Investing.com -- Moody’s Ratings has downgraded the ratings of Virginia Electric and Power Company (VEPCO), affecting over $21 billion of debt securities. The downgrade included VEPCO’s senior unsecured rating, which shifted to A3 from A2, and its commercial paper rating, which changed to P-2 from P-1. Concurrently, Moody’s Ratings altered Dominion Energy (NYSE: D ), Inc.’s outlook to negative from stable, while affirming its existing ratings.
The rating actions reflect the increasingly uncertain political and economic environments that Dominion and VEPCO operate in, and the potential impact these developments could have on their cash flows and financial metrics. Dominion’s financial metrics were below Moody’s expectations in 2024, contributing to its negative outlook.
VEPCO’s downgrade mirrors the credit challenges faced by Dominion. However, VEPCO now has more financial flexibility at the A3 rating level to handle additional financial pressure and adverse operational or regulatory outcomes, resulting in its stable outlook.
Ryan Wobbrock, Vice President, Senior Credit Officer at Moody’s, cited the unpredictable geopolitical environment and uncertain economic conditions as potential disruptors to Dominion’s $10.8 billion offshore wind project. He also mentioned that Dominion’s current financial metrics were borderline for its Baa2 rating, with a cash flow to debt ratio of about 13.5% in 2024, which is below its downgrade threshold of 14%.
Both Dominion and VEPCO are expected to see some financial improvement in 2025. However, the combination of the Coastal Virginia Offshore Wind (CVOW) construction and the importance of the Virginia biennial rate review poses unique challenges. Additionally, financial metrics could be pressured by larger industry trends, such as growing customer demand that could necessitate sharp increases to capital spending and associated debt financing.
Following the conclusion of its business review in March 2024, Dominion instituted more credit-supportive financial policies. However, it remains unclear if these measures will be sufficient to offset the broader macroeconomic headwinds that could affect its business. This year, the most effective of these financial policies have included the risk-sharing of CVOW cost increases and higher equity issuance to bolster Dominion’s balance sheet.
On March 31, 2025, VEPCO filed its biennial earnings review with Virginia regulators, requesting nearly $1.2 billion in rate increases through 2027, including fuel costs. VEPCO’s financial performance, including a ratio of CFO pre-WC to debt of approximately 19.5% in 2024, is more reflective of an A3 rated credit profile, given the CVOW construction.
Dominion’s negative outlook reflects geopolitical and economic headwinds that could result in CFO pre-WC to debt ratios remaining below 14%, including federal tariff uncertainties, execution risks related to the CVOW project and potential recessionary pressures on its customers.
VEPCO’s stable outlook includes Moody’s expectation that the company will generate CFO pre-WC to debt ratios over 19% during the next 12-18 months, providing a cushion at the current A3 rating level.
Dominion Energy South Carolina, Inc.’s (DESC) A2 First Mortgage Bonds rating, stable outlook and all other ratings remain unchanged. DESC’s ratings are premised upon improving regulatory support and CFO pre-WC to debt ratios that are expected to be in the 18-20% range on a run-rate basis.
Factors that could lead to an upgrade for Dominion or VEPCO include successful execution of management’s plans, resulting in a CFO pre-WC to debt ratio exceeding 14% in 2025 for Dominion, and CFO pre-WC to debt in excess of 22% for VEPCO, without requiring material one-time adjustments.
Factors that could lead to a downgrade for Dominion or VEPCO include a CFO pre-WC to debt ratio remaining below 14% for Dominion or dropping below 19% for VEPCO, further cost increases or schedule delays related to the CVOW project, or adverse social developments such as negative regulatory outcomes or CVOW construction challenges.
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