Q3 2022 Dominion Energy Inc Earnings Call
[music].
Yes.
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 up 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.
Call over to David Mcpartland, Vice President Investor Relations. Please go ahead.
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 disc.
The factors that may cause results to differ from management's estimates and expectations. This morning, we will be we will discuss some measures of our company's performance that differ from those recognized by GAAP 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, Jim Chapman Executive Vice President Chief Financial Officer, Diane Leopold Executive Vice President Chief Operating Officer, and other members of the Executive management team I will now turn the call over to Bob.
Thank you David Good morning, everyone. We delivered strong third quarter results and are well positioned to meet our expectations for the year. We also have been steadily executing on our investment programs focus on de Carbonization. This successful execution is already benefiting our customers communities the environment and our investors I'll begin with <unk>.
Safety through September our Osha recordable rate was <unk>, five three which remains low relative to our historical levels and substantially below industry averages, we take pride in our relentless focus on safety and it is the first of our company's core values.
Next I'd like to provide some context to our announcement. This morning of our initiation of a top to bottom business review with the goal of ensuring that Dominion energy is best positioned to create significant long term value for our shareholders. In recent years, we've taken a series of strategic steps, both through M&A and through the capital allocation decisions to materially increase the.
State regulated profile of our business our strategy remains anchored on this pure play state regulated utility operating profile that centers around Premier States. The chair of the philosophy that a common sense approach to energy policy and regulation prioritized the safety reliability affordability and increasingly sustainability. These states.
Also strive to create environments that promote sensible economic growth, which like the rising tide lifts. All boats are state regulated utility model offers investors long term earnings visibility and is enhanced by our concentration in these fast growing constructive and business friendly states.
To state the obvious we're monitoring what's going on in the broader economy like everyone. We're seeing inflation supply chain limitations and higher fuel prices, all having an impact on customer rates and our balance sheet strength. We're keenly aware of the economic pressures that are affecting our customers and taking seriously our core mission to deliver rely.
More affordable and clean energy to our customers, while creating value for our shareholders. So far our company has navigated this new environment, well, our safety and reliability metrics have remained strong as we steadily execute on our industry, leading de carbonization investment programs, we must provide energy that is affordable. We're therefore proud that residential rates.
At our electric utilities remain well below state and National averages. We've also found creative approaches to provide customer relief I'll recap a few recent examples.
We supported legislation in Virginia, which gave customers a fresh start by forgiving $200 million of customer arrears in the depths of the Covid crisis. We also agreed to more than $11 million of forgiveness in South Carolina second we elected to recover $200 million through base rates currently in effect in connection with the suspension of rider.
Reggie as Virginia works towards its exit from that program lastly.
Lastly, we voluntarily agreed in Virginia to spread the recovery of the under recovered fuel balance over a three year period to reduce the effect on customer bills and we've done all of these things while moving forward with our growth plan and delivering results that met our financial guidance just as we did again this quarter as you can tell I'm very proud of these accomplishments.
<unk> and thank all my Dominion energy colleagues, who contributed to these successes, but our work is far from done there are two drivers behind today's announcement of a review one enhancing shareholder value and to ensuring the sustainability of the long term scope and duration of our regulated de carbonization investment opportunity.
First enhancing shareholder value, we've been delivering industry, leading safety and reliability performance executing on our sizeable investment programs, achieving regulatory outcomes that are constructive and delivering results that have met our financial guidance, yet our relative share price performance has not met our expectations, including over the past several years.
As we've been successfully executing our plan.
I'm confident in our state regulated utility strategy and I would add that feedback I get from our investors almost unanimously supports our strategic direction. I believe now is the right time to initiate this review.
And second our company has sizable investment opportunities focused on de carbonization and reliability that extend well beyond our five year plan in fact, well into the next decade. These customer beneficial programs are part of our diverse energy generation and methane reduction strategies to deliver clean energy, while simultaneously meeting the need for afore.
Adabelle and reliable energy grids and gas distribution networks. However, we need to ensure that near term economic and customer bill pressures don't preclude the full realization of that energy transition and related long term capital investment.
These two drivers led me to initiate this review of potential value maximizing strategic actions of alternatives to our current business mix and capital allocation and of any regulatory options, which may assist customers to manage costs and provide greater predictability to our long term state regulated utility value proposition.
A few guiding principles for this review we're committed to our state regulated utility profile with an industry, leading investment opportunity focused on de carbonization, we're committed to our current credit profile and to our dividend and we're committed to shareholder value enhancement and to transparency of.
Of course, we're constantly evaluating our business mix to make sure we're maximizing shareholder value. However, as we carefully weighed our continued relative share price performance of the past several years as well as the implications of the current macroeconomic environment. We determined that this more formal and thorough review is the right step at the right time.
So let me address what I expect maybe natural questions relating to this review one the scope to timing of milestones and three the impact to our financial plan.
First what is the scope of this review I've tasked our team with reviewing each of our businesses to examine opportunities that would improve long term shareholder value relative to the status quo. This includes a review of where we have capital invested in businesses, which may be considered non strategic or which simply may be worth more to others than they are within our current regulator.
Business profile will also take a hard look at all options to help our customers manage costs and that provide greater predictability to our long term state regulated utility value proposition.
We remain focused on the customer impact and advocate for energy policy that provides an affordable clean energy transition and long term predictability for our state regulated utilities next what do we.
We expect in terms of timing and milestones our team is already getting to work we expect to share updates on our fourth quarter earnings call in early 2023 and plan to hold an investor day later in the year to update stakeholders more fully on our plan and the key value drivers of each of our business segments.
Finally, whats the impact to our financial planning guidance, we're affirming our 2022 financial guidance no changes from prior communications other than a narrowing of our annual EPS guidance range, given where we are in the calendar year.
For 2023, we see paths to achieving our existing targets as we expect we could overcome the macro economic challenges with increased unregulated investment activities and other initiatives. However, these nonregulated earnings drivers among other parts of our business are subject to the review we announced this morning, So I would caution that.
It comes consistent with our existing guidance are only achievable in a status quo result to our review.
While we are therefore, not changing our guidance today, we are indicating that the results of this review may very well lead to different outcomes qualitatively and quantitatively of our long term earnings growth again other than in that status quo result to our review.
What is not likely to resolve however is a change to the core earnings growth driver of this company. The continued execution of what we view as an industry, leading highly visible regulated de carbonization growth capital investment opportunity and to reiterate we are not reviewing options, which would negatively affect our current dividend a little more.
Color on the way, we think about potential outcomes of this review and overcoming the headwinds I've noted we of course expect to consider all potential levers, we have which could mitigate any impacts to our financial plan first we would look to O&M management, where we've created material value for our customers and shareholders and as Jim will talk about more in a minute so theres some potential.
In that area, but not likely a game changer, given what we've already been doing.
Next we will also continue our efforts to efficiently review capital allocation, given our robust regulated growth programs. While also carefully considering the customer rate impacts are doing so as.
As part of this more formal review however, we will undertake analyses to find the most efficient sources of capital to fund our most attractive utility growth programs all while considering many factors in the best interests of our EPS growth and credit profile in.
In summary, our team has continued to deliver in the key areas of safety and reliability, our long term scope and duration of a regulated de carbonization investment opportunity is very much intact and we're on track to deliver against our goals for 2022, we offer an attractive state regulated de carbonization investment profile with operations and growth.
<unk> is focused within premier states with constructive regulatory regimes. However, given our continued relative share price performance and the macroeconomic challenges. We think that this top to bottom review is the right approach at the right time to ensure we're best positioned to maximize long term value for our shareholders now I'll turn to other business.
<unk>.
Turning to slide six let me start with Dominion Energy, Virginia last week, we announced a settlement agreement in our petition to the FCC to reconsider the performance guarantee included in its August order in conjunction with the opposite the attorney General and other parties.
The agreement provides a balanced and reasonable approach that allows the project to continue moving forward to meet the Commonwealth public policy and economic development priorities and the needs of our customers. If approved significant customer benefits include protection from unforeseen increases in construction costs above the project's budget and enhance S E T.
Review of performance in lieu of a performance guarantee.
We look forward to a decision from the FCC later this year.
Let me now turn to execution of that project, where we have further mitigated some of the projects development risks that strengthen our confidence of remaining on time and on budget.
We have continued to work closely with Bureau of Ocean Energy management and other stakeholders to support the project timeline as we continue to expect to receive a draft environmental impact statement by the end of the year.
Advanced engineering and design and preparation of immediate release of major equipment for fabrication advanced procurement and other preconstruction activities for the onshore scope of work.
And completed independent project review and construction readiness assessment, along with a comprehensive assessment of scheduling cost.
Development of the project has continued uninterrupted to maintain the project schedule and we expect over 90% of the project cost excluding contingency to be fixed by the end of the first quarter 2023 at the latest as compared to about 75% today further derisking the project in its budget.
As I've mentioned before offshore winds economic development and job its benefits are transformative for eastern Virginia, and the rest of the Commonwealth, including its diverse communities.
Steve Al could create over 2000 direct and indirect jobs during construction and operations, while attracting companies to make investments in Virginia, making it a hub for offshore wind.
For example upgrades have recently commenced at the Portsmouth Marine terminal, where we've leased 72 acres for staging and pre assembly of foundations transition pieces and wind turbines.
Lastly, our Jones Act compliant turbine installation vessel is currently over 60% complete we continue to expect it to be in service ahead of the 'twenty 'twenty four turbine installation season.
Turning to other notable D E V updates on slide nine we made our third clean energy rider submission. The filing included 10 solar and energy storage projects and represented around $1.3 billion of utility owned and rider eligible investment further derisking our growth capital plan, we expect to receive an order from the FCC.
In the second quarter of 2023.
Data centers as I mentioned on our second quarter earnings call. We're actively working on a variety of solutions to serve as much of the increased demand as possible, while we work to accelerate transmission solutions to ensure a safe and reliable grid.
Last week, we filed for a new 500 kv transmission line with the FCC with an expected in service date of late 2025. The submission included around $700 million of capital investment.
Turning to other business updates on slide 10.
Dominion Energy South Carolina, our crews worked around the clock in response to hurricane in more than 110000 Dominion energy customers in South Carolina lost power at the peak of the Hurricane after it made landfall with up to 85 miles per hour wind and dumped heavy rain across the low country in other parts of our service area.
And fewer than 18 hours the company had significantly reduced that number to approximately 15000.
The efficient restoration process was possible because of year round preparation through a proactive vegetation management program, which includes safe guarding overhead electric lines from hazardous trees and vegetation I'm proud of the way our team members responded on behalf of our customers and on the regulatory front last month, we filed our 2022 IOP up.
Our preferred plan is indicative of the potential for accelerated de carbonization and assumes all coal only units or retire by the end of the decade, we look forward to engaging with all stakeholders on this planning process.
At Dominion Energy, Utah, we will complete the testimony and hearings phases in our rate case in the next few weeks, we expect an order from the commission by the end of the year and new rates to be effective in January of next year.
And as it relates to our already industry, leading agricultural based renewable natural gas platform. We're pleased to update our expanding project backlog of the four projects currently producing negative carbon renewable natural gas one is in service and three are in the commissioning phase. We also have 11 projects in various stages of construction and expect to start construction.
On five new projects by year end looking ahead, we now have visibility on $1 billion of potential growth capital investments in this area from 2023 through 2026.
Obviously, we're very much on our way toward our goal of investing up to $2 billion by 2035.
We see the potential for additional increases to the long term backlog.
Before I summarize my prepared remarks, and turn it over to Jim I'd like to make a few comments about the organizational change we announced this morning, Steve Ridge, who currently leads our western natural gas distribution operations will be promoted to senior Vice President and Chief Financial Officer, succeeding Jim.
After nearly a decade and energy investment banking, Steve who is here in the room with US today joined Minion energy and has spent the last eight years in leadership roles in mergers and acquisitions corporate strategy financial management and Investor Relations.
During much of that time, he worked closely with Jim and me along with the rest of our senior leadership team for the last year. He has successfully been leading our western gas operations, which serve nearly 1.2 million customers. He has a wealth of experience in finance is well known to many of our investors and has a strong capable leader, we're very fortunate to have.
I'm in this new role.
Jim will be leaving the company to be vice President and Treasurer at Exxonmobil.
Jim is an exceptional leader and has been an extraordinary partner of mine. Jim played an instrumental role in our rapid transition to an asset mix largely defined by state regulated utility operations and our capital plan aimed at de carbonization and supportive public policy goals and our commitment to our customers communities the environment and our investors we're very.
Sorry to see him go but we wish them. Good fortunate in the next chapter of his career in the interim Jim will be helping make a seamless transition, including joining us at the upcoming <unk> financial conference, Steve will be there as well obviously.
He will play a critical role in advancing our strategy of delivering value to our customers and shareholders. The depth of leadership of this company is impressive Steve is a great example of that bench strength and with that I'll hand, it over to Jim.
Yeah.
Thank you Bob.
Those are very kind words and I.
I really appreciate it.
As I mentioned in our release this morning.
I'm really grateful for having had the opportunity over nine years to work with just outstanding people ear Dominion I'm proud of our accomplishments. We made together on behalf of this great company's customers and shareholders more accomplishment to come of course.
And as many of our investors already know very well based on their experience with Steve over the years.
I'm definitely handing the CFO reins over to an incredibly capable person.
So.
From one great company to another great company for me, but let's move on and I'll recap what was a great.
Quarter four for Dominion.
Our third quarter 2022 operating earnings.
On slide 11, where one dollar and 11 cents per share which for this quarter. It represented normal weather in our utility service areas.
These results were above the midpoint of our quarterly guidance range.
Positive factors as compared to the third quarter last year include increased regulated investment across electric and gas utility programs.
<unk> growth and margins.
Other factors as compared to the prior year include interest expense tax timing and share dilution.
Third quarter GAAP results of <unk> 91 cents per share reflect the noncash mark to market impact of economic hedging activities.
Unrealized changes in the value of our nuclear decommissioning trust funds.
And other adjustments.
A summary of all adjustments between operating and reported results is included in schedule two of our earnings release kit.
Turning now to guidance on slide 12 for the fourth quarter of 'twenty 'twenty. Two we expect operating earnings earnings to be between 98 cents and $1 13 per share.
Positive factors as compared to last year are expected to be returned to normal weather.
Normal course regulated rider growth sale.
Sales growth.
The absence of a millstone planned outage absence of last year's Covid deferred O&M.
And tax timing.
Other factors as compared to last year are expected to be interest expense and share dilution.
Given where we are in the year, we're narrowing our 2022 full year guidance range to $4 in three.
The $4 18 per share.
Preserving the same midpoint as our original guidance.
Turning now to slide 13.
Of course, the review that we announced this morning is still early and all the details are still yet to come but we've given you a sense of how we're thinking about the process.
We expect to provide formal 2023 guidance on the fourth quarter call, which like always will include an annual guidance range to account for variations from normal weather.
However, let me share some preliminary drivers for 2023 at this point.
Positive factors as compared to 22 are expected to be normal course regulated rider growth.
Millstone margins and sales growth, which has been trending above our long term target.
We also have ample opportunities for unregulated investment in areas, such as solar and R&D development.
And a reminder that both of these areas qualify for ITC benefits under the inflation reduction Act.
And we're also looking into additional O&M management options.
Other factors as compared to 22 are expected to be our second planned outage at millstone.
Higher interest expense share dilution and pension expense.
Lastly, as it relates to the impact of the inflation reduction Act, we're continuing to review it see how quickly we can deploy options that are available to lower cost for customers over time.
And I would remind you of the very detailed remarks I shared on our second quarter earnings call. So no changes from prior communications.
I'd also note that assessing the impact is a difficult process as the treasury guidance.
Implementation process, it's still a moving target so more to come here also.
In summary, we see path to achieving our existing guidance.
Yeah.
But they are subject to the review.
What is not likely to result, however is a change to the core earnings growth driver of this company.
The continued execution of our industry, leading highly visible regulated de carbonization growth capital investment program.
I'll now turn to other financial highlights.
Turning to slide 14, let me address electric sales trends.
Weather normalized sales increased two 6% over the 12 months through September as compared to the prior year.
Components of this growth include a slight decline for residential as you would expect with the continued back to work trend and.
And higher growth for the commercial segment driven by datacenter customers in Virginia.
For 2022 we expect to remain above our long term run rate of one to one 5% per year.
We've again provided demand related earning sensitivities for our two electric utilities in today's appendix materials.
Turning to slide 15, and briefly on O&M management.
For perspective, we've highlighted our electric O&M management relative to peers over time.
As Bob mentioned, we've created material value for our customers and shareholders and our O&M efforts.
It's something we view as quite an accomplishment.
As a reminder, our guidance assumes flat normalized O&M by driving down costs through improved processes.
Innovative use of technology and other best practice cost initiatives. It's a dynamic process, we very intentionally go through each of our segments each of our assets each of our locations to find opportunities to lean into technology to improve business processes and to approve improve in areas like smart buying across our platform.
As Bob mentioned O&M is certainly an area, where there is some potential to offset headwinds, but likely not a game changer, given what we've obviously been doing already.
Yeah.
Turning to slide 16, we have shown how our floating rate debt and all fixed rate debt maturities over the next three years.
Compares to peers.
As you can see a repricing exposure in this time frame is very much in line with the peer average.
Let me share some color on the way, we think about the impact of rising rates on our business first we of course reflect market expectations and our planning process and guidance.
We of course don't model just flat rates.
More than 80% of our balance sheet is fixed rate and as long in duration over 13 years and average tenor.
Next about 50% of our interest rate exposure, the same floating rate debt and all fixed rate debt maturities over the next three years is at our regulated utilities.
It is a cost of service.
As a reminder, about 35% of our existing rate base and over 75% of our growth capital is rider eligible which allows for timely annual true ups.
Looking ahead to future issuances of long term debt, we manage that interest rate exposure through a variety of hedging and treasury activities, including through what is nearly $9 billion notional of pre issuance as interest rate hedges, which will help us keep future costs low and our parent company and at our regulated utilities.
So what does that mean that portfolio allows us to lock in treasury rates for issuances between now and 2026 at.
At rates.
Almost as low as 1%.
Lastly, a reminder, that economic growth and inflation and higher interest rates are all part of the mix. When it comes to comes to determining authorized Roe accrue.
Across our utility businesses and our periodic rate proceedings.
So in summary, the current rate environment is dynamic.
And we're monitoring it closely.
President However were not seeing an earnings hurt from significantly higher interest rates. So far this year as higher rates. Thus far have generally been offset by the factors I just described.
We will certainly provide an update on rates interest expense hedge.
Hedging strategies and other mitigates as we provide an update on our business review and guidance on our fourth quarter call early next year.
Turning to slide 17, let me address customer Bill.
Just on data from the U S census Bureau, the share of our customers' wallet attributable to our utilities customer Bill.
Has declined over the years, a testament to our continued focus on delivering affordable energy to our customers. Despite an overall increase in household income during that time.
I'd also note that our improvement in affordability has been trucking far better than national utility averages.
Also with regards to the starting point for relative rates, we're proud to have rates today that remained well below the national and various regional averages.
Now on slide 18 fuel costs as Bob mentioned, we are proactively working with regulators to help our customers manage cost.
Of course, we've been very we have very clear cut pass through mechanisms for fuel costs around across all of our utilities, but let me share some color on where we stand right now.
At our two electric utilities, we use a diverse portfolio to generate electricity that includes many different sources of fuel and also our small but growing renewable feet fleet that of course does not incur fuel costs for our customers.
Nuclear power currently represents about 40% of our generation portfolio.
And as we grow our renewable fleet and added to our nuclear fleet, our customers will benefit from carbon free power and predictable and stable rates that are not exposed to fossil fuel markets and volatility.
We also have long standing risk mitigation strategies, including hedging in that natural gas storage with most fuel prices chewed up to customer bills on a delayed basis, a structure, which helps to smooth out the bill impact of commodity swings.
In Virginia, we voluntarily agreed to spread the recovery of the under recovered fuel balance over a three year period to reduce the effect on the effect on customer bills.
In South Carolina, we filed the mid period fuel adjustment rather than our typical annual cadence to avoid a single significant customer bill increase in the future.
If approved as submitted our typical residential customer bill would increase by approximately 14% and customers would see the increase in bills beginning in January of 2023.
In our gas distribution service areas, we utilize storage capacity to offset peak day requirements and proactive gas supply hedging and contract strategies to help customers manage costs.
In Ohio, where the majority of the gas supplied through third parties access to storage and lower cost gas plus fixed rate customer contracts, all help mitigate gas price exposure.
And our Western States, our unique cost of service gas production also helps customer avoid customers avoid price spikes.
In aggregate as of September 30, we haven't under collected balance of approximately $2 billion in fuel costs.
We are working proactively with regulators to address these costs and will continue to use these and other mitigation measures to keep any increase to customer bills as muted as possible.
Okay, turning to 19 and briefly on credit.
We have positioned Dominion energy as an increasingly pure play state regulated utility.
With a differentiated clean energy transition profile.
Our efforts to improve our credit profile in recent years has had significantly improved our financial and business risk profiles.
This continued shift towards a regulated utility profile has resulted historically and the reduction of our credit metric downgrade and upgrade threshold.
We've shown here, how our credit metric upgrade and downgrade thresholds at Moody's compares to our large cap integrated peers.
Of course companies specific circumstances dictate threshold differences generally those with lower downgrade thresholds have limited Nonutility holdings.
Scale and diversity and are operating in attractive states with constructive regulatory relationships.
We believe the agencies will continue to consider the intentional derisking of our business profile as they assess our credit going forward.
Looking ahead, we expect our credit guidance will be unchanged, we target high Triple B range at our parent and single a range at or off goes.
With that let me summarize our remarks on slide 20 safety remains our top priority and is our first core value.
We delivered quarterly results that were above the midpoint of our guidance range.
We narrowed the range of our 2022 earnings guidance and are on track to meet that guidance.
We continue to aggressively execute on our de carbonization of investment programs to meet our customers' needs, while creating jobs and spring new business growth.
We filed a settlement agreement that provides a balanced and reasonable approach that allows our offshore wind project to continue moving forward on schedule and on budget.
And we are pursuing a top to bottom business review with the goal of ensuring that Dominion energy is best positioned to create significant long term value for our shareholders.
Lastly, Bob Diane Steve David and I, we all look forward to seeing many of you in person at the EI financial conference in about 10 days.
And with that we're ready to take questions.
Yes.
At this time, we will open the floor for questions if you'd like to ask a question. Please press the star and one on your Touchtone phone.
If at any time, you would like to remove yourself from the queue. Please press the star and two.
Again to ask a question at this time, please press star one now.
And our first question comes from Shar <unk> from Guggenheim Partners.
Hey, good morning.
Hey, good morning, guys.
Sure.
First congrats obviously to a gym and Steven I guess this means Mr. Bridges Park City scheme days are over with but congrats to both of you guys.
Thank you Sir.
But if you can maybe elaborate a little bit on your prepared remarks as youre looking at sort of a range of scenarios I think many would assume you start with looking at a monetization of the contracted assets, but in our view, they're really not why you're trading at a discount or why the stocks underperformed. Some would argue that performance maybe driven by.
In local politics, I guess could we see more drastic actions like divestitures, where you would only focus on Virginia or even a sale of the company to really maximize shareholder value I guess what is all this is going to what is this going to look like in the end.
And it seems like an update in February is a very tight timeframe. So I guess are you really.
Aggressive in this process.
Thanks, Shar, let me take that last part of that first this is not about corporate M&A. If that's what you're asking about this is about a business review of top to bottom business review as we made clear in our prepared remarks looking at strategies that maximize value business mix capital allocation all those.
Kinds of things and we're going to make decisions.
As we would any strategic decision, we make with respect to the company and what's in the best interests of our shareholders of our employees and of our customers.
<unk> mentally we took a look at how we're doing how our share price is doing and the market is telling us that were not performing the way.
Investors expect and so we think it merits.
A complete review from top to bottom we're early in the process.
And we're going to obviously in addition to shareholder value and our share price performance be thinking about the macroeconomic environment, we're in and making sure that we can deliver on our growth program to the level that we expect so we laid out in the opening remarks, and I'll just reiterate as well.
Guided by our commitment to our state regulated utility profile.
Our credit profile, and our current dividend and to transparency and ensuring shareholder value. So as we thought about it.
We can keep on the same course as we said we have a path.
To 2023.
Somewhat suggest that doing the same thing over and over and expecting a different result doesn't make a lot of sense.
Or we could have just announced something.
But we thought it made a lot more sense to announce that we're doing this review I get some shareholder input and figure out what's right for our shareholders our employees and our customers going forward in the long run.
Got it and then just lastly, Bob just on the six 5% growth rate you have out there obviously, you're implying on slide 13 in your prepared remarks that that that you could change the target pending pending the review obviously the share price reaction. This morning is implying a cut in the growth rate but.
But could a scenario actually be accretive or even supportive of the target you have out there, especially if we assume the trend with privates and financial players paying relatively healthy multiples for assets with proceeds you can redeploy it organically at one times rate base I mean does it deal needs to be dilute.
To growth are you concerned about the numbers.
Yeah.
We're obviously closer to the beginning of this process than the and so we're going to have to work our way through.
And see what.
The ultimate outcome is before I can comment on that Shar and I understand your interest in getting <unk>.
More clarity on that today, but until we've done the process that question is impossible for us to answer again I would go back to the fact that we're very focused on.
On earnings quality and earnings predictability, that's what our shareholders are telling us. They want that's we're going to focus on as we're going through this review.
Terrific. Thank you guys I'll jump back in the queue I appreciate it.
And our next question comes from Ross Flower from UBS. Your line is open.
Good morning, Bob morning, Ken <unk>.
Morning.
Maybe shifting gears.
When I'm sure there's going to be a lot of other questions on the strategic review, but just touching on offshore wind for a minute as we look at slide six and then sort of slide eight in the deck.
<unk>.
I think you know.
Getting a settlement done obviously, it still needs to be approved.
What is sort of shifts investors thoughts on risk.
That performance guarantee around capacity factor and now there's a shift cost. So maybe you can frame the risk to cost from here given the cost sharing arrangement and then the second part of the question is you say, 75% fixed as of today and then working to that 90% in the first quarter next year.
Can you kind of just give us some framework when its fixed actually imply or I mean is that locked in settled cannot move at all.
What we have in there ex the contingency.
Yeah.
Let me start with the first part of your question.
And as we said on the on the last call.
The performance guarantee put a level of risk that our investors, we knew would not find satisfactory didn't make any sense.
We've been focused on the cost of constructing this project from the very moment, we can see that that's.
That's what we do.
We built Cove point on time and on budget and we absolutely expect we're going to build this project on time and on budget. The same way and we're very advanced in the development here and as you noted and as we said in our opening remarks, 75% of cost fixed expecting 90%.
By early in.
2023.
So we're very much on target, we're very comfortable with the estimates the amount of contingency has actually increased since the time, we filed which gives us even more confidence as we said in our opening remarks, we are working very well with the regulators working our way through.
The environmental <unk>.
Permitting process. So project is very much on track, we have a high degree of confidence in our ability to build it on time and on budget and I'm going to ask Diane to walk through a little bit more detail on that.
Okay. Thanks, good morning, everybody.
So let me just give a little bit more color to the different aspects of the project.
Kind of as you walk through the first thing would be permitting and as Bob just said, we're working through the process of the draft environmental impact statement. It is on time to come out by the end of this year.
And we're working closely with the regulators with bell on them with Noah in addressing issues as they come up to minimize any risk of schedule issues.
And then I'd want to remind you we really focused on de risking the schedule from the start by having two.
<unk> seasons, two construction seasons to.
Put those manav piles down so we don't even install the turbines until the second season. So that allows for de risking in the construction and we look at that as we move forward with the project.
The next or our vendors and our suppliers and we picked the worldwide experts in the offshore wind industry.
To ensure that we werent, adding any risk in our contracting and of course, they were fixed price contracts and as we move through the pieces that were variable in the offshore.
While commodities and fuel and that's where you see 75% fixed as of now so as we're looking to continue to move towards fabrication. We have all the manufacturing slots nailed down much of the steel plate has been ordered and deliveries of <unk>.
Actually already started in fact fabrication for our offshore substations in our cables have already begun. So that says you are seeing the 75% are moved to the 90, that's what's going on at the mills are operational our vendors are not concerned with them shutting down due to fuel it.
She is in Europe anything like that.
And as Bob said as we looked at the entire projects throughout this time, we've been able to preserve and even add to our contingency. So we're feeling very good about where we are.
On the so I think I've really answered that additional question of ramping from 75 to 90, it's really as we're getting those deliveries and locking in the remaining part of the metals and the fuel.
And the final piece of moving from that 75% to 90% is on the.
Onshore side on that onshore transmission and locking in those contracts.
Yeah.
Okay. Thank you for that.
And then.
Maybe one for you on the strategic review or just falling off to Sharon's question.
On the growth rate.
Okay.
Trying to just sort of understand what you're trying to communicate there with a little more clarity.
Six and a half was where you were what you're saying for 23 right.
In the long term growth rate and you see a path to that today absent the strategic review.
I want to put words in your mouth here, but.
I think what I heard you say was it.
The results of the strategic review could be different outcomes in 2023.
And then you have to think about what the long term growth it looks like after that right.
Your rate base growth at our regulated utilities is about 9%.
Which is higher than six and a half and so thats your focus.
I think that's a good thing and I don't think you're saying here today that youre going to do things in the strategic review that are dilutive to value.
Yeah, I think what we're saying it again I know youre looking for certainty here, but it's early days and we're just getting started so.
What we are focused on you've correctly identified as regulated high quality earnings predictable earnings going forward.
How the numbers all settle out at the end of it we will report.
When that time comes so that's why we're saying today, we have a path and a status quo scenario, but the outcome of the review could lead to a different.
Growth qualitatively and quantitatively.
Okay. Thank you I'll jump back in the queue.
And our next question comes from Steve.
Policemen from Wolfe Research your line is open.
Yes, hi, good morning, Hi, Bob So just first on the kind of status quo scenario I think for 'twenty. Three you mentioned that you could do it but you would need to do more on regulated investment.
Could you just.
Comment a little more what you mean by that.
Yeah, Let me, let me get Jim to walk through the pieces and parts on that Steve. Let me go. So let me go through it a little bit higher level than your specific question Bill I'll address that too so what's going on with our guidance.
So for 2022 I know, it's not your question, but for 'twenty. Two we affirmed we narrowed we're on track EPS and credit between two.
For 2023.
We never give forward year specific guidance on our third quarter call and we're not doing it this time either.
Come back and talk about that in some more detail though.
Give some some color.
And then for our long term growth rate, we haven't we haven't changed it we have withdrawn it but as you noted we also haven't explicitly reaffirmed it given the review.
But we see these paths as we show on slide 13 path to achieving our long term guidance.
And tools, we have to overcome some of the macroeconomic headwinds that Bob mentioned with increased.
Investment on the unregulated side and other initiatives, but some of those tools and businesses are the same ones that are subject to distribute cores everything subject for you. So Bob as he mentioned in his prepared remarks cautioned.
That long term outcomes consistent.
With our existing guidance.
Really achievable in the status quo result to the review so anyway long story short that's the color on the 'twenty two 'twenty three and long term, but on this slide 13, we give drivers.
For 2023 targets.
So let me walk through and provide some.
Detail on each line item.
Thats in our path to make our.
Six 5% into 2023.
So for 10 for 'twenty two at the midpoint of our guidance that we just narrowed.
Six 9% of the simple math is a of course implies in our consensus.
Analysts consensus is for 37, so 410 to $4 37 and of course, there's some helps in some hertz to bridge that so let's go through those as listed on that slide sales growth.
Sales growth, we talked about on the electric side is clipping along at a healthy rate, 1% to 1.5% slightly higher on the on the datacenter side.
But that financial impact together with the impact of margin is probably flat.
And we've given some additional detail on margin dynamics, including Virginia on Slide 31, we're happy to follow up after the call and walk through all of that the combination of those two things flat.
Regulated investment.
Which we've talked about is the long term earnings growth driver for this company call. It 27 cents year over year.
Rough numbers $6 billion of growth Capex, 50% equity ratio temporarily across all of our businesses.
Millstone margins.
<unk> year on year help.
Here too we provided additional disclosure on page 32 of our hedging position for Millstone for the next several years.
Eight cents.
ITC.
Increase in ITC, we have opportunities to complete projects and increase our ITC contribution in 2023.
That could be in solar as we've been doing in mid teens for years now or it could be an RMG ITC recognition.
So five to 11 cents as a placeholder.
And for R&D that would assume sort of two to 400 million of projects, reaching cod in 2023.
The other the last help I mentioned other.
17 to 20 <unk> lot of things in there.
It includes O&M initiatives.
It includes regulatory outcome, including in Utah.
Some help on the works pro side.
RMG non ITG contribution and other but in that bucket 17, 20 cents a quarter of that impact is just the regulatory outcome in Utah.
And then some hurts.
That had been mentioned.
The double outage at Millstone every three years like Clockwork six cents.
Interest expense.
Let's just take numbers from the outside looking in we have a lot of tools or disposal for hedging and more dynamic management of this but if you just say, okay, almost 20% of your debt balance.
<unk> is variable lets just say rates year on year or up 2% to 3% percentage points that would be 13 to 19th of hurt.
And then share dilution modest <unk>.
Finally pension we've talked about.
For most of this year I've been saying is too early to talk about pension and only one date matters and pension world for US 12, 31, but as we sit here in November coming closer. So we can kind of put it in a box and there was a headwind our assets are down like everybody's our discount rate is up.
Two 5% or so like everybody.
The headwind from that is modest we're putting it in the high single digit pennies range, so six to nine cents.
So those are.
Views on one path, we have to continue along the six 9% growth rate through 'twenty three.
And formal guidance along with updates on the status of our <unk>.
Our review will come on the fourth quarter call.
Yeah.
Okay.
I'm sorry, I have one other question I didn't expect such a long answer but that was helpful.
It was my last my last chance to talk to you of rollout yeah. So.
So just.
I guess.
This is a bit of an unorthodox way of going about something like this and but.
Just to try to put some perspective on how you're looking at things in this review what do you Bob and the board think the reasons are the stock is underperforming do you think it's due to the small amount of remaining.
Non utility businesses or is it.
Is it really is at Virginia, and kind of unique structure. There some of the noise you've had is it the offshore wind like what.
What do you kind of hard to have a perspective on this review if we don't know what you think the the reasons are.
Yeah, Steve I think it could be a little bit of all of the above of what you just described.
Well, maybe I'd phrase it a different way is what investors are telling us they're looking for what they're looking for is predictability what theyre looking for is earnings quality.
Theyre looking for competence and long term growth and so again as we go through the review those are the things that we're going to focus on.
To try to achieve.
For investors.
Okay.
I mean, obviously by doing this you created more unpredictability.
So it's kind of like a circular loop.
Here.
Steve what I would say maybe it's unorthodox.
Although I think other companies have announced reviews, maybe it's a little unorthodox, but again as I talked about before continuing to do the same thing we've been doing.
It may well just end up in the same results that we've achieved before and we're going to listen to the market.
And we look forward to the opportunity to engage with investors and get their perspectives as we're working our way through this again, our our goal with this.
Is to land on an outcome that provides predictability and quality and we want to do it in a very transparent fashion.
Okay. Thank you.
And our next question comes from Jeremy Tonet from Jpmorgan. Your line is open.
Hi, good morning.
Hey, Jeremy.
Okay.
I want to continue with the review a bit here if I could.
Just wanted to see maybe asking a little bit differently, what options might be off the table here beyond the nonregulated businesses could you look to sell some of the LDC is here and we've seen others in the space with a lot of success on the side and then separately.
As it relates to the customer Bill pressures as you said if you could address.
What steps can be taken by Dominion two to address that and is there a way to address that that isn't EPS or credit negative.
Yeah. So let me start with the first one Jeremy what's what's off the table versus what's on the table and the answer to.
What's off the table is the same as the answer to what's on which is we've kicked off a review top to bottom.
And again guided by the principles that we described.
In our opening comments.
And then on.
On the second part of your question sort of policy initiatives. We described examples of.
Things that we've done in our states over the course of the last few years to help customers, whether it was forgiving arrears recovering reggie costs through base rates spreading out fuel over multiple periods of time.
As we work with policymakers and think through.
Most logical ways to assure.
That current customer bills don't get in the way of long term customer investment will.
Be thinking about those same approaches that we've used in the past.
And making sure that we achieve a constructive regulatory outcomes, which I think we've demonstrated over the course of many years, we're very good at achieving here.
Got it that's very helpful and just pivoting if I could here, obviously a lot of focus on the review, but just wanted to touch base on the R&D side and see what kind of new initiatives are there or if you could just update us on your thoughts.
Good morning, Jeremy This is Diane.
So.
The backlogs just continues its going very well as Bob brought up if you do the count we have.
<unk> projects underway right now.
We're producing 11 under construction and five more to be in construction by year end.
And those that are producing or producing as designed and we're.
We're seeing very strong carb scores out of them. So you know just how carbon negative. They are just focusing on this egg RMG business in the.
The dairy and swine side so we.
Have invested or well have invested a $1 billion in this and expect it to produce somewhere in the range of about $200 million by 2025, So it's gone very well.
Got it great if I could sneak a last quick one and just going back with the review here did the upcoming triennial impact your thought process at all here.
No the.
Again, it's there are.
A lot of factors at play in our business and you can't identify any one of them.
We're.
As we said the focus is our share performance and what can we do to make sure we maintain our long term capital investment programs.
Great. Thank you very much.
Okay.
Yeah.
Yeah.
Thank you. This does conclude this morning's conference call you may disconnect your lines and enjoy your day.
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