UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
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I.R.S. Employer |
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Exact name of registrant as specified in its charter |
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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(Registrants’ telephone number) |
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Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Emerging growth company |
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Smaller reporting company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At July 28, 2023, Dominion Energy South Carolina, Inc. had outstanding
Dominion Energy South Carolina, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is filing this Form 10-Q under the reduced disclosure format.
TABLE OF CONTENTS
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Page |
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3 |
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Item 1. |
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5 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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Item 4. |
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30 |
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Item 1. |
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31 |
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Item 1A. |
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31 |
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Item 5. |
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31 |
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Item 6. |
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32 |
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2
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym |
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Definition |
2017 Tax Reform Act |
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An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017 |
ACE Rule |
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Affordable Clean Energy Rule |
AFUDC |
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Allowance for funds used during construction |
AOCI |
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Accumulated other comprehensive income (loss) |
ARO |
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Asset retirement obligation |
BACT |
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Best available control technology |
CAA |
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Clean Air Act |
CCR |
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Coal combustion residual |
CEO |
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Chief Executive Officer |
CERCLA |
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Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund |
CFO |
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Chief Financial Officer |
CO2 |
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Carbon dioxide |
CUA |
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Capacity Use Area |
CWA |
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Clean Water Act |
DES |
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Dominion Energy Services, Inc. |
DESC |
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The legal entity, Dominion Energy South Carolina, Inc., one or more of its consolidated entities or operating segment, or the entirety of Dominion Energy South Carolina, Inc. and its consolidated entities |
Dominion Energy |
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The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than DESC) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries |
Dominion Energy South Carolina |
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Dominion Energy South Carolina operating segment
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DSM |
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Demand-side management |
ELG Rule |
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Effluent limitations guidelines for the steam electric power generating category |
EPA |
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U.S. Environmental Protection Agency |
FERC |
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Federal Energy Regulatory Commission |
Fuel Company |
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South Carolina Fuel Company, Inc. |
GAAP |
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U.S. generally accepted accounting principles |
GENCO |
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South Carolina Generating Company, Inc. |
GHG |
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Greenhouse gas |
kV |
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Kilovolt |
MD&A |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
MGD |
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Million gallons per day |
MWh |
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Megawatt hour |
NND Project |
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V. C. Summer Units 2 and 3 nuclear development project under which DESC and Santee Cooper undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina |
NOx |
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Nitrogen oxide |
Order 1000 |
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Order issued by FERC adopting requirements for electric transmission planning, cost allocation and development |
PSD |
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Prevention of significant deterioration |
Questar Gas |
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Questar Gas Company, a wholly-owned subsidiary of Dominion Energy |
ROE |
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Return on equity |
Santee Cooper |
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South Carolina Public Service Authority |
3
Abbreviation or Acronym |
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Definition |
SCANA |
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The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries (other than DESC) or the entirety of SCANA Corporation and its consolidated subsidiaries |
SCANA Combination |
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Dominion Energy's acquisition of SCANA completed on January 1, 2019 pursuant to the terms of the SCANA Merger Agreement |
SCANA Merger Agreement |
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Agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA |
SCANA Merger Approval Order |
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Final order issued by the South Carolina Commission on December 21, 2018 setting forth its approval of the SCANA Combination |
SCDHEC |
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South Carolina Department of Health and Environmental Control |
SCDOR |
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South Carolina Department of Revenue |
SEC |
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U.S. Securities and Exchange Commission |
SO2 |
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Sulfur dioxide |
South Carolina Commission |
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Public Service Commission of South Carolina |
Summer |
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V. C. Summer nuclear power station |
Toshiba |
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Toshiba Corporation, parent company of Westinghouse |
Toshiba Settlement |
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Settlement Agreement dated as of July 27, 2017, by and among Toshiba, DESC and Santee Cooper |
VIE |
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Variable interest entity |
Virginia Power |
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The legal entity, Virginia Electric and Power Company, a wholly-owned subsidiary of Dominion Energy, one or more of its consolidated subsidiaries or operating segment, or the entirety of Virginia Electric and Power Company and its consolidated subsidiaries |
Westinghouse |
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Westinghouse Electric Company LLC |
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dominion Energy South Carolina, Inc.
Consolidated Balance Sheets
(Unaudited)
(millions) |
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June 30, |
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December 31, |
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ASSETS |
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Utility plant in service |
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$ |
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Accumulated depreciation and amortization |
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Construction work in progress |
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Nuclear fuel, net of accumulated amortization |
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Utility plant, net ($ |
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Nonutility Property and Investments: |
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Nonutility property, net of accumulated depreciation |
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Assets held in trust, nuclear decommissioning |
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Nonutility property and investments, net |
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Current Assets: |
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Cash and cash equivalents |
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Receivables: |
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Customer, net of allowance for uncollectible accounts of $ |
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Affiliated and related party |
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Other |
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Inventories (at average cost): |
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Fuel |
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Gas stored |
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Materials and supplies |
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Prepayments |
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Regulatory assets |
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Other current assets(1) |
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Current assets held for sale |
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Total current assets ($ |
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Deferred Debits and Other Assets: |
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Regulatory assets |
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Other(1) |
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Total deferred debits and other assets ($ |
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Total assets |
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$ |
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$ |
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(1)
See Notes to Consolidated Financial Statements.
5
Dominion Energy South Carolina, Inc.
Consolidated Balance Sheets—(Continued)
(Unaudited)
(millions) |
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June 30, |
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December 31, |
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CAPITALIZATION AND LIABILITIES |
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Common Stock - |
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$ |
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$ |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total common equity |
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Noncontrolling interest |
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Total equity |
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Long-term debt, net |
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Affiliated long-term debt |
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Finance leases |
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Total long-term debt |
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Total capitalization |
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Current Liabilities: |
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Short-term borrowings |
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Securities due within one year |
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Accounts payable |
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Affiliated and related party payables |
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Customer deposits and customer prepayments |
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Taxes accrued |
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Interest accrued |
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Regulatory liabilities |
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Reserves for litigation and regulatory proceedings |
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Other |
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Total current liabilities |
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Deferred Credits and Other Liabilities: |
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Deferred income taxes and investment tax credits |
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Asset retirement obligations |
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Pension and other postretirement benefits |
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Regulatory liabilities |
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Affiliated liabilities |
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Other |
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Total deferred credits and other liabilities |
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Total capitalization and liabilities |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
6
Dominion Energy South Carolina, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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(millions) |
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2023 |
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2022 |
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2023 |
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2022 |
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Operating Revenue(1) |
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$ |
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$ |
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$ |
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$ |
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Operating Expenses: |
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Fuel used in electric generation |
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Purchased power(1) |
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Gas purchased for resale |
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Other operations and maintenance |
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Other operations and maintenance - affiliated suppliers |
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Impairment of assets and other charges |
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Depreciation and amortization |
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Other taxes(1) |
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Total operating expenses |
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Operating income |
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Other income, net |
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Interest charges, net of AFUDC of $ |
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Income before income tax expense |
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Income tax expense |
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Net Income and Other Comprehensive Income |
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Comprehensive Income Attributable to Noncontrolling |
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Comprehensive Income Available to Common Shareholder |
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$ |
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$ |
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$ |
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$ |
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(1)
See Notes to Consolidated Financial Statements.
7
Dominion Energy South Carolina, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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Six Months Ended June 30, |
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(millions) |
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2023 |
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2022 |
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Operating Activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Impairment of assets and other charges |
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Deferred income taxes, net |
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Depreciation and amortization |
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Amortization of nuclear fuel |
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Gains on sale of assets |
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( |
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Other adjustments |
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Changes in certain assets and liabilities: |
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Receivables |
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Receivables - affiliated and related party |
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Inventories |
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( |
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Prepayments |
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( |
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( |
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Regulatory assets |
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( |
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Regulatory liabilities |
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( |
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Accounts payable |
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( |
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Accounts payable - affiliated and related party |
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( |
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Taxes accrued |
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( |
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( |
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Interest accrued |
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( |
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( |
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Pension and other postretirement benefits |
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( |
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Other assets and liabilities |
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( |
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Net cash provided by operating activities |
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Investing Activities |
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Property additions and construction expenditures |
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( |
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( |
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Proceeds from investments and sales of assets |
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( |
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Purchase of investments |
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( |
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Other |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities |
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Dividend to parent |
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( |
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( |
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Short-term borrowings, net |
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Short-term borrowings - affiliated, net |
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Other |
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( |
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Net cash provided by financing activities |
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Net decrease in cash, restricted cash and equivalents |
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Cash, restricted cash and equivalents at beginning of period(1) |
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Cash, restricted cash and equivalents at end of period(1) |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Significant noncash investing and financing activities:(2) |
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Accrued construction expenditures |
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$ |
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$ |
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Operating leases |
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See Notes to Consolidated Financial Statements.
8
Dominion Energy South Carolina, Inc.
Consolidated Statements of Changes in Common Equity
(Unaudited)
Quarter-To-Date
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Common Stock |
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(millions) |
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Shares |
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Amount |
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Retained |
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AOCI |
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Noncontrolling |
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Total |
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March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Total comprehensive income available to |
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Capital contribution from parent |
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Dividend to parent |
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( |
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( |
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( |
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June 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Total comprehensive income available to |
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Dividend to parent |
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( |
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( |
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June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Year-To-Date
|
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Common Stock |
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(millions) |
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Shares |
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Amount |
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Retained |
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AOCI |
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Noncontrolling |
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Total |
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December 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
|
|
$ |
|
|||||
Total comprehensive income available to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital contribution from parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Dividend to parent |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Total comprehensive income available to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Dividend to parent |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
See Notes to Consolidated Financial Statements.
9
Dominion Energy South Carolina, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in DESC's Annual Report on Form 10-K for the year ended December 31, 2022.
These are interim financial statements and, due to the seasonality of DESC's business and matters that may occur during the rest of the year, the amounts reported in the Consolidated Statements of Comprehensive Income are not necessarily indicative of amounts expected for the full year. In the opinion of management, the information furnished herein reflects all adjustments which are necessary for a fair statement of the results for the interim periods reported, and such adjustments are of a normal recurring nature unless otherwise noted. In addition, the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain amounts in DESC's 2022 Consolidated Financial Statements and Notes have been reclassified to conform to the 2023 presentation for comparative purposes; however, such reclassifications did not affect DESC's net income and other comprehensive income, total assets, liabilities, equity or cash flows.
DESC is a wholly-owned subsidiary of SCANA, which is a wholly-owned subsidiary of Dominion Energy.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Variable Interest Entities
DESC has determined that it has a controlling financial interest in each of GENCO and Fuel Company (which are considered to be VIEs) and, accordingly, DESC's Consolidated Financial Statements include, after eliminating intercompany balances and transactions, the accounts of DESC, GENCO and Fuel Company. See Note 2 to the Consolidated Financial Statements included in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022 for a description of GENCO and Fuel Company.
DESC purchases shared services from DES, an affiliated VIE that provides accounting, legal, finance and certain administrative and technical services to all Dominion Energy subsidiaries, including DESC. DESC has determined that it is not the primary beneficiary of DES as it does not have either the power to direct the activities that most significantly impact its economic performance or an obligation to absorb losses and benefits which could be significant to it. See Note 12 for amounts attributable to affiliates.
Significant Accounting Policies
There have been no significant changes from Note 2 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2022, except as follows.
Asset Retirement Obligations
In the second quarter of 2023, DESC revised its estimated cash flow projections for AROs associated with certain previously retired coal-fired generating units. As a result, DESC recorded a $
2. RATE AND OTHER REGULATORY MATTERS
Regulatory Matters Involving Potential Loss Contingencies
As a result of issues generated in the ordinary course of business, DESC is involved in various regulatory matters. Certain regulatory matters may ultimately result in a loss; however, as such matters are in an initial procedural phase, involve uncertainty as to the outcome of pending reviews or orders, and/or involve significant factual issues that need to be resolved, it is not possible for DESC to estimate a range of possible loss. For regulatory matters that DESC cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the regulatory process such that DESC is able to estimate a range of possible loss. For regulatory matters that DESC is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any estimated range is based on currently available information, involves elements of judgment and significant uncertainties and may not represent DESC’s maximum possible loss exposure. The circumstances of such regulatory matters will change from time to time and actual results may
10
vary significantly from the current estimate. For current matters not specifically reported below, management does not anticipate that the outcome from such matters would have a material effect on DESC’s financial position, liquidity or results of operations.
Other Regulatory Matters
Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 3 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2022.
Electric – Cost of Fuel
DESC's retail electric rates include a cost of fuel component approved by the South Carolina Commission which may be adjusted periodically to reflect changes in the price of fuel purchased by DESC. In February 2023, DESC filed with the South Carolina Commission a proposal to increase the total fuel cost component of retail electric rates. DESC's proposed adjustment is designed to recover DESC's current base fuel costs, including its existing under-collected balance, over the 12-month period beginning with the first billing cycle of May 2023, along with a requested decrease to DESC's variable environmental and avoided capacity cost component. The net effect of the proposal is an annual increase of $
Electric Transmission Project
In March 2023, DESC filed an application with the South Carolina Commission requesting approval to construct and operate 19 miles of 230 kV transmission lines, a substation and associated facilities in Jasper County, South Carolina estimated to cost approximately $
Electric – Other
DESC has approval for a DSM rider through which it recovers expenditures related to its DSM programs. In January 2023, DESC filed an application with the South Carolina Commission seeking approval to recover $
DESC utilizes a pension costs rider approved by the South Carolina Commission which is designed to allow recovery of projected pension costs, including under-collected balances or net of over-collected balances, as applicable. The rider is typically reviewed for adjustment every 12 months with any resulting increase or decrease going into effect beginning with the first billing cycle in May. In February 2023, DESC requested that the South Carolina Commission approve an adjustment to this rider to increase annual revenue by $
Natural Gas Base Rate Case
In March 2023, DESC filed its natural gas base rate case and schedules with the South Carolina Commission. DESC proposed a non-fuel, base rate increase of $
11
Regulatory Assets and Regulatory Liabilities
Rate-regulated utilities recognize in their financial statements certain revenues and expenses in different periods than do other enterprises. As a result, DESC has recorded regulatory assets and regulatory liabilities which are summarized in the following table. Except for NND Project costs and certain other unrecovered costs referenced herein, substantially all regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.
|
|
June 30, |
|
|
December 31, |
|
||
(millions) |
|
2023 |
|
|
2022 |
|
||
Regulatory assets: |
|
|
|
|
|
|
||
NND Project costs(1) |
|
$ |
|
|
$ |
|
||
AROs(2) |
|
|
|
|
|
|
||
Deferred employee benefit plan costs(3) |
|
|
|
|
|
|
||
Other unrecovered plant(4) |
|
|
|
|
|
|
||
DSM programs(5) |
|
|
|
|
|
|
||
Cost of fuel and purchased gas under-collections(6) |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Regulatory assets - current |
|
|
|
|
|
|
||
NND Project costs(1) |
|
|
|
|
|
|
||
AROs(2) |
|
|
|
|
|
|
||
Deferred employee benefit plan costs(3) |
|
|
|
|
|
|
||
Interest rate hedges(7) |
|
|
|
|
|
|
||
Other unrecovered plant(4) |
|
|
|
|
|
|
||
DSM programs(5) |
|
|
|
|
|
|
||
Environmental remediation costs(8) |
|
|
|
|
|
|
||
Deferred storm damage costs(9) |
|
|
|
|
|
|
||
Deferred transmission operating costs(10) |
|
|
|
|
|
|
||
Derivatives(11) |
|
|
|
|
|
|
||
Other(12) |
|
|
|
|
|
|
||
Regulatory assets - noncurrent |
|
|
|
|
|
|
||
Total regulatory assets |
|
$ |
|
|
$ |
|
||
Regulatory liabilities: |
|
|
|
|
|
|
||
Monetization of guaranty settlement(13) |
|
$ |
|
|
$ |
|
||
Income taxes refundable through future rates(14) |
|
|
|
|
|
|
||
Reserve for refunds to electric utility customers(15) |
|
|
|
|
|
|
||
Derivatives(11) |
|
|
|
|
|
|
||
Other |
|
|
— |
|
|
|
|
|
Regulatory liabilities - current |
|
|
|
|
|
|
||
Monetization of guaranty settlement(13) |
|
|
|
|
|
|
||
Income taxes refundable through future rates(14) |
|
|
|
|
|
|
||
Asset removal costs(16) |
|
|
|
|
|
|
||
Reserve for refunds to electric utility customers(15) |
|
|
|
|
|
|
||
Derivatives(11) |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Regulatory liabilities - noncurrent |
|
|
|
|
|
|
||
Total regulatory liabilities |
|
$ |
|
|
$ |
|
12
Regulatory assets have been recorded based on the probability of their recovery. All regulatory assets represent incurred costs that may be deferred under GAAP for regulated operations. The South Carolina Commission or FERC has reviewed and approved through specific orders certain of the items shown as regulatory assets. In addition, regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by one of these regulatory agencies. While such costs are not currently being recovered, management believes that they would be allowable under existing rate-making concepts embodied in rate orders or applicable state law and expects to recover these costs through rates in future periods.
3. REVENUE RECOGNITION
DESC has disaggregated operating revenues by customer class as follows:
|
|
Quarter-to-Date |
|
|
Quarter-to-Date |
|
|
Year-to-Date |
|
|
Year-to-Date |
|
||||||||||||||||||||
(millions) |
|
Electric |
|
|
Gas |
|
|
Electric |
|
|
Gas |
|
|
Electric |
|
|
Gas |
|
|
Electric |
|
|
Gas |
|
||||||||
Customer class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Total Operating Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has already been received from the customer. DESC had contract liability balances of $
13
2022, respectively. During the six months ended June 30, 2023 and 2022, DESC recognized revenue of $
Balances and activity related to contract costs deferred as regulatory assets were as follows:
|
|
Regulatory Assets |
|
|||||
(millions) |
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Amortization |
|
|
|
|
|
( |
) |
|
Ending balance |
|
$ |
|
|
$ |
|
4. EQUITY
For all periods presented, DESC's authorized shares of common stock,
In May 2022, Dominion Energy issued $
There have been no material changes to the dividend restrictions affecting DESC described in Note 5 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022.
5. LONG-TERM AND SHORT-TERM DEBT
DESC’s short-term financing is supported through its access as co-borrower to Dominion Energy’s $
At June 30, 2023, DESC's share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, was as follows:
(millions) |
|
Maximum Facility Sub-Limit |
|
|
Outstanding |
|
|
Outstanding |
|
|||
Joint revolving credit facility(1) |
|
$ |
|
|
$ |
|
|
$ |
|
In March 2023, FERC granted DESC authority through March 2025 to issue short-term indebtedness (pursuant to Section 204 of the Federal Power Act) in amounts not to exceed $
DESC, GENCO and Fuel Company each have intercompany credit facilities with Dominion Energy with a maximum capacity of $
14
DESC is obligated with respect to an aggregate of $
6. INCOME TAXES
For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to DESC’s effective income tax rate as follows:
Six Months Ended June 30, |
|
2023 |
|
|
2022 |
|
||
U.S. statutory rate |
|
|
% |
|
|
% |
||
Increases (reductions) resulting from: |
|
|
|
|
|
|
||
State taxes, net of federal benefit |
|
|
|
|
|
|
||
Reversal of excess deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Allowance for equity funds used during construction |
|
|
|
|
|
( |
) |
|
Settlements of uncertain tax positions |
|
|
( |
) |
|
|
|
|
Other, net |
|
|
( |
) |
|
|
|
|
Effective tax rate |
|
|
% |
|
|
% |
As of June 30, 2023, DESC’s effective tax rate reflects an income tax benefit of $
7. DERIVATIVE FINANCIAL INSTRUMENTS
DESC’s accounting policies, objectives, and strategies for using derivative instruments are discussed in Note 2 in the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022. See Note 8 for further information about fair value measurements and associated valuation methods for derivatives.
Cash collateral, as presented in the table below, is used to offset derivative assets and liabilities. Certain of DESC’s derivative instruments contain credit-related contingent provisions. These provisions require DESC to provide collateral upon the occurrence of specific events, primarily a credit rating downgrade. If the credit-related contingent features underlying the instruments that are in a liability position and not fully collateralized with cash were fully triggered as of June 30, 2023 and December 31, 2022, DESC would have been required to post $
The table below presents derivative balances by type of financial instrument, if the gross amounts recognized in the Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid. DESC’s commodity derivative assets are not subject to a master netting agreement or similar arrangement.
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
|
Gross Amounts Not Offset in the Consolidated |
|
|
Gross Amounts Not Offset in the Consolidated |
|
||||||||||||||||||||||||||
(millions) |
|
Gross |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
|
Gross |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Over-the-counter |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total derivatives |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
15
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
|
Gross Amounts Not Offset in the Consolidated |
|
|
Gross Amounts Not Offset in the Consolidated |
|
||||||||||||||||||||||||||
(millions) |
|
Gross |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
|
Gross |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Over-the-counter |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total derivatives |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Volumes
The following table presents the volume of derivative activity at June 30, 2023. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions.
|
|
Current |
|
|
Noncurrent |
|
||
Electricity (MWh in millions): |
|
|
|
|
|
|
||
Fixed price |
|
|
|
|
|
|
||
Interest rate(1)(in millions) |
|
$ |
|
|
$ |
|
16
Fair Value and Gains and Losses on Derivative Instruments
The following tables present the fair values of derivatives and where they are presented in the Consolidated Balance Sheets:
(millions) |
|
Fair Value - |
|
|
Fair Value - |
|
|
Total Fair Value |
|
|||
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
ASSETS |
|
|
|
|
|
|
|
|
|
|||
Current Assets |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) |
|
|
|
|
|
|
|
|
|
|||
Noncurrent Assets |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
(2) |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|||
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
(3) |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
At December 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
ASSETS |
|
|
|
|
|
|
|
|
|
|||
Current Assets |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) |
|
|
|
|
|
|
|
|
|
|||
Noncurrent Assets |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
(2) |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|||
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||||
(3) |
|
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
The following tables present the gains and losses on derivatives, as well as where the associated activity is presented in the Consolidated Balance Sheets and Statements of Comprehensive Income:
Derivatives in Cash Flow Hedging Relationships
(millions) |
Increase (Decrease) in Derivatives Subject to Regulatory Treatment(1) |
|
|||||
Three Months Ended June 30, |
2023 |
|
|
2022 |
|
||
Derivative type and location of gains (losses): |
|
|
|
|
|
||
Interest rate |
$ |
|
|
$ |
|
||
Total |
$ |
|
|
$ |
|
||
Six Months Ended June 30, |
|
|
|
|
|
||
Derivative type and location of gains (losses): |
|
|
|
|
|
||
Interest rate |
$ |
|
|
$ |
|
||
Total |
$ |
|
|
$ |
|
17
Derivatives Not Designated as Hedging Instruments
(millions) |
|
Amount of Gain (Loss) Recognized in Income on Derivatives(1) |
|
|||||
Three Months Ended June 30, |
|
2023 |
|
|
2022 |
|
||
Derivative type and location of gains (losses): |
|
|
|
|
|
|
||
Commodity contracts: |
|
|
|
|
|
|
||
|
|
$ |
( |
) |
|
$ |
|
|
Interest rate contracts: |
|
|
|
|
|
|
||
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
( |
) |
|
$ |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
||
Derivative type and location of gains (losses): |
|
|
|
|
|
|
||
Commodity contracts: |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Interest rate contracts: |
|
|
|
|
|
|
||
|
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
( |
) |
|
$ |
|
8. FAIR VALUE MEASUREMENTS, INCLUDING DERIVATIVES
DESC’s fair value measurements are made in accordance with the policies discussed in Note 2 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022. See Note 7 in this report for further information about DESC’s derivatives and hedge accounting activities.
The following table presents DESC’s quantitative information about Level 3 fair value measurements at June 30, 2023. The range and weighted average are presented in dollars for market price inputs.
|
|
Fair Value |
|
|
Valuation Techniques |
|
Unobservable Input |
|
|
Range |
|
Weighted |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical forwards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity |
|
$ |
|
|
Discounted cash flow |
|
Market price (per MWh) |
(2) |
|
|
|||
Total assets |
|
$ |
|
|
|
|
|
|
|
|
|
|
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) |
18
Recurring Fair Value Measurements
The following table presents DESC’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:
(millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
At December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following table presents the net change in DESC'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, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
(millions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Included in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchased power |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Included in regulatory assets/liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Settlements |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
There are
Fair Value of Financial Instruments
Substantially all of DESC’s 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 financial instruments classified within current assets and current liabilities are representative of fair value because of the short-term nature of these instruments.
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
(millions) |
|
Carrying Amount |
|
|
Estimated Fair Value(1) |
|
|
Carrying Amount |
|
|
Estimated Fair Value(1) |
|
||||
Long-term debt(2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Affiliated long-term debt(3) |
|
|
|
|
|
|
|
|
|
|
|
|
19
9. EMPLOYEE BENEFIT PLANS
In DESC’s Consolidated Statements of Comprehensive Income, the service cost component of net periodic benefit (credit) cost is reflected in other operations and maintenance expense with the non-service cost components reflected in other income. Components of net periodic benefit cost (credit) recorded by DESC were as follows:
(millions) |
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
||||||||||
Three Months Ended June 30, |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Amortization of actuarial losses |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Net periodic benefit cost (credit) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Amortization of actuarial losses |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net periodic benefit cost (credit) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
During the three and six months ended June 30, 2023, DESC made
10. COMMITMENTS AND CONTINGENCIES
As a result of issues generated in the ordinary course of business, DESC is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by regulatory authorities), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for DESC to estimate a range of possible loss. For such matters that DESC cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that DESC is able to estimate a range of possible loss. For legal proceedings and governmental examinations that DESC is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. DESC maintains various insurance programs, including general liability insurance coverage which provides coverage for personal injury or wrongful death cases. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent DESC’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will change from time to time and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on DESC’s financial position, liquidity or results of operations.
Environmental Matters
DESC is subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.
From a regulatory perspective, DESC continually monitors and evaluates its current and projected emission levels and strives to comply with all state and federal regulations regarding those emissions. DESC participates in the SO2 and NOX emission allowance programs with respect to coal plant emissions and also has constructed additional pollution control equipment at its coal-fired electric generating plants. These actions are expected to address many of the rules and regulations discussed herein.
Air
The CAA, as amended, is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation's air quality. At a minimum, states are required to establish regulatory programs to meet applicable requirements of the CAA. However,
20
states may choose to develop regulatory programs that are more restrictive. Many of DESC’s facilities are subject to the CAA’s permitting and other requirements.
ACE Rule
In July 2019, the EPA published the final rule informally referred to as the ACE Rule, as a replacement for the Clean Power Plan. The ACE Rule regulated GHG emissions from existing coal-fired power plants pursuant to Section 111(d) of the CAA and required states to develop plans by July 2022 establishing unit-specific performance standards for existing coal-fired power plants. In January 2021, the U.S. Court of Appeals for the D.C. Circuit vacated the ACE Rule and remanded it to the EPA. This decision would take effect upon issuance of the court’s mandate. In March 2021, the court issued a partial mandate vacating and remanding all parts of the ACE Rule except for the portion of the ACE Rule that repealed the Clean Power Plan. In October 2021, the U.S. Supreme Court agreed to hear a challenge of the U.S. Court of Appeals for the D.C. Circuit’s decision on the ACE Rule. In June 2022, the U.S. Supreme Court reversed the D.C. Circuit’s decision on the ACE Rule and remanded the case back to the D.C. Circuit. In May 2023, the EPA proposed to repeal the ACE Rule as part of a package of proposed rules addressing CO2 emissions from new and existing fossil fuel-fired electric generating units. Until the EPA takes final action on this proposed rulemaking, DESC cannot predict an impact to its operations, financial condition and/or cash flows.
Carbon Regulations
In August 2016, the EPA issued a draft rule proposing to reaffirm that a source’s obligation to obtain a PSD or Title V permit for GHGs is triggered only if such permitting requirements are first triggered by non-GHG, or conventional, pollutants that are regulated by the New Source Review program, and exceed a significant emissions rate of
In December 2018, the EPA proposed revised Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources. The proposed rule would amend the previous determination that the best system of emission reduction for newly constructed coal-fired steam generating units is no longer partial carbon capture and storage. Instead, the proposed revised best system of emission reduction for this source category is the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units) in combination with best operating practices. The proposed revision to the performance standards for coal-fired steam generating units remains pending. Until the EPA ultimately takes final action on this rulemaking, DESC cannot predict the impact to its results of operations, financial condition and/or cash flows.
Water
The CWA, as amended, is a comprehensive program requiring a broad range of regulatory tools including a permit program to authorize and regulate discharges to surface waters with strong enforcement mechanisms. DESC must comply with applicable aspects of the CWA programs at its operating facilities.
Regulation 316(b)
In October 2014, the final regulations under Section 316(b) of the CWA that govern existing facilities and new units at existing facilities that employ a cooling water intake structure and that have flow levels exceeding a minimum threshold became effective. The rule establishes a national standard for impingement based on seven compliance options, but forgoes the creation of a single technology standard for entrainment. Instead, the EPA has delegated entrainment technology decisions to state regulators. State regulators are to make case-by-case entrainment technology determinations after an examination of
Effluent Limitations Guidelines
In September 2015, the EPA released a final rule to revise the ELG Rule. The final rule established updated standards for wastewater discharges that apply primarily at coal and oil steam generating stations. Affected facilities are required to convert from wet to dry or closed cycle coal ash management, improve existing wastewater treatment systems and/or install new wastewater treatment
21
technologies in order to meet the new discharge limits. In April 2017, the EPA granted
Capacity Use Area
In November 2019, a new CUA was established in the counties surrounding the Cope Generating Station (Western Capacity Use Area) under the South Carolina Groundwater Use and Reporting Regulation. Under the regulation any groundwater well in a CUA that withdraws above
Waste Management and Remediation
The operations of DESC are subject to a variety of state and federal laws and regulations governing the management and disposal of solid and hazardous waste, and release of hazardous substances associated with current and/or historical operations. The CERCLA, as amended, and similar state laws, may impose joint, several and strict liability for cleanup on potentially responsible parties who owned, operated or arranged for disposal at facilities affected by a release of hazardous substances. In addition, many states have created programs to incentivize voluntary remediation of sites where historical releases of hazardous substances are identified and property owners or responsible parties decide to initiate cleanups.
From time to time, DESC may be identified as a potentially responsible party in connection with the alleged release of hazardous substances or wastes at a site. Under applicable federal and state laws, DESC could be responsible for costs associated with the investigation or remediation of impacted sites, or subject to contribution claims by other responsible parties for their costs incurred at such sites. DESC also may identify, evaluate and remediate other potentially impacted sites under voluntary state programs. Remediation costs may be subject to reimbursement under DESC’s insurance policies, rate recovery mechanisms, or both. Except as described below, DESC does not believe these matters will have a material effect on results of operations, financial condition and/or cash flows.
DESC has
Ash Pond and Landfill Closure Costs
In April 2015, the EPA enacted a final rule regulating CCR landfills, existing ash ponds that still receive and manage CCRs, and inactive ash ponds that do not receive, but still store, CCRs. DESC currently has inactive and existing CCR ponds and CCR landfills subject to the final rule at
In December 2016, legislation was enacted that creates a framework for EPA-approved state CCR permit programs. In August 2017, the EPA issued interim guidance outlining the framework for state CCR program approval. The EPA has enforcement authority until state programs are approved. The EPA and states with approved programs both will have authority to enforce CCR requirements under their respective rules and programs. In September 2017, the EPA agreed to reconsider portions of the CCR rule in response to
22
changes to the CCR rule. In August 2018, the U.S. Court of Appeals for the D.C. Circuit issued its decision in the pending challenges of the CCR rule, vacating and remanding to the EPA three provisions of the rule. Until this matter is resolved and all phases of the CCR rule are promulgated, DESC is unable to precisely estimate potential incremental impacts or costs related to existing coal ash sites in connection with future implementation of the final CCR rule. In May 2023, the EPA released a proposed rule addressing one of the previously remanded provisions of the CCR rule to regulate inactive surface impoundments located at retired generating stations that contained CCR and liquids after October 2015, and certain other inactive or previously closed surface impoundments, landfills or other areas that contain accumulations of CCR. Until the EPA ultimately takes final action on this rulemaking, DESC is unable to predict whether or to what extent the new rules will ultimately require additional controls. While such amounts may be material to DESC’s results of operations, financial condition and/or cash flows, the existing regulatory framework in South Carolina provides rate recovery mechanisms that could substantially mitigate any such impacts.
Claims and Litigation
The following describes certain legal proceedings involving DESC relating primarily to events occurring before closing of the SCANA Combination. In addition, certain legal matters which have been resolved are discussed in Note 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material. For certain of these matters, and unless otherwise noted therein, DESC is unable to estimate a reasonable range of possible loss and the related financial statement impacts, but for any such matter there could be a material impact to its results of operations, financial condition and/or cash flows. For the matters for which DESC is able to reasonably estimate a probable loss, the Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 include reserves of $
Governmental Proceedings and Investigations
In June 2018, DESC received a notice of proposed assessment of approximately $
Nuclear Operations
Nuclear Insurance
There have been no significant changes regarding DESC’s nuclear insurance as described in Note 12 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022.
23
11. OPERATING SEGMENTS
The Corporate and Other segment includes specific items attributable to DESC’s operating segment that are not included in profit measures evaluated by executive management in assessing the segment’s performance or in allocating resources.
In the six months ended June 30, 2023, DESC reported after-tax net income of $
The net income for specific items attributable to DESC’s operating segment in 2023 primarily related to a $
(millions) |
|
External |
|
|
Comprehensive |
|
||
Three Months Ended June 30, 2023 |
|
|
|
|
|
|
||
Dominion Energy South Carolina |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
|
||
Consolidated Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
||
Dominion Energy South Carolina |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
|
||
Consolidated Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Six Months Ended June 30, 2023 |
|
|
|
|
|
|
||
Dominion Energy South Carolina |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
|
||
Consolidated total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
||
Dominion Energy South Carolina |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
( |
) |
|
Consolidated total |
|
$ |
|
|
$ |
|
24
12. AFFILIATED AND RELATED PARTY TRANSACTIONS
DES, on behalf of itself and its parent company, provides the following services to DESC, which are rendered at direct or allocated cost: information systems, telecommunications, customer support, marketing and sales, human resources, corporate compliance, purchasing, financial, risk management, public affairs, legal, investor relations, gas supply and capacity management, strategic planning, general administrative and retirement benefits. Costs for these services include amounts capitalized.
DESC transacts with affiliates for certain quantities of electricity in the ordinary course of business. DESC also enters into certain commodity derivative contracts with affiliates. DESC uses these contracts, which are principally comprised of forward commodity purchases, to manage commodity price risks associated with purchases of electricity. See Note 7 for additional information.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Direct and allocated costs from DES(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating Revenues - Electric from sales to affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Expenses - Other taxes from affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases of electricity from solar affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Payable to Dominion Energy |
|
$ |
|
|
$ |
|
||
Payable to DES |
|
|
|
|
|
|
||
Payable to SCANA Corporation |
|
|
|
|
|
|
||
Payable to Public Service Company of North Carolina, Incorporated |
|
|
|
|
|
|
||
Payable to solar affiliates |
|
|
|
|
|
|
||
Derivative assets with affiliates(1) |
|
|
|
|
|
|
Borrowings from an affiliate are described in Note 5.
13. OTHER INCOME, NET
Components of other income, net are as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Other income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
Gains on sales of assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allowance for equity funds used during construction |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other income, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(1)
In the second quarter of 2023, DESC completed the sale of certain utility property in South Carolina, as approved by the South Carolina Commission in February 2023, for total cash consideration of $
In June 2022, DESC completed the sale of certain utility property in South Carolina, as approved by the South Carolina Commission in May 2022, for total cash consideration of $
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A provides management’s narrative analysis of its consolidated results of operations. MD&A should be read in conjunction with DESC's Consolidated Financial Statements. DESC meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.
Forward-Looking Statements
This report contains statements concerning DESC’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements.” In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “continue,” “target” or other similar words.
DESC makes forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to:
26
Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part I. Item 1A. Risk Factors in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022.
DESC’s forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. DESC cautions the reader not to place undue reliance on its forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. DESC undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
Results of Operations
Presented below is a summary of DESC’s results:
|
|
Second Quarter |
|
|
Year-To-Date |
|
||||||||||||||||||
(millions) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
||||||
Net income |
|
$ |
81 |
|
|
$ |
126 |
|
|
$ |
(45 |
) |
|
$ |
178 |
|
|
$ |
233 |
|
|
$ |
(55 |
) |
Overview
Second Quarter 2023 vs. 2022
Net income decreased 36%, primarily due to a decrease in sales to electric utility customers attributable to weather.
Year-To-Date 2023 vs. 2022
Net income decreased 24%, primarily due to a decrease in sales to electric utility customers attributable to weather.
27
Analysis of Consolidated Operations
Presented below are selected amounts related to DESC’s results of operations:
|
|
Second Quarter |
|
|
Year-To-Date |
|
||||||||||||||||||
(millions) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
||||||
Operating revenues |
|
$ |
704 |
|
|
$ |
909 |
|
|
$ |
(205 |
) |
|
$ |
1,463 |
|
|
$ |
1,758 |
|
|
$ |
(295 |
) |
Fuel used in electric generation |
|
|
135 |
|
|
|
254 |
|
|
|
(119 |
) |
|
|
285 |
|
|
|
428 |
|
|
|
(143 |
) |
Purchased power |
|
|
29 |
|
|
|
27 |
|
|
|
2 |
|
|
|
36 |
|
|
|
58 |
|
|
|
(22 |
) |
Gas purchased for resale |
|
|
45 |
|
|
|
89 |
|
|
|
(44 |
) |
|
|
127 |
|
|
|
194 |
|
|
|
(67 |
) |
Other operations and maintenance |
|
|
142 |
|
|
|
148 |
|
|
|
(6 |
) |
|
|
298 |
|
|
|
308 |
|
|
|
(10 |
) |
Impairment of assets and other charges |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
Depreciation and amortization |
|
|
131 |
|
|
|
126 |
|
|
|
5 |
|
|
|
260 |
|
|
|
251 |
|
|
|
9 |
|
Other taxes |
|
|
74 |
|
|
|
71 |
|
|
|
3 |
|
|
|
152 |
|
|
|
144 |
|
|
|
8 |
|
Other income, net |
|
|
18 |
|
|
|
20 |
|
|
|
(2 |
) |
|
|
28 |
|
|
|
24 |
|
|
|
4 |
|
Interest charges |
|
|
63 |
|
|
|
53 |
|
|
|
10 |
|
|
|
122 |
|
|
|
105 |
|
|
|
17 |
|
Income tax expense |
|
|
22 |
|
|
|
31 |
|
|
|
(9 |
) |
|
|
33 |
|
|
|
57 |
|
|
|
(24 |
) |
An analysis of DESC’s results of operations follows:
Second Quarter 2023 vs. 2022
Operating revenues decreased 23%, primarily reflecting:
Fuel used in electric generation decreased 47%, primarily due to decreased fuel costs associated with electric utility retail customers ($106 million) and a decrease in fuel costs associated with off-system sales ($12 million), which are offset in operating revenue and do not impact net income.
Gas purchased for resale decreased 49%, primarily due to a decrease in costs associated with gas utility customers, which are offset in operating revenue and do not impact net income.
Other operations and maintenance decreased 4%, primarily due to a decrease in outside services ($9 million), partially offset by an increase in salaries, wages and benefits and administrative expenses ($7 million).
Other income, net decreased 10%, primarily due to higher non-service costs related to pension and other postretirement benefits ($9 million) and a decrease on the sale of certain utility property ($5 million), partially offset by a gain on the transfer of certain utility property ($11 million).
Interest charges increased 19%, primarily due to higher interest rates on intercompany borrowings and commercial paper borrowings.
Income tax expense decreased 29%, primarily due to lower pre-tax income.
Year-To-Date 2023 vs. 2022
Operating revenues decreased 17%, primarily reflecting:
28
Fuel used in electric generation decreased 33%, primarily due to decreased fuel costs associated with electric utility retail customers ($130 million) and a decrease in fuel costs associated with off-system sales ($12 million), which are offset in operating revenue and do not impact net income.
Purchased power decreased 38%, primarily due to a decrease in costs associated with electric utility customers, which are offset in operating revenue and do not impact net income.
Gas purchased for resale decreased 35%, primarily due to a decrease in costs associated with gas utility customers, which are offset in operating revenue and do not impact net income.
Other operations and maintenance decreased 3%, primarily due to a decrease in outside services ($13 million), partially offset by an increase in salaries, wages and benefits and administrative expenses ($5 million).
Other income, net increased 17%, primarily due to a gain on the transfer of certain utility property ($20 million), partially offset by higher non-service costs related to pension and other postretirement benefits ($10 million) and a decrease on the sale of certain utility property ($5 million).
Interest charges increased 16%, primarily due to higher interest rates on intercompany borrowings and commercial paper borrowings ($29 million), partially offset by lower interest expense due to higher debt AFUDC ($7 million).
Income tax expense decreased 42%, primarily due to lower pre-tax income ($20 million) and a benefit associated with the effective settlement of an uncertain tax position ($11 million).
29
ITEM 4. CONTROLS AND PROCEDURES
Senior management of DESC, including DESC’s CEO and CFO, evaluated the effectiveness of DESC’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, DESC’s CEO and CFO have concluded that DESC’s disclosure controls and procedures are effective.
There were no changes that occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, DESC’s internal control over financial reporting.
30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, DESC is party to various legal, environmental or other regulatory proceedings, including in the ordinary course of business. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that DESC reasonably believes will exceed a specified threshold. Pursuant to the SEC regulations, DESC uses a threshold of $1 million for such proceedings.
See the following for discussions on various legal, environmental and other regulatory proceedings to which DESC is a party, which information is incorporated herein by reference:
ITEM 1A. RISK FACTORS
DESC’s business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond its control. A number of these risk factors have been identified in DESC’s Annual Report on Form 10-K for the year ended December 31, 2022, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in DESC's Annual Report on Form 10-K for the year ended December 31, 2022. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see Forward-Looking Statements in MD&A in this report.
ITEM 5. OTHER INFORMATION
During the last fiscal quarter,
31
ITEM 6. EXHIBITS
Exhibit No. |
|
Description |
3.1 |
|
|
3.2 |
|
|
4.1 |
|
Dominion Energy South Carolina, Inc. agrees to furnish to the U.S. Securities and Exchange Commission upon request any instrument with respect to long-term debt as to which the total amount of securities authorized does not exceed 10% of its total consolidated assets. |
31.a |
|
|
31.b |
|
|
32.a |
|
|
101 |
|
The following financial statements from Dominion Energy South Carolina, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed on August 4, 2023, formatted in iXBRL (Inline eXtensible Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Common Equity, and (v) the Notes to Consolidated Financial Statements. |
104 |
|
Cover Page Interactive Data File (formatted in iXBRL (Inline eXtensible Reporting Language) and contained in Exhibit 101). |
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
DOMINION ENERGY SOUTH CAROLINA, INC. |
|
|
|
(Registrant) |
|
|
|
|
By: |
/s/ Michele L. Cardiff |
Date: August 4, 2023 |
|
Michele L. Cardiff |
|
|
Senior Vice President, Controller and Chief Accounting Officer |
33