Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 5. Income Taxes

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to the Companies’ effective income tax rate as follows:

	Dominion Energy						Virginia Power
Nine Months Ended September 30,	2021			2020			2021			2020
U.S. statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		2.0			1.5			4.5			4.7
Investment tax credits		(5.6	)		(30.5	)		(5.8	)		(5.6	)
Production tax credits		(0.5	)		(2.4	)		(0.6	)		(0.9	)
Reversal of excess deferred income    taxes		(3.8	)		(14.5	)		(2.2	)		(1.9	)
State legislative change		(1.0	)		—			(1.0	)		—
Change in tax status		—			(6.1	)		—			—
AFUDC - equity		(0.5	)		(1.1	)		(0.5	)		(0.3	)
Changes in state deferred taxes associated    with assets held for sale		(0.5	)		(11.6	)		—			—
Absence of tax on noncontrolling interest		(0.2	)		14.1			—			—
Other, net		(1.1	)		(1.8	)		—			—
Effective tax rate		9.8	%		(31.4	)%		15.4	%		17.0	%

For the Companies’ rate-regulated entities, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. The Companies have recorded an estimate of excess deferred income tax amortization in 2021. The reversal of these excess deferred income taxes will impact the effective tax rate and rates charged to customers. See Note 13 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020 for more information.

For the nine months ended September 30, 2021, the Companies’ effective tax rates reflect the benefit of a state legislative change enacted in April 2021 for tax years beginning January 1, 2022. Dominion Energy’s effective tax rate reflects a $21 million deferred tax benefit, inclusive of a $16 million deferred tax benefit at Virginia Power.

For the nine months ended September 30, 2020, Dominion Energy’s effective tax rate reflects an income tax benefit of $45 million associated with the remeasurement of consolidated state deferred taxes with the classification of gas transmission and storage operations as held for sale.  In addition, Dominion Energy’s effective tax rate reflects an income tax expense of $55 million attributable to the noncontrolling interest primarily associated with the impairment of solar assets held in partnership form discussed in Note 11.

As of September 30, 2021, there have been no material changes in the Companies’ unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 5 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of these unrecognized tax benefits.

Discontinued operations

Income tax expense (benefit) included in discontinued operations is $5 million and $(572) million for the nine months ended September 30, 2021 and 2020, respectively.  2021 income taxes include a $15 million benefit related to finalizing income tax returns on the GT&S Transaction. 2020 income taxes reflect a charge of $81 million for the write-off of tax-related regulatory assets associated with the Atlantic Coast Pipeline Project.