Dominion Energy, Inc.

Welcome to the Dominion Energy Third Quarter Earnings Conference call. At this time, each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. Instructions will be given for the procedure to follow if you would like to ask a question. I would now like to turn the call over to David McFarland, Vice President, Investor Relations and Treasurer.

Good morning, and thank you for joining today's call. Earnings materials, including today's prepared remarks, contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual reports on Form 10-K and our quarterly reports on Form 10-Q for a discussion of factors that may cause results to differ from management estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAP. Reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate, are contained in the earnings release kit. I encourage you to visit our investor relations website to review webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chair, President, and Chief Executive Officer, Stephen Ridge, Executive Vice President and Chief Financial Officer, and Diane Leopold, Executive Vice President and Chief Operating Officer. I will now turn the call over to Steven. Thank you, David, and good morning, everyone. Now that the final transaction associated with the business review is complete, let me start by saying that we have repositioned Dominion Energy to provide compelling long-term value for shareholders, customers, and employees. Since our March 1st investor meeting, we've consistently communicated the three following priorities. One, hitting our financial plan. two, delivering offshore wind on time and on budget, and three, achieving constructive regulatory outcomes. By achieving these goals, we empower our employees to deliver on our critical mission to provide the reliable, affordable, and increasingly clean energy that powers our customers every day. On today's call, we'll address each of these areas of focus. First, hitting our financial plan. Third quarter operating earnings, as shown on slide three, were 98 cents per share, which for this quarter represented normal weather in our utility service areas. Third quarter gap results were $1.12 per share. As always, a summary of all drivers for earnings relative to the prior year period is included in schedule four of the earnings release kit, and a summary of all adjustments between operating and reported results are included in schedule two. With nine months of 2024 financial results reported, we're narrowing our full year guidance range to $2.68 to $2.83 per share, while preserving the original guidance midpoint of $2.75. As we highlighted on the last call, fourth quarter earnings are expected to be impacted by higher than expected financing costs and normal course movement of operating and maintenance expense from the first half to the second half of the year. Fourth quarter earnings will also be negatively impacted by the earlier than planned closing of the CVAO partnership because the associated non-controlling interest hurt, net of debt reduction, is beginning earlier than we expected. Honestly, that's an assumption I'm happy to have been too conservative about as early closing of the transaction represents a meaningful de-risking of our plan. Quickly turning to 2025 through 2029, where there are no changes to our prior guidance. We are reaffirming all guidance, including 2025 operating earnings per share of between $3.25 and $3.54, inclusive of approximately 10 cents of RNG 45Z credit income, with a midpoint of $3.40. We continue to forecast an operating earnings annual growth rate range of 5% to 7% through 2029, off a 2025 midpoint of $3.30, which excludes the impact of the RNG 45Z credits due to the legislative sunset of that credit at the end of 2027. As a reminder, we continue to expect to see variation within our annual 5% to 7% growth range as a result of the millstone refueling cadence, which requires a second planned outage once every third year. Finally, we'll provide a comprehensive capital investment forecast update through 2029 on our fourth quarter earnings call, which will take place as usual in early 2025. Turning now to slide four. As I mentioned earlier, I'm delighted to report that we have now closed on 100% of the debt reduction initiatives that we announced during the business review. Since our last update, we've successfully closed on the sale of the public service company of North Carolina to Enbridge and the CVAO partnership with Stone Peak. Combined with previous closings, this effort represented approximately $21 billion in debt reduction across six separate transactions requiring multiple federal and state regulatory approvals, all of which were completed in line with or ahead of our publicly announced timeline. We view this as a significant achievement made possible by the collaboration of our counterparties and hard work of our employees. We appreciate the thorough and comprehensive reviews performed by our regulators. I'll finish my remarks on our financing plan as shown on slide five. With the completion of our third quarter financing activities, including our $1.2 billion VEPCO debt issuance and $200 million of ATM issuance, we have fully achieved our 2024 financing plan. We'll continue to monitor ways to de-risk the company's 2025 financing needs by opportunistically accessing the market through the remainder of the year if and when conditions warrant. For instance, as you'll see in the 10Q filing, we've gotten a head start on 2025 guided ATM issuance, selling approximately $200 million of shares under the traditional forward sales structure that we expect to settle at the end of 2025. In conclusion, I'll reiterate that I am highly confident in our ability to deliver on our financial plan. The post-review guidance has been built to be appropriately but also not unreasonably conservative to weather unforeseen challenges that may come our way. With that, I'll turn the call over to Bob.

Thank you, Steven, and good morning. I'll start my remarks by highlighting our safety performance. As shown on slide six, our employee OSHA injury recordable rate for the first nine months of the year was .44, in line with the continued positive trend from the last two years. I commend my colleagues for their consistent focus on employee safety, which is our first core value. In late September, Hurricane Helene caused historic devastation to many communities, including within our South Carolina service area. As a result, we saw significant destruction of our infrastructure, which caused nearly 450,000 service disruptions. At its peak, Helene left nearly half of our South Carolina electric customers without power. This was the largest storm to hit our South Carolina system since Hurricane Hugo 35 years ago. Our employees, many of whom didn't have power or water themselves, worked around the clock in challenging conditions to quickly and safely restore power to our customers. They were joined by over 1,000 of our Virginia team members and partners who traveled south to lend their assistance. The restoration involved replacing over 1,000 transformers, 2,300 poles, and 7,000 spans of wire. Although we've not completed our final accounting, our preliminary estimate of restoration costs, including capital expenditures, is in the range of 100 to 200 million dollars. Given that costs are expected to be in excess of $100 million, we intend to work with the Office of Regulatory Staff and key stakeholders to evaluate a potential securitization of those deferred costs. We know that this storm impacted the lives of many, including our employees, and our thoughts continue to be with the families and communities that are rebuilding. I'm incredibly proud of our employees and commend all involved for their commitment to serving our customers. We've provided direct financial aid to over 20 different local organizations in the communities impacted by the storm to support disaster recovery and response, including meals, shelter, emergency services, and supplies. And we will continue to look for ways to support our customers, employees, and communities. With that, let me provide a few updates on the execution of our plan. Beginning with CEVAW, the project is proceeding on time and on budget consistent with the timelines and estimates previously provided. We just completed a very successful first monopile installation season. As shown on slide seven, we've installed 78 monopiles, as well as four pen piles that support the first of three planned offshore substations. Additionally, we've laid the first two of nine marine deepwater export cables ahead of schedule. I'm very pleased with our progress during this first season. Not only did we achieve our installation's target, we also gained invaluable experience and process expertise. that will make the next installation season even more productive. I also want to thank our partners at DEME for the high-quality work they delivered. Additional CEVAL project updates can be found on slide 8, but a few items to highlight. On materials and equipment, thus far we've taken receipt of 96 monopiles at the Portsmouth Marine Terminal, representing 55% of the project total. Our partner, EEW, continues to make strong progress, and we expect deliveries to continue steadily in coming weeks. All three offshore substations remain on track with the first substation and final commissioning and expected to be completed and shipped to Virginia for installation before the next Bonaparte season begins. 82 transition pieces have completed final assembly, of which 33 have been delivered to the Portsmouth Marine Terminal. Additionally, with fabrication of towers commencing last June, the schedule for the manufacturing of our turbines remains on track. We anticipate the nacelle and blade production will begin in the first quarter of 2025. On regulatory, as you may have seen, we made our 2024 offshore wind rider filing this morning, representing $640 million of annual revenue. Turning to slide 9, the project's expected LCOE has improved to approximately $56 per megawatt hour, the primary driver being forecasted wreck prices, which have increased in value considerably. Keep in mind that higher REC prices are credited against the levelized cost of energy as value delivered to customers. Project to date, as of September 30th, we've invested approximately $5.3 billion and remain on target to spend approximately $6 billion by year-end 2024. Also, per the quarterly filing update today, current unused contingency is $121 million compared to $143 million last quarter. The current contingency level continues to benchmark competitively as a percentage of total budgeted costs remaining when compared to other large infrastructure projects we've studied and ones that we've completed in the past. We have been very clear with our team and with our suppliers and partners that delivery of an on-budget project is the expectation. Lastly, the project is currently 43% complete, and we've highlighted the remaining major milestones on slide 10. Turning to slide 11, let me now provide a few updates on Charybdis. Since August, we've completed engine load testing to support crane operations, with parallel engine testing underway. In the coming weeks, the final sections of the legs will be set by the crane, as well as overall electrical work to allow for commissioning activities. The vessel is currently 93% complete, up from 89% as of our last update. We expect completion of Charybdis in early 2025, consistent with our previous guidance range of late 24, early 25. The vessel will complete sea trials and then return to port for additional work that will allow it to hold the turbine towers, blades, and the cells. There's no change to the vessel's expected availability to support the current sea valve construction schedule, which we anticipate will start in the third quarter next year. There's also no change to the vessel's cost of $715 million. Moving out of slide 12, we continue to see strong data center growth in Virginia and have already connected 14 new data centers year to date. We now expect to connect 16 data centers in 2024, up from 15 as of our last update. Since 2013, we've averaged around 15 data center connections per year. Turning to data center demand on slide 13, these contracts are broken into one, substation engineering letters of authorization, two, construction letters of authorization, and three, electrical service agreements. As customers move from one to three, the cost commitment and obligation by the customer increases. We're currently studying approximately eight gigawatts of data center demand within the substation engineering letters of authorization stage. which means a customer has requested the company to begin the necessary engineering for new distribution and substation infrastructure required to serve the customer. There are also about six gigawatts of data center demand that have executed construction letters of authorization, which are contracts that enable construction of the required distribution and substation electric infrastructure to begin. Should customers in this stage elect to discontinue projects, they're obligated to reimburse the company for our investment to date. Finally, the eight gigawatts included in electrical service agreements, or ESA, represent contracts for electric service between Dominion Energy and a customer. Each contract is structured for an individual account. By signing an ESA, the customer is committing to consuming a certain level of electricity annually, often with ramp schedules where the contracted usage grows over time. In aggregate, we have data center demand of over 21 gigawatts as of July 2024, which compares to around 16 gigawatts as of July 2023. These contracted amounts do not contemplate the many data center projects that are in development phase and have not yet reached a point in the service connection process where a contract is executed. Turning to slide 14, let me update you on our transmission system planning. As I've shared previously, the PJM DOM zone is experiencing unprecedented load growth. This has resulted in a similarly unprecedented increase in both the quantity and size of delivery point requests for transmission service on our system. For context, we've received 63 construction delivery point requests year-to-date September, representing nearly 13 gigawatts of capacity. Since 2020, we've received 280 construction delivery point requests, representing nearly 40 gigawatts of capacity. We've recently begun implementing changes to our process that will only affect new delivery point requests. This will allow us to organize load requests into batches and serve them in the order they're received. Importantly, this will ensure our customers can continue to count on high system reliability, even as demand increases materially. Since we began communicating these changes, we've continued to see robust demand from customers. Turning to slide 15, let me share a few additional business updates. First, on the transmission side, we submitted project proposals in September in PJM's latest open window process for our own transmission portfolio and as part of a joint planning agreement along with AEP and First Energy. We believe this regional collaborative approach allows our companies to offer better solutions to customers than what we could offer alone. While final project selections by PJM won't be made until early 2025, there is a robust need for new transmission across the region. And we expect this open window to reflect that. Recall that last year, we were awarded over 150 transmission projects totaling $2.5 billion. On the generation front, we've announced a number of updates in recent weeks. First, on October 1st, we filed our annual update in the subsequent license renewal proceeding for our nuclear units at Surrey and North Anna. seeking recovery of costs incurred for the North Anna Extension and costs for Phase II of the overall Nuclear Life Extension Program, consisting of investments during calendar years 2025 through 2027. On October 15th, we filed our next set of utility-scale solar projects with the Virginia SCC, representing approximately $600 million of investment. Also on October 15th, we filed our 2024 Virginia Integrated Resource Plan, which presented several possible generation build portfolios with additional resource capacity across both renewable and dispatchable generation technologies in response to continued robust load growth and changes in PJM's resource adequacy values. The IRP calls for more of every resource, including more solar, more storage, more wind, more gas, and even more nuclear. On that note, turning to slide 16, on October 16th, we announced an MOU with Amazon to further explore the feasibility of developing SMR technology at North Anna. To be clear, our interest is in supporting customer power needs and advancing next-generation nuclear in a way that protects our customers, our capital providers, our business risk profile, and balance sheet from development risks, including first-of-a-kind risk. We're in early stages here, so I'm going to be limited in what I can share on potential structures and the like. But I've explained the factors we'll consider in evaluating any final agreement, and we'll provide more details in the future as we're able. I will say that it's very encouraging to see large power users, including technology companies, express a willingness to invest, partner, and collaborate to bring this exciting, baseload, carbon-free technology into fruition. Finally, I'd note that we're actively involved in discussions with other potential partners that are very interested in pursuing similar arrangements. On October 24th, we closed on the acquisition of an approximately 40,000-acre offshore wind lease from Avangrid, representing approximately 800 megawatts of additional possible regulated offshore wind generation. This is in addition to the lease area we secured adjacent to CVAO, which could support even more regulated offshore wind in the future. No timelines on how or when or how much it will cost to advance these options further. Our unique expertise and proprietary knowledge associated with offshore wind developed through our CVOW project gives our customers a competitive advantage. These announcements altogether reflect an all-of-the-above approach to meeting growing demand, and we look forward to working constructively with all stakeholders on these projects. As we've said before, when we consider demand growth, we think about the full value chain, transmission, distribution, and generation infrastructure investment that has and will continue to drive utility rate-based growth. Given these drivers, we expect there to be opportunities for incremental regulated capital investment towards the back end of our plan and beyond. As noted, we plan to update our capital guidance on our fourth quarter earnings call in early 2025. As always, we will look at incremental capital through the lenses of customer affordability, system reliability, balance sheet conservatism, and our low-risk profile. On customer affordability, as shown on slide 17, our current residential electric rates at DEV and DESC are 14% and 11% below U.S. average, respectively. And based on the build plans proposed in both states' latest IRPs, both will maintain customer bill growth rates through the forecast periods below current electricity inflation levels. Turning to regulatory updates in South Carolina and North Carolina on slide 18. As mentioned last quarter, we agreed to a settlement with the Office of Regulatory Staff and other interveners in South Carolina in our electric rate case proceeding. which was approved by the South Carolina Public Service Commission in August, with rates becoming effective on September 1st. In addition, policymakers continue to evaluate potential energy legislation, and we're appreciative of the significant time spent to date by the legislature on this important topic. As we've indicated in the past, we're committed to supporting South Carolina's growing economy. However, as we've testified, the regulatory framework for DESC creates regulatory lag that makes it practically impossible to earn our allowed return, especially as compared to other regulated jurisdictions and the surrounding southeast regulatory jurisdictions as well. In North Carolina, we reached a settlement with the public staff and other intervenors in our base rate proceeding on October 1st, providing approximately $37 million increase in revenue requirement premised upon a 9.95% ROE and a 52.5% equity layer. The agreement also stipulates that $9 million in annual ongoing CCR costs be removed from base rates and placed in a standalone rider, subject to approval. Interim rates become effective today in North Carolina, pending the Commission's final order. Overall, we continue to achieve constructive outcomes in all of our regulated service territories. Before I conclude my remarks, let me provide a few comments on millstone. As we've said in the past, we view millstone as a very valuable asset. It provides more than 90% of Connecticut's carbon-free electricity, and 55% of its output is under a fixed-price contract through late 2029. The remaining output is significantly de-risked by our hedging program. As many of you are aware, there has been recent legislative activity in New England, and in Massachusetts specifically, aimed at authorizing future additional procurements of nuclear power. And we've continued to engage with multiple parties there to find the best value for Millstone. In addition to state-sponsored procurement, we're exploring the idea of supporting incremental data center activity as well. We feel strongly that any data center option needs to be pursued in a collaborative fashion with stakeholders in Connecticut. At this point, we don't have a timeline for any potential announcements, but this remains top of mind for us. With that, let me summarize our remarks on slide 19. Our safety performance this quarter remains strong, but there's more work to do to drive injuries to zero. We reaffirmed all financial guidance from March 1 and narrowed our 2024 earnings guidance range. Our offshore wind project remains on time and on budget. We continue to make the necessary investments to provide the reliable, affordable, and increasingly clean energy that powers our customers every day. And we are 100% focused on execution. We know we must continue to deliver, and we will. With that, we're ready to take your questions.