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Fair Value Measurements

6 Months Ended

Jun. 30, 2022

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, 2021. See Note 9 in this report for additional 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 and futures contracts. An option model is used to value Level 3 physical options. The discounted cash flow model for forwards and futures 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, 2022. 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:
FTRs		235	Discounted cash flow	Market price (per MWh)	⁽³⁾	0 - 16		4
Electricity		235	Discounted cash flow	Market price (per MWh)	⁽³⁾	30 - 141		52
Physical options:
Natural gas⁽²⁾		32	Option model	Market price (per Dth)	⁽³⁾	4 - 19		9
				Price volatility	⁽⁴⁾	8% - 31%		22	%
Total assets	$	502
Liabilities
Physical and financial forwards:
Natural gas⁽²⁾	$	17	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 6		(1	)
FTRs		5	Discounted cash flow	Market price (per MWh)	⁽³⁾	0 - 11		3
Total liabilities	$	22

(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 10 for information regarding nonrecurring fair value measurements associated with Dominion Energy’s noncontrolling ownership interest in Dominion Privatization.

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, 2022
Assets
Derivatives:
Commodity	$	—		$	263	$	502	$	765
Interest rate		—			1,345		—		1,345
Investments⁽¹⁾:
Equity securities:
U.S.		3,704			—		—		3,704
Fixed income:
Corporate debt instruments		—			618		—		618
Government securities		163			1,079		—		1,242
Total assets	$	3,867		$	3,305	$	502	$	7,674
Liabilities
Derivatives:
Commodity	$	—		$	1,182	$	22	$	1,204
Interest rate		—			333		—		333
Foreign currency exchange rate		—			113		—		113
Total liabilities	$	—		$	1,628	$	22	$	1,650
At December 31, 2021
Assets
Derivatives:
Commodity	$	—		$	52	$	230	$	282
Interest rate		—			323		—		323
Foreign currency exchange rate		—			8		—		8
Investments⁽¹⁾:
Equity securities:
U.S.		5,241			—		—		5,241
Fixed income:
Corporate debt instruments		—			881		—		881
Government securities		199			1,256		—		1,455
Cash equivalents and other		(29	)		—		—		(29	)
Total assets	$	5,411		$	2,520	$	230	$	8,161
Liabilities
Derivatives:
Commodity	$	—		$	461	$	8	$	469
Interest rate		—			399		—		399
Total liabilities	$	—		$	860	$	8	$	868

(1)

Includes investments held in the nuclear decommissioning and rabbi trusts. Excludes $257 million and $366 million of assets at June 30, 2022 and December 31, 2021, 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,
	2022			2021			2022			2021
(millions)
Beginning balance	$	202		$	56		$	222		$	103
Total realized and unrealized gains (losses):
Included in earnings:
Operating revenue		—			(2	)		—			(2	)
Electric fuel and other energy-related purchases		117			4			165			(17	)
Included in regulatory assets/liabilities		261			8			241			(39	)
Settlements		(117	)		(4	)		(165	)		17
Purchases		17			—			17			—
Ending balance	$	480		$	62		$	480		$	62

There were $(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 and no such amounts for the three and six months ended June 30, 2022.

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at June 30, 2022. 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:
FTRs		235	Discounted cash flow	Market price (per MWh)	⁽³⁾	0 - 16		4
Physical options:
Natural gas⁽²⁾		32	Option model	Market price (per Dth)	⁽³⁾	4 - 19		9
				Price volatility	⁽⁴⁾	8% - 31%		22	%
Total assets	$	267
Liabilities
Physical and financial forwards:
Natural gas⁽²⁾	$	17	Discounted cash flow	Market price (per Dth)	⁽³⁾	(2) - 6		(1	)
FTRs		5	Discounted cash flow	Market price (per MWh)	⁽³⁾	0 - 11		3
Total liabilities	$	22

(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, 2022
Assets
Derivatives:
Commodity	$	—		$	80	$	267	$	347
Interest rate		—			444		—		444
Investments⁽¹⁾:
Equity securities:
U.S.		1,977			—		—		1,977
Fixed income:
Corporate debt instruments		—			419		—		419
Government securities		91			497		—		588
Total assets	$	2,068		$	1,440	$	267	$	3,775
Liabilities
Derivatives:
Commodity	$	—		$	382	$	22	$	404
Interest rate		—			68		—		68
Foreign currency exchange rate		—			113		—		113
Total liabilities	$	—		$	563	$	22	$	585
At December 31, 2021
Assets
Derivatives:
Commodity	$	—		$	36	$	110	$	146
Interest rate		—			146		—		146
Foreign currency exchange rate		—			8		—		8
Investments⁽¹⁾:
Equity securities:
U.S.		2,420			—		—		2,420
Fixed income:
Corporate debt instruments		—			531		—		531
Government securities		93			506		—		599
Cash equivalents and other		(3	)		—		—		(3	)
Total assets	$	2,510		$	1,227	$	110	$	3,847
Liabilities
Derivatives:
Commodity	$	—		$	125	$	8	$	133
Interest rate		—			337		—		337
Total liabilities	$	—		$	462	$	8	$	470

(1)

Includes investments held in the nuclear decommissioning trusts. Excludes $173 million and $185 million of assets at June 30, 2022 and December 31, 2021, 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,
	2022			2021			2022			2021
(millions)
Beginning balance	$	22		$	56		$	102		$	103
Total realized and unrealized gains (losses):
Included in earnings:
Electric fuel and other energy-related purchases		106			4			151			(17	)
Included in regulatory assets/liabilities		206			18			126			(29	)
Settlements		(106	)		(4	)		(151	)		17
Purchases		17			—			17			—
Ending balance	$	245		$	74		$	245		$	74

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, 2022 and 2021.

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 deposit, short-term debt, mandatorily redeemable preferred stock, 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, 2022				December 31, 2021
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion Energy
Long-term debt⁽²⁾	$	38,086	$	36,642	$	35,996	$	40,947
Supplemental credit facility borrowings		450		450		—		—
Junior subordinated notes⁽³⁾		1,386		1,338		1,386		1,470
Virginia Power
Long-term debt⁽³⁾	$	15,917	$	15,264	$	13,753	$	16,021

(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 June 30, 2022 and December 31, 2021, the carrying amount includes the valuation of certain fair value hedges associated with fixed rate debt of less than $1 million and $2 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.

- 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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