Q1 2020 Earnings Call
Good morning, and welcome to the Dominion Energy first quarter earnings Conference call at this time, Egypt. Your lines just said they listen only mode at the conclusion of today's presentation, we will open the floor for questions.
Instructions will be given the procedure to follow if you would like to ask a question.
I'd now like to turn the call over to Steven Rich Vice President Investor Relations team.
Good morning, and thank you for joining us.
Earnings materials, including today's prepared remarks may contain forward looking statements and estimates that are subject to various risks and uncertainties. Please refer to our FCC filings, including her most recent annual reports on form 10-K, Q and our quarterly reports on form 10-Q for a discussion of factors that may cause results to differ from managements.
Estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAAP reconciliation of our non-GAAP measures. The most directly comparable GAAP financial measures, which we are can calculate are contained in the earnings release kit.
I encourage you to visit our Investor Relations website.
Revert to review the earnings conference call materials, including the earnings release kit.
During today's call, our Tom Farrell, Chairman, President and Chief Executive Officer, Jim Chapman Executive Vice President Chief Financial Officer, and Treasurer as well as other members of the executive management team I will now turn the call over to Tom.
Thanks, Stephen Good morning.
I would like to start by expressing our gratitude for the healthcare and other frontline professionals.
Who are engaged in a heroic effort to assist those who are good most acutely impacted by the covert 19 pandemic.
[noise] received our efforts with deep appreciation and express our sympathy to all those who've lost love wants to the disease.
I also want to thank our own field personnel, who are performing vital public service by literally keeping the lights on and critical energy flowing.
Dish frontline employees are supported by thousands and thousands of others, who provide equally important service to our customers.
As everyone, who follows Dominion knows the safety of our employees is paramount.
It's a pandemic began to emerge we acted quickly to ensure that our employees were equipped to handle the impact to the virus.
We've utilized our frequently drilled crisis response plans now continually supplemented by the most up today health service and government recommendations.
Our efforts include implementing appropriate social distancing policies and activating our remote connection infrastructure, which has enabled more than half of our workforce to operate remotely.
We have followed best practices in the distribution and use a pea.
And we're extending health and paid time off benefits as wells, establishing a financial assistance program for employees, the botch grants up to $2000 to employees in need.
We've also donated $1 million, the American Red Cross and local not profits to assist directly with Corona virus relief.
This is in addition to the millions of dollars, we provide each year to customer assistance programs and charitable causes throughout our communities.
This is the core value of one dominion energy in practice.
Well, even a single case, so cobot 19 is a serious concern.
We've been fortunate that across more than 19000 employees in 20 states of operation. We have had very few test positive.
The majority of which are either asymptomatic, well mildly symptomatic and most of whom have already returned to work.
We're keeping those employees in our thoughts and we'll continue to be focused on the health and wellbeing of our entire workforce.
Not losing sight of our central duty to provide reliable and affordable energy.
[laughter] thoughts are also with our customers we're mindful of the hardships many are enduring.
That is why for example, we voluntarily suspended non payment service does connections and wave late fees across all our utility service territories.
We will also offer customers tools designed to assist them overcome the financial challenges they may be facing.
[noise] as our state and regional economies gradually begin to reopen we're taking preventative steps to ensure that our workplaces are safe and that our customers received the best possible customer service.
I'll now turn the call over to Jim George you, our quarterly results as well our fall as our thoughts uncoated related impacts.
Thank you Tom.
Oh first turning to slide four to report that our quarterly operating earnings per share.
Adjusted for normal weather met or exceeded the midpoint of our guidance range for the 17th consecutive quarter.
Our first quarter 2020 operating earnings were one dollar a nine cents per share, which included a nine cents hurt from significantly worse than normal weather.
This was a this was the third warmest first quarter in Virginia on record.
[laughter] weather normalize result at the $1.18 cents per share exceeded the guidance range midpoint.
Recall that whether in the first quarter last year was the six and hurt but during the following three quarters, we more than overcame that and finished the year with a total weather help of two cents.
You know without adjusting for whether this was the 17th consecutive quarter of results within our guidance range.
GAAP earnings for the quarter or negative 34 cents per share.
This result is driven in part by a noncash charge related to the planned early retirement of certain coal and oil fired generating units in Virginia [noise].
Consistent with the requirements of the recently enacted Virginia Clean economy Act.
The retirement of these units has been contemplated in previous versions of our integrated resource plan and was formally announced in late March.
We also had a noncash impact attributable to unrealized losses on our nuclear decommissioning trust funds and as a reminder, we reports on such unrealized gains and losses on these funds as non operating.
A summary of adjustments between operating and reported results is included in scheduled two of the earnings release Cats.
On slide five we are we are initiating second quarter 2020 operating earnings guidance with a range of 75 to 85 cents per share.
We're also affirming our annual guidance range of $4 in 25 cents to $4.60 per share.
As usual these ranges assume normal weather variation from which could cause results to be toward the top or the bottom of these ranges.
The second quarter and full year guidance ranges also reflect our preliminary expectations for the impacts of coded on our financial results.
Before I walk through each of our operating segments, let me address potential questions around our expectations for the shape and pace of the economic recovery.
And affirming our annual guidance today, we have assumed that the economy begins to ramp up through late summer, though as you will see momentarily demand in Virginia. Thus far is positive relative to recent years. Despite the pandemic.
Of course variations in the duration and the severity of economic recovery may ultimately impact our financial results more or less than our current forecasts.
The future is difficult to predict which is why we are reiterating the demand related earnings sensitivities for our two electric utilities.
We hope this is useful for our analysts and investors to synthesize their models to reflect their own perspectives on the shape of the economic recovery.
In any case just as we have since early March we plan to provide periodic public updates on the various aspects of the crisis is impact on our business, including updates on load as we make our way through the economic reopening process, which will occur gradually.
Began yesterday in South Carolina and is expected to begin in Virginia and 10 days.
Now I'll address our businesses, starting with our largest segment Dominion energy Virginia.
On slide six we present updated load related data.
This graph represents daily weather normalized load in the PGM Dom zone as compared to a two year historic weather normalized average.
As you can see the impact of cobot zonal demand has not changed materially since our prior disclosures and Virginia load is continuing to prove extremely resilient.
We attribute this to four factors illustrated on slide seven.
First residential usage, which typically typically accounts for around 45% of segment revenue.
Last month, we saw year over year weather normal residential load increased by about 3%.
As you can see residential customers contribute more to revenue per unit of usage that are larger volume classes.
Second the proliferation of data centers in our service territory.
Despite the state wide stayed home order April weather normalized commercial loans decreased by only 3% as a result of cobot, mostly due to the stabilizing effect of data center demand growth.
Third limited industrial exposure.
It's all industrial demand decreased by around 3% in April only 6% of DVS revenue is attributable to industrial usage.
And finally government military and other demand, which accounts for 16% of revenue and when she was.
Which was up almost 4% year over year last month.
Let me also point out a few aspects of our regulatory framework, which are important to consider as they relate to the financial impact of the cobot crisis.
Around 40% of DVS rate base isn't rider form that allows for an annual true up for changes in sales volumes.
In addition fuel pass through related revenue is also adjusted annually to account for among other factors over or under recovery due to usage.
Well not observable in the low data we've shared these two mitigant taken together account for half of D. These operating revenue and represent effective decoupling from changes in load.
We continue to monitor the situation closely.
Based on observable data, we're not at present forecasting major cobot, driven revenue impacts associated with reduced load.
Dominion Energy, Virginia during the remainder of 2020.
Of course, the situation is dynamic and so we are reiterating for your reference a previously published rules of thumb for load variations by class.
Accounting for nearly 45% of our operating earnings D.V. represents our largest state regulated utility exposure to coated related demand fluctuations by far.
[noise], let me now turning to slide eight to walk through the same data for Dominion energy South Carolina's electric operations.
Well the time executive order took effect on March 30, Onest, we've seen a noticeable decline and weather normal demand as compared to the two year historic average.
Specifically aprils electric demand was almost 10% on a relative basis.
Well, we expect increases in residence in residential demand, our South Carolina operations, when compared to Virginia do not benefit from the same data center loads stability and as demonstrated on slide nine are more exposed to industrial load.
10 of de Esses top 30, industrial manufacturing customers have temporarily idled at least some production.
However, all but two of those 10 have communicated plans to restart production in the coming weeks.
In Virginia, there are some structural mitigant load impact like in Virginia, There's some structural mitigant load impact on revenue and South Carolina.
[noise] first around 25% of de FCS total rate base isn't rider form with monthly true ups.
Almost another another 10% a rate base is attributable to South Carolina gas distribution operations that operate under regulation that chews up annually.
Finally fuel pass through related revenue for both electric and gas operations adjusted annually to account for among other factors over or under recovery due to usage.
[noise] well not observable in the low data we've shared these three mitigants taken together account for nearly 50% of de he sees operating revenues and represent effective decoupling from changes in load.
Further the impact of co bid on our South Carolina financial performance stands to be relatively less impactful financially given Dominion energy South Carolina overall earnings contribution is approximately 10% dominion's forecasted operating earnings.
[noise] future the future is difficult to predict what we currently expect that load trend will gradually rebound to the late summer.
However, the situation is dynamic and therefore, we are also read reiterating our rules of thumb for variations and load class in load by class for D.S. sees electric operations.
Please note that these sensitivity.
Assume a full year, 1% change in load.
April alone represents only a small percentage of annualized load given first it's typically the lowest sales level of any month.
And of course, it's only one of 12 month of the year.
Oh that ill also note here that we voluntarily requested a 60 day delay to our upcoming South Carolina electric base rate proceeding.
For the merger agreement. This was originally expected to commence later this quarter and conclude with new rates effective January 2021.
We feel strongly this is the prudent approach to take.
Let me turn to slide 10, now to address our remaining segments, what effect, which I'll be able to cover more more quickly.
First gas distribution.
Which accounts for around 15% of operating earnings.
Over 80% of segment operating margin is protected through decoupling or fixed charges, including writers and gas pass through mechanisms.
These constructive rate structures significantly reduce the impact we expect to see from coded related demand fluctuations.
I should also point out there we are entering a multi month period of off peak in shoulder demand seasons for gas distribution.
[noise] next gas transmission, and storage, which <unk>, which accounts for nearly a quarter of operating earnings.
A few points here.
First the typical contract structure is long term and take or pay with reservation or capacity charges, which are largely independent of utilization.
Average remaining contract life is six to seven years for existing pipelines and storage and much longer for could point liquefaction and HCP.
Second this is a demand pull dominated segment.
As we shared at Investor day, approximately 80% of the revenues attributable to segment assets are derived from demand driven counterparties such as utilities.
Third counterparty quell counterparty credit quality is high.
Given the regulated utility skew of the customer base.
Where shippers did not meet our stringent internal credit standards, we typically require higher than that industry average protections.
Moving collateral in the form of cash or letter letter of credits that often covers multiple years of exposure.
And finally, coop point liquefaction contracts or take or pay and allow the shippers to deliver cargos anywhere in the world not prohibited by U.S. policy.
The customers are obligated to pay regardless of usage I would note that through today customers continues to nominate volumes that are at the plant design capacity.
And finally contract duration operates operates primarily under long term PPSA, our hedge arrangement arrangement, which are unlikely to be materially impacted by the effects of cobot.
[laughter], taking a step back now we're also watching payment arrears data carefully across all of our segments.
To date, we've seen modest increases which are consistent with our expectations.
That said, we will work carefully with our customers over the coming months to provide options and tool to maintain service and assist them in returning account to current.
We do not expect bad debt expense in excess of budgeted amounts to be a material driver for the year.
So not directly comparable.
During the financial crisis, we saw annual bad debt expense D. E V. For instance increase by around just $20 million.
There are electric business like most of our peers bad debt is addressed during periodically base rate case proceedings at nearly all of our gas utilities, we have full or partial ability to recover bad debt expense under real time rate mechanisms, such as dedicated trackers or fuel pass through adjustment clauses.
[noise], while the impact of Covidien confident on our financial results. During the first quarter was muted we're not assuming that this but that will continue indefinitely.
That is why we are redoubling, our efforts to identify opportunities to reduce costs generally across our businesses as we look to be prepared as we look to be prepared to achieve our affirmed annual guidance range.
Not in a position today to quantify a total amount a few straight forward. Examples would include reductions and business travel office supply and operational fuel expenses as well as the impacts of implementing a hiring freeze.
We will continue to monitor these and other Oh NIM reduction options.
Turning now to liquidity as shown on slide 11.
As volatility in capital markets increased significantly in March we moved quickly and opportunistically to enhance our liquidity position how does an abundance of caution.
Over a period of around 15 days, we added nearly $5 billion of available or funded debt capital.
On slide 12, we update our annual financing plan for our year to date issuance.
I'll note for the avoidance of doubt that as of today. There is no change to our long term debt financing amount our external.
Equity need of $300 million under our drip program or our capex guidance for the year.
We have and will continue to look for at the potential to defer small amounts of capital investment where safety and reliability will not be compromised.
But any thoughts deferral would be relatively small and short lived.
We've not observed any major disruptions to any of our key supply chain.
[noise] and finally, a few comments regarding our pension on slide 13.
We entered the year with a 92% funded status up meaningfully from the previous year.
Well, it's way too early to tell where we will land at year end 2020, when we remeasure assets assets and liabilities a few factors to consider.
First discount rate.
Which are based on long term all in corporate bond yields.
Our around the same levels observed at the end of last year, despite lower treasury rates.
The second at the end of January this year, we decided to hedge the equity exposure and our plan assets using the futures market.
As public equities fell in March we took advantage to monetize monetize most of our hedge position at 25 and 30% in the money levels.
We are beginning to reinvest as cash proceeds back into equity exposure.
As a result through April plan assets or close to flat for the year, which compares favorably to the significant declines that may be expected for typical pinch and portfolios.
I will reiterate there's a long way to go before the next expected re measurement date of December 31st.
But regardless of where we end up for the year unfunded status, we do not expect to need any pension plan contributions this year or next.
Turning now to slide 14, and in summary, we reported our 17th consecutive quarter of weather normal results at or above the midpoint of guidance.
And our 17th consecutive quarter results within our guidance range.
We feel that our businesses are well positioned with regard to co that related demand impact, but we are monitoring the situation the situation carefully.
We affirmed our annual operating EPS range of $4.25 to $4.60 per share.
And we're also affirming our post 2020 guidance of five plus percent annual operating EPS growth as well as our dividend per share growth of 2.5% per annum subject as is customary to board approval.
Ill now turn the call back over to Tom.
Thanks, Jim.
Amidst the turmoil of the global pandemic, our employee employees have been singularly focused on maintaining reliable and safe operations for the individuals and families businesses industries and government agencies that we are fortunate to count as customers.
We are in the public service business and our work directly impacts lots of our customers and communities. Let me share three specific examples that occurred over just the last six weeks on the opposite sides of the country and shown on slide 15.
On the morning of March 18, the Salt Lake City Valley experienced largest earthquake to occur in that region in 30 years.
The 5.7 magnitude event generated nearly 1800 service calls in 1400 gas distribution work orders.
Which were both over 20 times normal.
Our crews went to work immediately to address any potential safety issues to ensure reliable service to homes and businesses in the middle of the winter season.
As a testament to the quality of our infrastructure and as a result of the significant investments in integrity and pipeline replacement programs authorized by our regulators.
We have found zero material Catholics across our system as a result of the earthquake.
Less than four weeks later on April 13, 21 tornadoes touched down in South Carolina, four of which were classified as you have three strength with winds up to 165 miles per hour.
And one of which was classified as an easy for torment tornado with winds up to 200 miles per hour.
It was but most prolific day of tornado activity in South Carolina in the last 35 years.
[noise] within 24 hours, our crews had restored 96% or the 117000 of our customers are lost service during the storm [noise].
During the next two days are people worked very long hours and devastated areas to finish restoring service and along the way, helping those communities five a measure of normalcy.
The aftermath of the storm the South Carolina office of regulatory staff issued a press release commending the dedication that effort of the states electrical personnel men and women, who worked tirelessly to ensure power systems were restored.
Even in the midst of a global pandemic.
[noise] that same day 300 miles northeast heavy rains and wins costing to 70 miles per hour across Virginia, North Carolina interrupted service to nearly 200000 of our customers within 24 hours, 95% of customers have been restored by our crews, but the final 5% reconnected over the fall.
12 hours.
I'm proud that are not surprised at the way in which our Dominion energy team members have responded on behalf of our customers throughout this trying time.
Turning to safety, which is our first core value [noise].
Our first quarter safety results rank us number one among our southeastern peer group and puts us on track for another year of record performance.
Through the end of March or Osha recordable rate is approximately one half that of the first quarter of last year.
Also two weeks ago seven of our gas infrastructure operating companies received awards from the AJ for superior safety performance.
[noise] for the remainder of my prepared remarks, I will address the results of the Virginia General Assembly section and the status of the Atlantic Coast pipeline.
Virginia Legislative session formally concluded last month.
April 11, governor nor them signed into law, the Virginia Clean economy Act will be CEA.
Which complements the existing grid transformation and security Act adopted in 2018.
That law established a comprehensive framework for utility regulation and investment in Virginia.
As shown on slide 16, the BC EA sets our company on a path of achieving the most significant legislatively mandated clean energy investment program in the United States.
As a result, Virginia is poised to become a nationwide leader in zero carbon deployment over the next three decades.
This mandate will create thousands of jobs support localities bolster the Virginia economy attract businesses and families improving environment and serve as an example for other states seeking to achieve similarly ambitious sustainable energy goals.
The plan also supports our enterprise wide net zero methane and carbon emissions targets by 2050.
The VCA calls for and finds in the public interest the development of renewable generation and energy resources storage resources as follows.
5200 megawatts of offshore wind, 100% of which maybe utility out.
16100 megawatts of solar or onshore wind, 65% of which maybe utility up.
And 2700 megawatts of energy storage, 65% of which maybe utility up.
These targets are to be met over the next 15 years with additional goals by 2045 in.
In addition to establishing a public interest determination for these programs blog outline some specific regulatory approval criteria and affirms rider eligibility for each of those programs.
I'll discuss them in turn.
[noise] regarding our previously announced 2600 megawatts coastal Virginia offshore wind project.
The commission is required to presumed costs are reasonable and prudent if the project meets three key tests as shown on slide 17.
First competitive procurement and solicitation solicitation standards for components are met [noise].
We have met the standard on our Virginia projects for many years.
We have always thought to drive down costs, while also balancing performance and reliability to optimize value for our customers.
Second the projected levelized cost of energy LCR, we is reasonable relative to a specific a benchmark.
Early estimates for project LCR, we are of 80 to $90 per megawatt hour compare very favorably to this benchmark.
This range does not include the benefit of any available federal tax incentives, which are working to preserve for the benefit of customers.
And third the projects construction commences prior to 2024 or has a plan to enter service by 2028.
Our project satisfies both milestones.
We're pleased with the progress to date on both our pilot and full scale deployments. Despite the pandemic. The primary pilot project components have arrived from Europe as shown on the cover slot.
And we expect installation to begin this quarter with commercial in service by year end.
We've also initiated the sub sea survey work that will support the submission of our full scale offshore construction and operation plan to bomb by the end of the year.
We had joined in this work with the Virginia fishing industry.
We continue to work with equipment manufacturers and service providers to encourage making Virginia the hub for the U.S. offshore wind industry.
And we are leading a consortium of industry experts and participants in the development of a fully Jones Act compliant installation vessel that will be equipped to handle all current turban technologies as well as the next generation turban sizes of 12 megawatts and larger these mega Turbans result in fewer foundations.
And reduce construction and maintenance costs, thereby lowering the levelized cost of energy.
[noise], the vessel, which will be funded by consortium participants, including Dominion energy.
Well enter service in 2023 and operate continuously for several years under contracts with multiple major U.S. offshore wind developers.
Based on our current estimates for fully installed costs, which we expect will reduce overtime [noise].
Offshore wind as directed by the VCA represents between 8 billion and $17 billion of capital investment over the next 15 years.
This range just consistent at the low end with our previously announced cost estimate for our 2600 megawatt project.
The high end represents an incremental opportunity associated with loss direction to put an additional 2600 megawatts into service by 2035.
Accordingly, we are updating our five year growth capital estimate for this program by one year.
The new outlook now totals $3.5 billion and reflects the ramp up on our full scale deployment in 2024, our previous your plan included only $1.1 billion.
We plan to make an initial rider filing in 2022.
[noise] next solar in onshore wind as shown on slide 18.
Given Virginia is relatively onshore wind resource, we expect that the vast majority of the laws mandate in this area will be met through a very significant expansion of the states solar capacity.
As I mentioned previously blocked calls for over 16000 megawatts by 2036, 10000 of which can be utility.
In other words Dominion will install on average nearly 700 megawatts of solar every year for each of the next 15 years.
Today, we have achieved more than 70% of our previous commitment of at least 3000 megawatts by 2022 in its first quarter, we had our third solar rider application approved by the Virginia Commission.
Medini ambitious targets set by the VCA will require a re doubling of effort in this area and we have already begun to significantly increase our activity.
[noise] and granting approval for solar and onshore wind as well as energy storage. The lot directs the commission to give due consideration to quote the promotion of new renewable generation and associated economic development projected fuel savings and the Rps standards of the law.
Assuming 65% utility ownership is provided in the last solar generation represents approximately $19 billion of capital investment over the next 15 years.
Our roll forward five year growth capital forecast now totaled $5.5 billion as we seek to accelerate investments to meet the laws milestones.
Our prior estimate was $3.7 billion.
[noise] next energy storage, which includes our existing efforts to develop pumped storage facility in southwestern Virginia.
The Commission recently approved for battery technology pilot projects totaling around $30 million at about 16 megawatts.
Order cheap, but 2700 megawatt target established by the law, we focused on a very aggressive effort in years to costs.
Assuming 65% utility ownership is provided in the law energy storage represents approximately $7 billion of capital investment over the next 15 years [noise].
Our existing five year growth capital plan, which were a rising only modestly as we roll forward by one year already included around a billion dollars related to pumped storage.
On slide 20, we show the impact on updating our five year growth capital estimates for just these three programs.
Which shows a 4 billion dollar in over 70% increase.
We're not updating existing five year cap capex figures for other programs or segments today.
But we do not expect any material changes for our most recent guidance.
We will look for an opportunity in the future to provide a comprehensive update across all segments.
Looking longer term on slide 21.
These three legislative priorities of wind solar and energy storage taken together represent based on current cost estimates somewhere between $34 billion and $43 billion growth capital over the next 15 years subject to regulatory approval.
This is additive to the existing rider eligible investments, we will make this decade or electric transmission.
Circular re licensing.
Strategic Undergrounding.
Grid modernization.
And renewable enabling quickstart generation.
Together these projects represent nearly $16 billion of growth capital also subject to regulatory approval.
To give these figures some context Dominion energy Virginia's 2019 year end rate base was around $24 billion.
Turning to slide 22 as reported in our.
Our recent integrated resource plan.
We expect typical residential customer bills from 29 team through 2030.
Including authorize pass throughs related to Virginia, joining the regional greenhouse gas initiative to keep pace with average historic inflation.
We expect fuel savings from increased dispatch of renewable generation to be a key customer benefit of course, we always work to maintain competitive and affordable rates and we have a track record of success as demonstrated by our current rates, which are below the state regional and national averages.
I would also note that our current typical customer bill is almost 40% lower than the average of Reggie participating states.
We expect that our future rates will stay lower by a very wide margin compared to those states.
Further the VCA expands on existing programs that are designed to direct through direct funds to assist lower income customers.
[noise] the proliferation of renewable but intermittent resources across our system will also require the continuation of our extensive investment in transmission infrastructure as solar generation sites emerge throughout the state.
I will also require an increasingly modern grid, which is why the recent commission decision to reject certain although certainly not all aspects of our most recent grid transformation filing was disappointing for our company and particularly for our customers.
We will continue to see comprehensive deployment of smart meters and other enhancements across our system, which will greatly improve the way, we interact with customers as well as our ability to manage our increasingly two way energy delivery system.
[noise] VCA and associated legislation will dramatically change our generation fuel mix over the years to comp.
That will not change is our obligation to customers to provide 24 by seven energy with least possible disruption.
That is a message that has been clearly reinforced during the cobot pandemic.
Technological operational and economic constraints around the multi day baseload discharge ability of existing battery technology.
Combined with the fact that sometimes in Virginia at least the when does not blow in the Sun does not shine for extended durations, meaning days not ours ensures that natural gas fired generation will continue to play a critical low emission role in our system for years and years to come.
That's why our policymakers wisely included language and the VCA in multiple places that provides express consent to consider system reliability and energy security Holistically before rolling out any low emitting fuel such as natural gas.
This aligns with our unwavering commitment to be net zero by 2050.
[noise] what is clear however is that less efficient and higher emitting sources of electric generation, such as coal and oil will phase out of our system.
To that end, we've taken steps since early 2019, including during this first quarter two required to retire more than 3300 megawatts of mostly coal and oil fired power stations.
Given recent changes in law. The commission is no longer mandated by statute to approve period expense treatment for these retirements.
Period Expensing is the best choice for customers and dictated by many years of existing commission precedent.
During the training to review under the framework established by the GTS say, if the commission determines that we have excess earnings either because they determined to overall existing precedent and.
And amortize plant retirement charges over a longer period of time [noise].
Or because our financial performance otherwise words, such determination, we will offset those excess earnings using dollar for dollar customer credit reinvestment offsets or CCR rose, including our 300 million dollar offshore wind pilot project investment.
Only if we are unable to fully offset excess earnings with CCR rose.
Would the commission be authorized to order, a onetime customer refunds and reduced rates by no more than $50 million through the following triennial review.
Which will conclude in late 2024.
Now to the Atlantic Coast pipeline and supply header.
Slide 23, we summarized the status of select project permits.
First the Appalachian Trail crossing.
On February 24, the Supreme Court heard oral arguments on a case, we expect to core tool and I see piece favor in the coming weeks such a ruling would restore the authorization of the project to proceed along the existing route.
Despite the pandemic the court continues to meet Telephonically and release orders on cases hurt earlier in the term.
Next the biological opinion.
Progress continues despite cobot as we provide information that is responsive to request from both FERC and the fish and wildlife service.
We expect the authorization to be reissued by the end of this quarter.
That period would mark nearly a 12 full 12 months since the court invalidated the prior version in July 2019.
Demonstrating the rigor with which the permitting agencies are approaching resolution of the concerns identified by the court.
In the case of the air permit for Buckingham compressor station, we've already begun to submit additional data and analysis to the Virginia Department of environmental quality, which we believe provides ample justification for the original airborne decision to approve the strictest minor source air permit in the nation.
And addresses all of the concerns or as part of the court.
We expect the permit to be were issued we issued by yearend.
Finally, with regard to the nationwide permit 12, which has issued for the project by the United States Army Corps of Engineers, we had expected the permits to be research reissued shortly after the issuance of the biological opinion.
As the core in recent months has taken steps that address the four circuits concerns.
The recent decision related to the Keystone pipeline by the District Court in Montana has potential implications for nearly all critical infrastructure investment and associated employment across the country.
This includes the provision of drinking water.
Electricity and fuel Internet radio television telephone and other communications and stands to impact service to the public governments defense installations hospitals schools and other businesses and industry.
Since the nationwide permit 12 program was renewed in March of 2017. It has been used more than 38000 times.
And the core estimates that it has over 5000 additional notifications awaiting action.
[noise] the department of Justice has sought and been granted expedited consideration for their motion for partial stayed pending appeal with all replies due by this Friday.
Expect a focused effort across the industry commerce and labor groups as well as department of Justice to clarify and resolve the issue in a timely manner.
With regard HCP, we believe it is too early to tell what if any impact us ruling will have on the existing and timing and cost of the projects, which are otherwise affirming today.
So many issuers revolve and timely manner, we can maintain the existing schedule and cost estimates along as we can take advantage of the November 2020 through March 2021 tree felling season.
We will continue to monitor and provide communication to investors as appropriate.
Based on these expectations, we remain confident in the successful completion of the project and note that there are no changes to the financial contribution estimates for 2020 and beyond the Gen provided on our fourth quarter earnings call.
Customers need this infrastructure now more than ever to ensure reliability of energy supply.
Accordingly, we have recently finalized negotiations with a major customers the provide a fair rate of return for the project owners and appropriately balanced project costs among the parties.
Further we remain confident in Virginia regulatory approval, the prudency of capacity contracts as part of Dominion energy.
Fuel filing cases, as a project nears operation.
Legislation that pasture and the recent Virginia General Assembly session established a fuel case review criteria.
Recognize the importance of energy reliability and largely mirrors the standard for prudency already employed by the commission.
With that I will summarize todays call as follows our safety performance is on track to set a new company record for the lowest Osha recordable rate.
We achieved weather normalized operating earnings that exceeded the midpoint of our guidance range for the 17th consecutive quarter.
We affirmed our 2020 earnings guidance, we confirmed our EPS growth expectations apply plus percent post 2020 [noise].
We're excited about the opportunities under recently enacted legislation in Virginia to increase the sustainability of our generation fleet.
Which will also be supportive of our corporate wide net zero carbon and methane emissions by 2050 commitment.
And we're making significant progress across all of our capital investment programs to the benefit of our customers.
We will now be happy to answer your questions.
Thanks.
We will open the floor for questions. She would like to ask your question. Please press star.
One key on your tax Tom Felmer now if it anytime you would like to move yourself from the question Q. Please press star too.
And to ask your question. Please press star one.
And our first question comes from sharp race.
<unk> partners. Please go ahead.
Hey, good afternoon, guys good morning.
Good morning.
It's a good details in your Capex projections with solar onshore wind offshore wind post the passage of the legislation and obviously you guys increase your capital budget for clean energy investments through your planning period is there anything you could point to structurally that could hinder you pulling additional spend forward as your total investment opportunity set as materially.
Higher I.E. Bill headroom permitting obviously offshore wind may have some hindrances, but how do we sort of think about further onshore or solar span being pulled forward. So trying to get a little bit of a sense on any potential upside to the near term plan and your current plus 5% growth trajectory, which is you know proving.
Somewhat manageable.
Hey, good morning, it's Jim Thanks. Thanks.
Yes, what we've done here is we have not.
Finally done.
A full Monte roll forward evolve our capital spending and address the you know more holistically, our long term growth rate et cetera. All we've done today is we've addressed.
An update a roll forward for new five year period, just for three programs just within one segment.
So.
We of course due to more holistic view.
Less frequently we did in 16, we Didnt 19, so that's not for today. So we will find the time in the future, where we will do a full walk through and be able to provide a little more color on other moving parts other than just these three updates on the on the specifics spending programs within DTV.
Got it sounds like you know so I guess, the takeaway and correct if I'm wrong. If the plan is becoming much more sustainable much more you know.
You'll be able to fine tune that five plus percent growth rate in time.
[noise], yeah, keeping in mind, when we set when we set to 5% plus growth rate, we announced that last March we hadn't our minds that this kind of spending program is going to continue or maybe even increase in Virginia and elsewhere, but that's right, we'll come back and address something more holistically. When we're not kind of in the midst of a global pandemic, we didn't think there.
Right time, [laughter] gotten caught it.
[laughter] agreed there by the way into just real quick last question on HCP, you kind of stay the timely resolution to the nationwide 12 permit right is there any more color you can provide on this I mean, when would you start to reevaluate the timing if the resolution was push to a <unk> later part of the year and then.
How can you just maybe elaborate a little bit more on your latest contract negotiations with customers, what's been sort of the debate as it did or what's been sort of the push pull or is it more folks are focused on cold it and that's been a bit of a slowdown so just maybe a little bit more elaboration on the negotiations and I'll jump back.
In the queue. Thanks.
Thanks to our I'll talk I'll answer the first part of your your first question Diane will answer your second question. So you know the key dates for US is as we said is the tree cutting season.
Which runs through the end of through March of next year, we need.
No 10 weeks or so of tree cutting period, 10, 12 weeks to complete what we need to you need to keep in mind wary of 250 miles.
Of trees cut.
On this on this sub six our mile pipeline not every single mile history side.
Actually hundreds of miles do not [noise].
So that's the tree that's the real key for us is getting into that tree cutting season. So we'll see what happens.
A lot of people were.
Quite surprised by the judge's decision.
And there's a lot of I think you'll you should expect to see a lot of Mickey briefs being filed.
Pointing out that this may what he talked about was all forms of utility infrastructure.
Not just an oil pipeline in Montana. It was every single utility infrastructure program in the country.
So it seems like a maybe a.
The strong.
Action by the judge maybe not completely justified by the case before.
So well have to staff seed how that goes you know of course, you can go to the ninth circuit after that things will judge that as it goes long on the second part of your question.
Turn it over to Diane Les Paul Okay.
Good morning, and I believe your question was related to the customer negotiations and if I'm not answering let me know, but the customer negotiations are complete they have been finalized throughout the quarter. So the rate and all the other terms and conditions have been.
Complete to ensure that there is a fair rate of return for the project and it balances.
Customer needs and customer costs.
Got any change in the return assumptions that's material to disclose.
No.
Excellent. Thanks, guys. Congrats it's a very resilient plant congrats.
Thank you thanks Chuck.
Thank you and moving onto our next question. This comes from Steve Fleishman with Wolfe Research. Please go ahead Sir.
Thanks, Good morning, and hope all if you are doing well.
Jim I'm looking forward. Thank you so much before.
[laughter] forces Omontys or.
That's just a little too.
[laughter].
But just a.
Just maybe to fill that picture in a little bit the.
The.
Any color on kind of financing need changes with a higher capital plan, maybe that would come with the roll forward, but.
How should we think about that.
Yeah, I think Thats fair that'll come with the roll forward, but you were outlining here spending plans that are large but over a 15 year time period. So it comes the financing we're going to continue our process of getting that one year and sometimes multiple years and advance there's no change in the near term I'm certainly no change this year.
But we'll we'll revisit what the financing mix will be kind of across the board as we as we do a more holistic update I.
I would note, though for the avoidance of of doubt that for these programs we've talked about under the VCA all the financing will be at DTV. So VEPCO legal entity. So we're not considering project financings or other things like that it'll be a mix of regular refinancing at that.
But more to come when we provide more holistic updates.
Okay, and then maybe kind of up a bit of a specific but also high level question for Tom So just to.
The whole picture of Virginia with this plan.
Finally seems to be very.
Very green clean sustainable focused program. So maybe you could just give a little color on kind of the whole what the state's trying to do with this and.
And you kind of the view of you in the context of the state and then specifically this part of the plan the new plan on the Jones Act.
Sold just any.
Color on on how that would work incident to maybe fit into.
Kind of this whole Virginia plant.
Sure Steve So the ER.
Just to refresh everybody on the state of Virginia politics or [noise].
For the first time and I think it's 30 years.
This session of the General Assembly, we had elections last year.
We're always off here for our state legislature, both in the Senate and house delegates since the first time, it's either 20 or 30 years, I don't remember, which how many decades.
You had a Democratic party in charge of both houses plus the executive branch.
And there was a lot of up interest among the new.
Members of the house and Senate to advance a sear a number of policies.
On many fronts not just in energy there was all sorts of legislation around gun rights for example in a variety of other thanks.
Minimum wage.
Better.
And.
There had been an effort we had worked for years with a number of groups to lot solar in particular and how to make sure that that came into Virginian and efficient cost effective way.
And we worked with a wide variety of the policymakers to.
Ensure that these goals are achievable.
And still affordable for our customers and you can see from our IR Pea that was filed last week that we expect even with this spending plan.
Our plan B under the IR P. as the is the most likely plan at least we think it is the most likely Atlanta, others will weigh in of course.
We'll run.
Little bit of right around traditional in flight rates of inflation.
And Weve joint Reggie.
In our rates well when you now compare our rights to the Reggie States were 40% lower than the average Reggie state were half of the highest Reggie state.
And so there's an awful lot of room in there for us to to stay extremely competitive so Steve I think overall from a big picture.
Oh view it was part of an overall effort across many different parts of policymaking.
To have a more progressive outlook as a as those policymakers would call. It a more progressive outlook on a variety of factors.
Your second question had to do with the vessel, which I will turn out or Bob float.
Hi, good morning, Steve.
I would put the vessel.
In the context, not just a Virginia, which Tom did a nice job of describing but in the entire east coast. If you look from new England, all the way down to Virginia. There are a host of offshore wind projects in various stages of development. All of those projects are looking for a Jones Act salute.
Option for installation hours among them. So we're excited to be a leader in a consortium of potential infrastructure investors. Other participants in the industry on a vessel that will allow the installation of larger turbans compliant with the Jones Act. So we.
I think that that project fits very nicely into the context of what we're seeing in terms of offshore wind development off the east coast.
Can I just would that be engine you yes.
Sorry, sorry about that.
Just you've when it comes to the.
The profile of that have that vessel just to clarify that will be fully contracted long term profile.
And the we don't have a number four.
Our planned percentage ownership, we will be an owner through our contracted duration segment.
But we expect infrastructure style returns from that.
Business profile, and therefore expect interest from infrastructure investors and other industry participants to cope fund that.
Not yet.
Thank you.
Okay, great. Thank you thanks, Dave.
Our next question comes from Michael Weinstein with Credit Suisse.
Please go ahead Sir.
Hi, good morning.
Morning, Haiti.
Good morning.
Sorry about that.
The Jones Act vessel is that going to be part of is the cost of that the investment as part of the cost of the offshore wind going forward is that we did in the capex profile for that.
No I Michael Good question, it's not the the amount which is to be determined will be invested our stake will be invested two hour.
Contracted generation segment.
Not in DTV.
And not a part of the capital spend we outlined for offshore wind.
Right.
And what's the timing of it looks like about another 2.6 gigawatts of up.
Oh sure when that's you're planning on over the next 15 years, what's the timing of the second.
0.6, Gigawatts is that.
Clearly after the first 0.6.
Yeah.
Absolutely.
Still to be determined where that might be if you look at our IR P., we show that coming in in 2034.
It will be after.
Our initial project, which Tom described that we would expect to be in service into 26.
I apologize do you. She mentioned this before but also the timing of investments and storage.
Battery storage is that.
That is out going forward are you waiting for any specific logical improvements before you.
Into place.
Capital into that.
Yeah, It's Bob again, no I wouldn't say, we're waiting for specific technological improvements as you know we have the mandate in the statute by 2035, we would expect to pay storage out during that period I will take us a few years before we start layering it and but again if you look at.
The I RP.
This is obviously generic storage, we don't have specific project scope data at this point, but we start layering it and around 2026 is when you would see that start to go into service based on the models were describing here.
And.
One last question about data centers data center loaded up is that that's on current data centers actually I mean.
It is running at higher capacities.
On.
Sure.
Does not.
Yeah again, it's Bob but the answer that is yes. So there. They are ramping you know there's a ramp rate with data centers, we would usually see them start to hit a peak later in the year, but they are peaking earlier this year.
I don't know you could you can surmise, it's related to what's going on with the pandemic and more broadly, but we just know what's happening.
Are you aware of any plans to expand and built more data centers as a result.
More than would have been built prior to the crisis.
Yes, we we've had that strong data center growth in our service territory for some time and expected strong data center growth for some time to come and we have seen no slow down in that at all would expect very strong datacenter growth going forward.
Hi, Thank you very much.
Thank you.
Thank you and our next question is from Durgesh Chopra with Evercore ISI. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
Mark if I missed a good morning, sorry, if I missed this but just Virginia, obviously looking pretty strong year South Carolina, what are you assuming.
In their 2020 guide is as decline trends for the rest of the year.
It's the.
Well I Didnt hear the last part of the question drugs, we couldn't hear quite to the last part of your question what was the sorry for 20 Onee.
The South Carolina demand decline trends in your 2012 guidance or sorry, rather than some technical difficulties I got you so what what our assumptions there. So a couple of things were obviously in Virginia.
Got a material impact yet, but we are we're seeing now these steps get underway economic reopening in Virginia, and South Carolina, South Carolina have announced yesterday, so modest steps underway, but we are not expecting I can immediate snap back that's not the assumption that backs our guidance.
We're expecting that will slowly recover through late summer.
So when it comes to our guidance, we've obviously reaffirmed the annual guidance and long term, but there are a couple of gives and takes there. So one is whether or not your question, but we had nine cents of weather hurt. So the rest of the year like last year, we expect to make up some of the ground. We lost in the first quarter on weather Virginia.
As you mentioned.
No no impact and we'd expect the same and then in South Carolina, we expect that the loads bottomed out and then we're going to again going to see that gradual.
Coverage through late summer.
Got it. Thank you so much and just quick follow up on financing costs. So just can you quantify for us or just works is flat and what you've done a ton of financing gear. So what's what's the what's the impact courses on financing cost versus the worsens apply.
You had in place at the beginning of the year.
Yes, good question, because our financing plan well intact on a full year basis is little bit modified because we accelerated the number about financings into that March time period, I talked about my prepared.
Remarks, so this financing cost for the year is something we're watching pretty closely and I don't have a specific number for you, but little bit of color.
Recently raised 5 billion earlier than we otherwise would have some of that short term debt, but some of that just replaces what already would've been in our planned commercial paper.
And is one example, one one of those short term financings one year financings that come to mind that we did in that period was at LIBOR plus.
50, with no no fees, so kind of not too far off where CP would've been anyway.
So not a big driver and now as you look forward from here the markets have recovered.
And dramatic fashion as you know that fixed income markets and the issuance raids from here on now for the next three quarters.
It looks right now is there even lower all in than they were in January so you a little bit of pressure from doing things earlier within our plan and we would have expected otherwise, but now we expect probably to make some of that up as rates have all in rate decreased.
Got it thanks, so much guys and the detailed disclosure by segment Encore, we just super helpful. Congratulations.
On a solid print and appreciate all the disclosure.
Thank you guys. Thank you.
Thank you and our next question comes from Jeremy Tonet with JP Morgan. Please go ahead.
Hi, good morning.
This morning follow up on ATP, thanks up a bit more of your on HCP. Thanks for all the color that you provided so far.
Just want to clarify I guess that you need a nationwide 12 permit.
We will restart construction here and are there any other potential hurdles that FERC here that you see.
Hi.
Diane Leopold so obviously, we need to have our major permits in place by the majority of linear construction.
But again as Tom said before the key thing that were really watching with respect to our four pass is a productive tree felling season between November and March. So while there is in the nationwide 12, you do not need to have that for a half.
And selling of trees. It is not a regulated activity under the Army Corps nationwide 12 permit so subject to FERC approval, we may be able to begin hand felling trees to the season, we would look to have to have that for fall ramping up of linear construction.
Understood Thanks for that.
And then it's looking like they see peaking at what factors could impact that project costs and timing between now and the tree felling window at largest.
Do you have line of sight. The current estimates as long as permits are in place prior to November.
Yes, the ranges forecast that we have given that have not changed since the last quarter. It has a wide range of scenarios that is not materially impacted again, so long as we have a productive trade selling season. This winter.
Got it right I'll leave it there thanks for taking my question.
Thank you and our final question comes from James the lack or with BMO capital markets. Please go ahead Sir.
Oh, Thank you for the time can you guys.
Good morning, and good morning.
Just to maybe just a pivot a little bit to the other regulated businesses I know that you guys had delayed the rate filing for.
Dominion Energy, South Carolina, but I was.
As you can push that off into the fall in kind of what's been going on I guess with demand trends.
Opportunity maybe too.
Little bit more formula.
Good.
Right.
It's decoupling as part of that.
[noise] I don't we're still courses in the process developing the plan, but right now the schedule would call for us to fall notice on July 15th and file the case actually in August.
We expect that to happen at this point barring some other developments.
Horsetail developing that rate case, and we'll see a.
Hello comes together and when we filed a notice [noise].
Thanks for the time.
Thank you. Thank you.
Thank you and this does concludes this morning.
Oh, you may disconnect your lines and enjoy your day.
[music].