Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The matters discussed in this Item may contain "forward-looking statements" as described in the introductory paragraphs of Item 7. MD&A. The reader's attention is directed to those paragraphs and Item 1A. Risk Factors for discussion of various risks and uncertainties that may impact DESC.

Market Risk Sensitive Instruments and Risk Management

DESC's financial instruments, commodity contracts and related financial derivative instruments are exposed to potential losses due to adverse changes in interest rates and commodity prices as described below. Interest rate risk is generally related to DESC's outstanding debt and future issuances of debt. In addition, DESC is exposed to investment price risk through various portfolios of equity and debt securities.

The following sensitivity analysis estimates the potential loss of future earnings or fair value from market risk sensitive instruments over a selected time period due to a 10% change in interest rates.

Commodity Price Risk

To manage price risk, DESC holds commodity-based derivative instruments held for non-trading purposes associated with the purchases of electricity.

The derivatives used to manage commodity price risk are executed within established policies and procedures and include instruments such as physical forwards that are sensitive to changes in the related commodity prices. For sensitivity analysis purposes, the hypothetical change in market prices of commodity-based derivative instruments is determined based on models that consider the market prices of commodities in future periods, as well as the time value factors of the derivative instruments. Prices are principally determined based on observable market prices.

A hypothetical 10% decrease in commodity prices would have resulted in a decrease of $89 million and $87 million in the fair value of DESC's commodity-based derivative instruments at December 31, 2025and 2024, respectively.

The impact of a change in energy commodity prices on DESC's commodity-based derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled.

Interest Rate Risk

DESC manages its interest rate risk exposure predominantly by maintaining a balance of fixed and variable rate debt. For variable rate debt outstanding for DESC, a hypothetical 10% increase in market interest rates would result in a $3 million and $6 million decrease in earnings at December 31, 2025and 2024, respectively.

DESC also uses interest rate derivatives, including forward-starting swaps and interest rate swaps to manage interest rate risk. DESC had $71 million in aggregate notional amounts of these interest rate derivatives outstanding at both December 31, 2025and 2024. A hypothetical 10% decrease in market interest rates would have resulted in a decrease of $2 million and $3 million in the fair value of DESC's interest rate derivatives at December 31, 2025and 2024, respectively.

The impact of a change in interest rates on DESC's interest rate-based financial derivative instruments at a point in time is not necessarily representative of the results that will be realized when the contracts are ultimately settled. Net gains and/or losses from interest rate derivative instruments used for hedging purposes, to the extent realized, will generally be offset by recognition of the hedged transaction.

Investment Price Risk

DESC is subject to investment price risk due to securities held as investments in nuclear decommissioning trust funds which primarily hold insurance contracts that are reported in the Consolidated Balance Sheets at fair value.

DESC recognized net investment gains (including investment income) on nuclear decommissioning trust investments of $22 million and $21 million for the years ended December 31, 2025and 2024, respectively.

DESC participates in the SCANA sponsored pension plan that holds investments in trusts to fund employee benefit payments. DESC's pension plan assets experienced aggregate actual returns of $61 million and $50 million in 2025and 2024, respectively, versus expected returns of $41 million and $37 million, respectively. Differences between actual and expected returns on plan assets are accumulated and amortized during future periods. As such, any investment-related declines in these trusts will result in future increases in the net periodic cost recognized for such employee benefit plans and will be included in the determination of the amount of cash to be contributed to the employee benefit plans. A hypothetical 0.25% decrease in the assumed long-term rates of return on DESC's plan assets would result in an increase in the following year's net periodic cost of $2 million for both the years ending December 31, 2025and 2024for pension benefits.

Risk Management Policies

DESC has established operating procedures with corporate management to ensure that proper internal controls are maintained. In addition, Dominion Energy has established an independent function at the corporate level to monitor compliance with the credit and commodity risk management policies of all subsidiaries, including DESC. Dominion Energy maintains credit policies that include the evaluation of a prospective counterparty's financial condition, collateral requirements where deemed necessary and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. In addition, Dominion Energy also monitors the financial condition of existing counterparties on an ongoing basis. Based on these credit policies and DESC's December 31, 2025provision for credit losses, management believes that it is unlikely that a material adverse effect on DESC's financial position, results of operations or cash flows would occur as a result of counterparty nonperformance.