		(27	)		—		(10	)		26
Ending balance	$	115		$	127	$	115		$	127

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, 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:

	September 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⁾	$	35,140	$	40,471	$	31,996	$	38,773
Supplemental credit facility borrowings⁽⁴⁾		900		900		225		225
Junior subordinated notes⁽⁵⁾		1,386		1,503		3,411		3,633
Virginia Power
Long-term debt⁽⁵⁾	$	13,212	$	15,570	$	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 September 30, 2021 and December 31, 2020, the carrying amount includes the valuation of certain fair value hedges associated with fixed rate debt of $2 million and $3 million, respectively.

(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.

- 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.

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