Q3 2020 Dominion Energy Inc Earnings Call

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Good morning, and welcome.

They get energy third quarter earnings conference call.

This time each of your lines is that they listen only mode at the conclusion of todays presentation, we will open the floor for questions.

<unk> will be given for the procedure to follow if you would like to ask a question.

I like to turn the conference over to Steve <unk>, Vice President Investor Relations. Please go ahead.

Thank you Casey good morning, everyone and thank you for joining us very busy earnings day.

Earnings materials included including today's prepared remarks may contain forward looking statements and estimates that are subject to various risks and uncertainties. Please.

Please refer to our FCC 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's 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 incurred.

We encourage you to visit our Investor Relations website to review webcast slides as well as the earnings release kit.

During today's call are Tom Farrell Executive Chairman, Bob Blue, President and Chief Executive Officer, Jim Chapman Executive Vice President Chief Financial Officer, and Treasurer and other members of the executive management team with that I will turn the call over to Tom.

Thanks, Dave and good morning, excuse me.

Earlier this week, we completed the sale of the majority of our gas transmission and storage assets to Berkshire Hathaway.

We expect the remaining around 20% of the transaction to close early next year.

This is a major milestone in a strategic repositioning of our company and I wish to thank the nearly 1900 employees, who <unk>, who served our company with great distinction in a safe and reliable operation of these best in class assets.

I have no doubt that these men and women, who will continue to serve their customers, which includes dominion energy and their communities with the same level of dedication and professionalism.

I also wish to thank the team is Berkshire Hathaway excellent partners throughout the process.

Demonstrate a strong commitment to their newly acquired employees and customers.

Jim will touch on the financial details of the transaction in his prepared remarks.

We believe the investment proposition created through Dominion Energys strategic repositioning is compelling.

We are a pure play state regulated utility company operating in some of the nation's most attractive states.

We offer an industry, leading clean energy profile.

Presentations in our P. filings, we have highlighted regulated and long term contracted capital investment of up to $55 billion.

The next 15 years in projects that directly reduce our emissions footprint.

Moving offshore wind solar energy storage nuclear life extension renewable natural gas and gas delivery system modernization.

That is in addition to many billions of dollars. We will also invest over the next decade in complimentary programs such as electric transmission electric grid modernization strategic undergrounding and renewable enabling quick start generation.

Our earnings and dividend growth rates, 6.5% and 6% respectively are competitive with the highest valued companies in our sector.

We have a strong balance sheet and a significantly improved business risk profile.

We're focused on transparency and consistency and believed that our shareholders will benefit greatly from the continued execution of our business strategy.

Turning to Virginia pending.

Pending gubernatorial review this week, Virginia General Assembly special session incorporated financial really for our customers that have fallen behind on our utility service payments.

In addition to extending the service disconnection more toward it strikes me flexible repayment plan options. The budget calls for forgiveness customer balances that are more than 30 days in arrears as of September 30.

That's forgiveness, which represents around $125 million will be appropriately accounted for during the 2021 Triennial review process.

Bob will provide additional commentary on the impact of coated in our service territories in a few minutes, but suffice to say electric demand levels continued to prove resilient.

Reflecting the economic strength of our premier regulated jurisdictions.

Turning to the election for a moment, we like everyone else continue to monitor results.

We want to see exactly how future policy reflects the final result, but in any case, we are on an unwavering and industry, leading path to net zero emissions consistent with state level policy priorities.

A more sustainable energy future is what our shareholders customers communities and employees want.

And we intend to deliver.

Finally, we're announcing today several important changes to our board of directors.

First following more than 20 years of distinguished service on our board, including six years as lead director John Harris has chosen to retire from the board effective today.

John has been a critical element of our company's success over the years sharing his diverse experiences as a business community and board leader to our organization and to me personally as a trusted advisor.

Thank you for the outstanding leadership and strategic perspective, he has provided during his service.

And also for his commitment and see delays as expected retirement they through much of this year as we navigated some transformational events.

Putting the sale of our gas transmission and storage business and all the <unk> also the transition to our new CEO will absolutely be missed.

The board has chosen as its new lead director, Rob spill, who will succeed John effective today.

<unk>, who serves as chairman President and CEO of Bassett furniture industries joined the board in 2009 and has served as chair of our audit Committee since 2014.

Hi, John Harris crop is a proven inexperienced business later community later and valued and trusted member of our board.

We look forward to working with him in his new capacity.

We're also pleased to announce the BOP Blue recently, succeeding me the role of President CEO, obviously will be joining our board also effective today, taking the seat vacated by John as a part of our transition plan.

We look forward to having his perspective in the boardroom is both CEO and fellow board member.

I will now turn the call over to Jeff.

Thank you Tom.

Our third quarter 2020 operating earnings shown on slide four [noise].

One dollar an eight cents per share, which included a four cent help from better than normal weather in our utility service territories.

Weather normalized results of one dollar and four cents per share we're at the top of our guidance range.

For the 19th consecutive quarter were at or above the quarterly guidance midpoint.

Note that our third quarter and year to date, GAAP and operating earnings together with comparative period, our adjusted to account for discontinued operations associated with the sale of assets to Berkshire Hathaway energy.

GAAP earnings for the quarter were 41 cents per share, which includes the impact of a customer credit reinvestment offset for the benefit of customers in Virginia as.

As well as charges associated with our long term contracted renewable portfolio outside of our core service territories.

We also had a positive impact attributable to net gains when our nuclear decommissioning trust funds.

As a reminder, we consistently report such gains and losses on those funds as non operating.

[laughter] summary of adjustments between operating and reporting reported results is included in schedule two of the earnings release Kit [noise].

Turning to our earnings outlook on slide five.

As usual our guidance ranges assume normal weather variations from which could cause results to be towards the top to bottom of these ranges.

We are initiating fourth quarter 2020 operating earnings guidance with a range of 73 to 87 cents per share.

As mentioned this range reflects the impact of recasting operating earnings to exclude discontinued operations.

[noise] consistent with our press release in late September we now expect our annual weather normal operating EPS to be above the mid point so in the top half of our annual guidance range.

This strong anticipated result is partly a function of lower than assumed coded related headwinds and.

And partly a function of continued focus on managing controllable costs carefully.

We estimate that through the end of September lower than budgeted sales associated with the impacts of COVID-19 across our electric utility operations.

Reduced operating income by approximately five cents per share.

Which is lower than our original expectations and thus far has been largely offset with corporate initiatives.

Turning on to slide six.

We will as usual provide 2021 guidance on our fourth quarter call early in the new year.

Well, we continue to expect the mid point of our 2021 guidance range to be between 10, and 11% higher than the midpoint of our 2020 guidance range.

We are affirming our long term annual earnings growth guidance of 6.5% off the 2021 base as well as annual dividend growth guidance of 6% puts 2021.

Our focus is on executing our financial plan and extending our track record of meeting or exceeding the midpoint of our guidance.

Turning to slide seven.

Let me briefly touch on the status of the gas transmission and storage sale as Tom mentioned, we closed on the first phase representing over 80% of the transaction value earlier.

Earlier this week we.

We also took receipt of approximately $1.3 billion of cash in anticipation of the sale of the questar pipeline assets, which we expect to complete early next year following HSR clearance.

At that time, we will transfer control and the remaining $430 million of questar pipeline related indebtedness to Berkshire [noise].

Bringing the total amount of debt reduction for the transaction to nearly $6 billion.

We've now completed almost $900 million of direct share repurchases. In addition to the previously communicated one and a half billion accelerated share repurchase agreements that will support ongoing stock repurchases into December.

With phase two equity proceeds now in hand, we.

We expect to augment our repurchase activity between now and into the year.

Bringing our total share repurchases to around $3.1 billion.

Increase from prior guidance of about 100 million.

There are no changes to our existing equity or fixed income issuance guidance, which are replicated from previous materials and the appendix.

Finally, just a reminder, that we plan to use our fourth quarter earnings call to provide something of a many investor day style refreshed.

Supplementary disclosures aimed at providing projected capex rate base and other at Blitz, which we hope will assist investors in their financial evaluation of our company.

So to summarize my remarks.

We remain focused on extending our track record of delivering financial results that meet or exceed our public commitments.

[noise], we aim to complete share repurchases of approximately $3.1 billion by year end.

We expect our weather normal operating earnings per share to be above the midpoint of the range for 2020.

And we affirm our long term earnings and dividend growth guidance.

And we look forward to engaging with many of you.

I'd now at next weeks, Yeah Financial conference.

I'll now turn the call over to Bob.

Thank you Jim and good morning.

Let me begin with an update on the company's safety performance as shown on slide eight the record setting performance from the first half of the year continued during the third quarter.

We remain on track to deliver the safest year of operations and the company's history.

At the current pace, our annual Osha recordable rate would be around 40% lower than last year and represented 79% improvement since 2006.

In Virginia, we continue to see strong growth in new customer connections and very strong datacenter demand growth customer.

Customer growth is up one 4% year over year and year to date datacenter sales were up 19%.

In South Carolina year over year customer growth is 2.1% for electric operations and gas customer growth is three 8%.

[noise] gas distribution utilities recorded customer growth of between 1.5, and three 8% across Ohio, Utah in North Carolina.

Unemployment levels and several of our primary states are well below the national average and have all shown dramatic improvement.

That said, we're mindful of our customers and the difficult time. This has been for many of them.

As Tom discussed we have work to assist our customers in addressing the financial challenges they may be facing.

Covid impacts remain difficult to predict so we're reiterating the demand related earnings sensitivities that we provided on the first quarter call and which can be found in the appendix of today's presentation.

Beyond our day to day performance were engaged in an enterprise wide effort consistent with state policies to increase the sustainability of our products and services.

Highlights include and updated sustainability and corporate responsibility report published last month.

The submission of our first renewable portfolio standard filing which describes our plans to comply with the objectives of the Virginia clean a cost shift.

Our most recent solar generation filing in Virginia, representing nine solar facilities totaling nearly 500 megawatts.

In the beginning of new renewable natural gas production, which is significantly carbon negative from our first Smithfield foods partnership facility.

Perhaps our most notable efforts are around offshore wind and.

In 2013, we acquired 112000 acre leaves 26 miles off the coast of Virginia.

We were the first company to successfully complete the federal permitting process coordinated by boom for a wind project in federal waters.

That permit covered or 12 megawatt test project, which was successfully energized just weeks ago and as depicted on the cover of today's presentation materials.

We continue to be on track to submit our permit application for our two six gigawatt $8 billion full scale deployment at year end and just as a reminder, our existing leasehold acreage will fully support that project.

We expect home permitting to take around two years with capital investment to start to ramp up in 2023 and full scale construction commencing in 2024, we.

We do not expect that recent pronouncements regarding the future federal offshore leasing will have any impact on our plants.

Lastly, let me address the Dominion Energy South Carolina Electric rate case, we've been participating in discovery an initial testimony processes hearings are scheduled to begin early next year with the decision in February we believe our proposal, which equates to less than 1% per year Bill increase since the last general rate case.

Fairly reflects the substantial investments we've made in the last eight years or so.

Connect over 80000, new customers and achieve the reliable and responses service that our customers deserve.

We look forward to a constructive outcome for all stakeholders.

As you heard Tom described we've positioned our company strategically in a way that we believe will provide the greatest long term value to shareholders employees and communities are.

Our focus now is on execution.

We are well positioned across are pure play electric and gas utilities to make investments that grow our company and deliver value for customers and investors.

With that I'll summarize today's call is shown on slide 12.

Our safety performance is on track to set a new company record.

We achieved weather normalized operating earnings that exceeded the midpoint of our guidance range for the 19th consecutive quarter.

We affirmed our current and long term earnings and dividend per share growth guidance.

We believe we offer a compelling investment opportunity and we're focused on executing are robust organic growth plan.

And we are aggressively pursuing our vision to become the most sustainable energy company in the country.

But that we're ready to take your questions.

Thank you ladies and gentlemen at this time, we will have the disclosure questions.

If you would like to ask a question. Please signify pressing star one on your telephone keypad now if.

Can you take a speaker phone please make sure that you'll be such an it's turned off to allow your signal to reach our equipment and it gets at star one to ask a question.

Our first question comes from sharp.

Good Hi Parker.

Good morning, guys.

Will ensure good morning.

Just a couple of quick questions here, just the offshore wind I think you guys plan to file the cop for the 2.6 Gigawatts of offshore when you highlight with boom later this year and we've seen some other developers kind of in the northeast has some delays in the time between filing the cop in receiving to review schedule from.

Home wondering what's giving you a sense that you're going to receive a review scheduled from boom and 20 to just get a little bit of a sense. There I mean, obviously you guys have some cushion in your construction schedule on your guide investors just curious how we should think about what we're seeing in and on the eastern side with you guys.

Thanks, a lot sure this is Bob.

Worry about where keep it we're keeping an eye on those northeast projects, obviously, and we're learning from them as they move through permitting and we also intend to take advantage of our experience with permitting as we described in our opening remarks. The only project currently in federal waters work comfortable.

Or schedule will file as you noted at the end of this year.

We expect about two years for boom review.

And that will we think b, a comfortable time frame for us to get our construction.

Our project and service and 26, so we're very bullish on that commercial project.

Look forward to the process with boom and getting that project under construction.

Got it and then you know obviously potentially higher corporate tax rates with a new administration or maybe a new administration.

Have you guys done sort of any preliminary work, assuming like let's say an increase to 28% tax rate for instance on the whole color the opco and potential impacts to maybe your ongoing equity needs I mean, obviously, you're obviously it consolidated taxpayer and then just any sense on what the potential bill impact could be as we think about the higher.

Corporate tax rate, maybe a question for Jim books.

Yes, Jim Let me, let me address that obviously as Tom mentioned, we're all watching developments and it's pretty hypothetical at this stage the election in in any follow on taxes born.

Result, but we're watching and we're doing some math really it's pretty early it's too early to town. So if it happens tax reform, we'd first of all we expect that'd be addressed across our utility properties in every state in different ways like it did last time.

Some of it just through right or true ups like in Virginia, and some of our larger ldc's some other than through regulatory proceedings on that on that topic.

But.

We are a cash taxpayer.

Currently it's heavily shielded.

From.

Based on our tax credit position. So we currently pay on a cash basis, 5%.

So.

Cash taxes, so if the right one from 21 to 28 as as for both that cash tax rate would go from around five to around seven so not a quantum leap.

So there would be we assume some credit metric help there.

For the for the forecast period, we don't know enough yet to understand the quantum of that helps so it's a positive.

Now isn't enough to impact equity financing plan, which is part of your question.

We're not there yet to say that I would say that in light of our of our spending program our investment capital program or equity financing plan is already pretty modest.

And all of that anticipated through our existing program. So we're not quite there we think the tax reform if it happens to be a positive, but we don't have the exact math yet to see how positive it would be.

On the customer Bill the other part of your question also medical done some rough map.

The details, but we're seeing there are some differences state to state.

Probably would be kind of in the range of a 1% to 2% kind of customer Bill increase.

Can we prevent not happen, but isn't that kind of modest range.

Got it got it is a very manageable.

Very clear cut quarter guys. That's all the questions I have thanks.

Thanks, a lot you.

Our next question comes from Steve Flashman with Wolf Research.

Yeah, Hi, good morning, I, just wanted to follow up I guess on the first question regarding the offshore wind and it seems like in new England. The.

There's this they agreed to this one by one mile configuration.

And that everyone for the most part degrees with that except for the fishing community.

So could you maybe just give color on kind of.

Is that the configuration, you're planning to use and do you have.

Any of the same opposition of the kind of fishing community that you've had up in new England.

Yeah, Thanks, Steve it.

Fishing issues are different.

Off our coast than in New England.

So on turban spacing, we're going to work with the coast Guard and other stakeholders shipping lanes. In addition to fishing shipping lanes are going to be different.

For US then they might be in other projects and particularly ones that are.

Several projects that may be strung together, whereas ours.

It does not have that at the moment.

So we will make sure we work with the coast guard other interested parties, but we're confident that we can get spacing that makes sense for our project and is going to work for regulators and other interested parties.

Okay. That's great that that was it for me. Thank you.

Because.

Our next question from Cherry taught it with J P. Morgan.

Hi, good morning.

Hi, Jeremy morning.

Maybe ah continuing with offshore wind if that's okay here and just thinking about the construction site a bit can you talk about what you've learned with the trial project, so far and how that might help with your future development such as navigating the supply chain.

Yeah, Jeremy that's a great question and I think you hit on one of the things that we've learned a great deal about is the supply chain and the importance of the supply chain. We've selected are preferred turban vendor already.

And we have a very good understanding I think in ways that maybe we didn't before of how to sequence. This project. So you need to make sure that when step two is ready to go that step one has been completed it's that's much more crucial maybe on this kind of project then.

Then even on some others things have to be done sequentially.

So we've learned a great deal about that and we've learned a great deal about the other parties in the industry, it's not an enormous industry and.

And so we've had an opportunity to get a lot to know a lot of folks that way those kind of relationships are going to be really valuable to us as we move forward with construction of this project. So.

And then and then finally back to the permitting side, we've certainly learned about working with them. So all of those things together I think have have helped us out as we move forward with the bigger project.

Got it that's very helpful. Thanks, and maybe just a pivoting to South Carolina here and as you.

Just any thoughts you have is how the the first rate case in South Carolina could progress you first one after acquiring scanner here and could you just give a sense for how you think the the relationships have developed their overtime.

Yeah, we we have worked very hard.

And succeeded in meeting the commitments that we made.

When we announced this transaction and I think that credibility is important for US and then we filed a case that was very much down the fairway.

Solid well supported case and and we're moving through the process. The way you would expect so I think the the credibility that we seek to establish that we're going to continue to maintain will will help us out and also.

Thinking very carefully about.

What we were looking for when we filed that case will pay off I believe.

Got it that makes sense that's helpful I'll stop there.

Chris Jeremy.

Our next question comes from Michael I'd stayed with credit Suisse.

Hi, good morning, guys.

Good morning, good morning.

Do you think a if if if biden is elected president do you think there would be a possibility of that the two year timeframe. It boehm could be shortened or accelerated in some way and and if if that happened.

That accelerate the construction process at all or is that just on its own timeline no matter what.

Well obviously.

All the caveat about we don't know who is going to be the next president I think our our focus really is we've got a timeframe that we think makes sense both for permitting and construction.

And that's what we're going to stick to and again.

Back to where we started we feel very confident in that schedule I don't think we're sort of thinking about shifting that around.

We have plenty to say grace over with the permitting and construction process for that project.

Gotcha and is there anything of that sort of.

The investor should be aware about as you prepare your first trying to review filing.

You said last time that you were gonna be finally got next year.

Midyear yet.

So we've talked about this we're going to file in March expect an order in November It will review the period when.

17 to 2020.

And will know we will have an order at the end of the year next year.

Pretty straightforward.

Okay cause.

Do you see growing datacentre demand in Virginia, Uhm as I don't know as as potentially helping with the filing at this point or is that.

Yeah, something that can help offset any other increase in cost anything else.

Yeah I mean.

The strength of our customer base is always helpful and we're in.

Not seeing a letup in data center demand it's continuing.

Gotcha alright, thank you.

[noise]. Thank you.

Thank you discuss conclude this morning.

You may disconnect your lines turning your day.

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