Q4 2022 Dominion Energy Inc Earnings Call
[music].
Good day, everyone and welcome to the Dominion Energy fourth quarter 2022 earnings Conference call.
At this time each of your lines is in a listen only mode.
At the conclusion of today's presentation, we will open the floor for questions.
Instructions will be given for the procedure to follow if you would like to ask a question.
I would now like to turn the call over to David Mcfarland.
<unk> 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 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 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, Steven Ridge Stephens Senior Vice President Chief Financial Officer, and Diane Leopold Executive Vice President Chief Operating Officer, I will now turn the call over to Bob. Thank.
Thank you David and good morning, everyone.
During 2022 we delivered earnings and dividend growth in line with our guidance provided safe reliable and affordable energy, while demonstrating careful environmental stewardship served our customers and invested in our communities and made meaningful progress on our regulated investment programs focus on de carbonization and resiliency.
I'll begin by highlighting our annual safety performance as shown on slide three our employee Osha injury recordable rate continues to compare favorably with the company's long term historical results as well as national industry and regional electric utility averages. However, our ultimate goal has been and continues to be that none of our colleagues get hurt.
Ever next.
Next time reliability, which our customers consistently indicators their highest priority.
In the past year customers in our electric service areas in Virginia, South Carolina, and North Carolina.
99.9% of the time, excluding major storms and it's worth noting that Virginia reached record summer peak demand in August and all time peak demand in December if.
If they do time and time again, our colleagues rose to the challenge and kept our system delivering without major or extended interruption. During these demanding load conditions the skill of our team and resiliency of our system was never more evident than during the December winter storm. When we also did not experience any major or extended service disruptions finally affordability.
Our rates continue to be lower than national and regional averages as we discuss later, we're very focused on ensuring that our customers are not priced out of the significant long term benefits that will result from our de carbonization and resiliency investment programs.
On that same theme 2022 was a significant year in terms of advancing our regulated de carbonization and resiliency strategy.
In Virginia State Corporation Commission approved several rider eligible investment programs, including our offshore wind project subsequent license renewals of our four nuclear units are second clean energy filing a new solar and energy storage projects in phase two of our grid transformation program.
Additional rider eligible investments currently under FCC review include new solar and energy storage projects in our third annual clean energy filing and high voltage electric transmission necessary to continue to serve growing customer demand in data center load.
In South Carolina, we achieved our second best year ever for service reliability in December Moody's upgraded Dominion Energy South Carolina as credit rating.
Evidence of the company's quote improved regulatory and stakeholder relationships.
In our gas distribution segment, we invested over $300 million modernizing infrastructure that is safer more reliable and better for the environment.
We completed our LNG, peaking supply facility in Utah, and we increased the number of our renewable natural gas projects in operation or under construction to 'twenty one.
All told our nuclear units produced about 50 million megawatt hours of low cost zero carbon baseload power, that's roughly 40% of our total generation production as a company. Our fleets performance continues to be exemplary, especially in periods of extreme weather during which our stations provide vital stabilizing support to the grid.
And price stability in their respective regions.
Our power purchase agreement in Connecticut, save customers nearly $300 million.
In summary, the regulated de carbonization and resiliency investment opportunity that we've outlined on previous earnings calls, we will continue to play a key role in driving the long term growth of the company for years to come.
Before transitioning to comments on the business review, let me also highlight progress around our sustainability goals I am pleased to report that through 2021, we've reduced scope one carbon emissions from our electric operations by 46% since 2005 and scope on methane emissions from our gas operations by 38% since 2010.
Ken.
Notwithstanding the strong performance, we recognize the need to look holistically at our company's footprint, which is why during 2022, we expanded our net zero commitment to include all scope two emissions and the material categories of scope three emissions. These new commitments align with our focus on helping our customers and suppliers decarbonize.
Finally, we increased the diversity of our workforce to 37% an increase of nearly four percentage points. Since 2019, while also increasing our procurement spend with diverse suppliers to over $1 $3 billion, representing 17% of our supplier spend an increase of four percentage points since 2019.
Now, let me turn to the top to bottom business review I'm, leading the effort with support from the full management team and in frequent consultation with our board.
We're devoting all necessary resources to ensure that we thoroughly and methodically review every aspect of our business. When we announced the review in November I indicated that we would be guided by the following principles as shown on slide five.
Commitment to our state regulated utility profile with an industry, leading investment opportunity focused on de carbonization and resiliency.
<unk> to our current dividend our commitment to our current credit profile and our commitment to shareholder value enhancement and to transparency.
None of those principles have changed we are proceeding with pace and purpose and as a result, we're able to provide additional commentary on how we believe we should optimally positioned dominion energy at the conclusion of the review to create maximum long term value for our shareholders.
First our focus on delivering durable high quality and predictable long term earnings growth profile.
We recognize the importance of executing consistently against any earnings guidance offered post review.
Second we believe it is critical to position our regulated utilities to earn a fair and competitive return on investment we know that investors have choices about where they can confidently allocate long term capital.
Third we know it is our responsibility to constantly look for ways to optimize the efficiency of our operations without losing sight of the absolute necessity of meeting high customer service standards in recent years, we've driven down cost through improved processes innovative use of technology and other best practice initiatives we've.
<unk>, our O&M performance metrics in the appendix of todays materials as part of the review we are evaluating what we can additionally, do on costs within the context of the significant operational and cost efficiency, we have achieved over the years.
Fourth we believe that our financial credit metric performance need strengthening we want to emerge from the review with the ability over time to consistently meet and exceed our downgrade thresholds even during temporary periods of cost of regulatory pressure is.
As part of the review, we're analyzing the most efficient sources of capital to fund our growth programs, while seeking to minimize any amount of ongoing external equity financing needs.
Finally, we believe it is important to affirm our commitment to the dividend.
I'll note here our announcement this morning that the 2023 dividend subject to board approval will be equal to the 2022 dividend. We believe that it is important to achieve potentially over time and without reducing the dividend a payout ratio consistent with our current 65% ratio.
Since the announcement, we've spoken with hundreds of equity and fixed income investors and receive valuable indirect feedback much of which has affirmed our focus on these priorities investors have also understandably been focused on the go forward earnings potential of the company.
Given that the review is still underway, we have and will continue to refrain from providing that guidance until the review is complete I will say that the outcome will be informed by the principles and priorities I just outlined we will continue to be deliberate in making ourselves available for input from the company's current and prospective capital providers.
Let me now turn to address the Virginia Legislative session.
There is legislation pending that revises our regulatory model. In addition, there was legislation that would subject to commission approval provide for a passive equity partner and our offshore wind project.
It is too early to predict the outcome of any legislation, we remain engaged with stakeholders in the process.
In terms of timing as shown on slide six the Virginia General Assembly is scheduled toward journey on February 25th. The Governor then has until March 27th to sign amend or veto legislation that has passed both chambers and.
In the case of the governor of men's or veto the bill the legislation returns to the General Assembly for what is typically a one day reconvene session on April 12th at that time, the General Assembly may vote to override the veto or accept or reject amendments proposed by the governor. The Governor then has approximately 30 days to act on legislation that it has been a draw.
Yes, and the reconvene session having.
Having a clear and definitive understanding of the future Virginia regulatory construct is a key input for the business review there.
Therefore legislation timing will influence the cadence at which we're able to share more details about the business review in the future Steve.
Steve will share some additional thoughts on investor communication in his prepared remarks.
I know the business review is of Paramount importance to our stakeholders. Let me reiterate my confidence that we're executing a thorough expeditious and comprehensive review with the goal of ensuring that Dominion energy is best positioned to create significant long term value for our shareholders our customers and our employees.
With that I'll turn it over to Stephen to address financial matters before I provide further business updates on the execution of our plan.
Thank you Bob and good morning, everyone.
Our fourth quarter 2022 operating earnings as shown on slide seven where $1 six per share which for this quarter represented normal weather in our utility service areas.
These results were at the midpoint of our quarterly guidance range positive factors as compared to last year, where weather normal course regulated growth. The absence of a millstone planned outage absence of last year's code deferred O&M and tax timing other factors as compared to last year, where interest expense and share dilution.
Full year 2022 operating earnings per share were $4 11 per share slightly above the midpoint of our guidance range for the year.
2022, GAAP results were $1.09 per share.
Here I'd highlight one adjustments, which is described in schedule two of the earnings release kit and.
In connection with the business review management has reviewed the unregulated solar portfolio that reports to our contracted asset segment.
These approximately 30 solar facilities, representing around 1000 megawatts operate primarily under long term power purchase agreements with third parties consistent with prior commentary the company no longer intends to invest in unregulated solar projects for purposes of generating investment tax credits or Itc's.
As a result, the company impaired the portfolio in the fourth quarter and recognized a noncash charge of $1 $5 billion.
Moving now to guidance on slide eight given the pending business review, we are not providing full year 2023 earnings guidance, nor are we are refreshing our long term capital investment plans at this time.
For the first quarter 2023, we expect operating earnings to be between 97 and $1 12 per share.
Last year's first quarter operating earnings were $1.18 and included one cent of benefit from weather.
Positive year over year changes include growth in regulated investment higher sales and higher millstone margins.
Negative changes include higher interest expense as a result of higher rates as I will touch on more in a moment lowered the EV margins for certain utility customer contracts with market based rates.
From pension and OPEC as a result of 2022 asset performance higher depreciation the absence of solar investment tax credits and O&M and tax timing.
And just briefly as it relates to pension I'd note that our pension funded status at year end was 108%.
Turning to slide nine let me address electric sales trends weather normalized sales increased three 4% in 2022 as compared to 2021.
Components of this growth include a slight decline for residential as you would expect with continued back to the office trend and higher growth for the commercial segment driven by datacenter customers in Virginia.
For 2023, we expect to remain above our long term demand growth assumption of one to one 5% per year as Bob will touch on more in a moment.
Briefly on financing since our last call, we've bolstered our liquidity dei with an opportunistic long term debt issuance of $850 million late last year, and a 364 day term loan facility of $2 $5 billion, which we closed last month.
These financings provide incremental flexibility, including to address first quarter maturities, which are described in the appendix of todays materials will refresh our financing plans pending the outcome of the business review.
Let me share some color on two macro topics first higher interest rates, we maintain a level of floating rate typically short term debt and our holding company and operating segments, primarily to fund working capital as well as more permanent capital needs between long term fixed rate issuances.
This floating rate portfolio represents around 20% of our total debt or $8 billion.
At this time a year ago, we've seen our borrowing costs on this part of our capital structure increase by about 400 basis points.
We will provide an update on rate assumptions interest expense hedging strategies and other mitigates when we conclude our business review.
Another macro headwind as fuel costs with very clear cut pass through mechanisms for fuel costs across all our utilities, we employ prudent hedging and mitigation strategies to keep fuel costs low while ensuring security of supply in aggregate as of December 31, we have an under collected balance of approximately 2.5 Bill.
Dollars in fuel costs across the company. We've included a slide in the appendix with these details.
As we've discussed previously we don't want our customers to Miss out on the significant long term benefits of our de carbonization and resiliency investment programs as a result of temporary cost pressures such as fuel.
We will continue proactively working with regulators to employ mitigation measures to keep any increase to customer bills as muted as possible.
Turning now to credit, which Bob highlighted as one of our business review priorities.
We continue to target high Triple B range credit ratings for our parent company and single a range ratings for our regulated operating companies over the last several years, we've taken steps to position Dominion energy as an increasingly pure play state regulated utility with a differentiated clean energy transition profile and as a result, we've improved our business risk profile.
Phil.
Despite this meaningful qualitative improvement our Moody's published CFO pre working capital to debt one of the primary quantitative metrics used to determine our credit rating has underperformed our downgrade threshold for the last several periods. Moody's has indicated publicly that under the status quo. They expect that underperformance to persist.
Living consistently blow our downgrade threshold is not a place we want to be.
As Bob mentioned, we want to emerge from the review with the ability over time to consistently meet and exceed our downgrade threshold, even during temporary periods of cost or regulatory pressure.
Achieving and maintaining that will require meaningful credit repair considering both the size of our balance sheet as well as the substantially elevated regulated capital investment over the next few years.
Finally, as shown on slide 10, we intend to provide a business review update this spring with final timing to consider the status of the Virginia legislative process.
We would expect to use that update to discuss any changes to the Virginia regulatory model as well as next steps as it relates to the business review.
That meeting would be followed with an investor day in the third quarter that would include a comprehensive update of the business plan.
I will now turn the call back over to Bob Let me turn to other business updates in the execution of our growth program.
As I've discussed in previous earnings calls the strength of our Virginia service area economy supports our robust capital investment programs at D E D.
Two recent announcements have confirmed Virginia's economic strength first PJM recently published its annual forecast of demand growth. The Dominion zone continues to be the highest growth rate among all zones within PJM, covering 13 states and the district of Columbia P.
P. J M projects that 10 year summer peak load to grow at five at a 5% annual rate. This growth primarily driven by datacenter loads, which have been increasing at an unprecedented rate will require significant new capital investment.
Second last month, Amazon announced its plans to invest $35 billion by 2042 established multiple data center campuses across Virginia. These new campuses will combine expandable capacity to position Amazon for long term growth in Virginia, and create an estimated 1000 jobs.
Data centers currently represent about 20% of our total sales in Virginia and have provided strong sales growth to date.
Friends supported by these two announcements, we certainly expect to continue.
Our work continues to advance projects to bring both new and upgraded infrastructure to enable the continued connection and expansion of data center customers. For example, 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 cash.
Investment.
Turning to offshore wind on slide 12.
In December the FCC approved the cost sharing settlement agreement developed in collaboration with key stakeholders, including the office of the Attorney General and other parties were very pleased to be extending our track record of constructive regulatory outcomes.
As it relates to the project execution, it's very much on track and on budget. We have continued to work closely with the Bureau of Ocean Energy management and other stakeholders to support the project timeline in particular, we received the draft environmental impact statement, which started the 36 day public comment period that will close later this month the draft D I.
S was thorough and contain no surprises public hearings have already taken place and we continue to work collaboratively with bone and all of the cooperating agencies.
Advanced Engineering and design work, which has allowed us to release major equipment for fabrication and advanced procurement and other preconstruction activities for the onshore scope of work.
Project cost excluding contingency are currently 80% fixed and we continue to expect about 90% of the project cost excluding contingency will be fixed by the end of the first quarter.
We remain on schedule to complete construction of the project by the end of 2026.
We expect the I S record of decision in late October of this year slightly later than expected because of the D. I S timing, but still in support of our current project schedule.
Next our Jones Act compliant turbine installation vessel is currently 65% complete we continue to expect it to be in service for the 'twenty 'twenty four turbine installation season.
Turning to other business updates on slide 14, as part of our ongoing resource planning Dominion Energy South Carolina is replacing several of our older generation, peaking turbines with modern more efficient units these peaking units, which often operate seasonally during certain times of day when the demand for energy is at its highest play an important role in our.
Generation fleet with their ability to go from idle to producing energy quickly modernizing this equipment will lower fuel cost to customers improve environmental performance and provide reliability and efficiency benefits.
These important resources are also critical to support the grid solar continues to be added to our system.
Construction activities will begin later this year for two of the facilities and they all source RFP for a third facility is on track on.
On the regulatory front, we filed our 2023 IR P last month.
Our preferred plan continues to be indicative of the potential for accelerated de carbonization and assumes all coal only units are retired by the end of the decade, we look forward to engaging with all stakeholders on this planning process now.
Next at our gas distribution business, we continue to see strong support for timely recovery on prudently incurred investment that provides safe reliable affordable and increasingly sustainable service, including pipeline replacement efforts and expansion of service to rural communities. For example in December the public Service Commission of.
Utah approved a general rate increase of $48 million and an allowed ROE of nine 6% and this constructive outcome. They also approved the continuation of the infrastructure replacement tracker programs and the costs related to our natural gas storage project in Utah Magnet LNG, which was placed in service at the end of last.
Year and will be used to meet system reliability for customers gas supply in the Salt Lake City area.
On our N G. We remain one of the largest agricultural based R&D developers in the country. We have six projects producing negative carbon renewable natural gas and 15 additional projects in various stages of development.
We're also reviewing potential tax benefits available to <unk> through the inflation reduction Act when we launched this business. We did so on the strength of the underlying project economics, and the very robust de carbonization benefit of agricultural renewable natural gas.
Those investment criteria have not changed if the projects are deemed eligible for tax incentives, we would expect to capture that value on behalf of our shareholders.
With that let me summarize our remarks on slide 15.
Safety remains our top priority is our first core value.
We delivered 20 twenty-two financial results that were in line with our guidance range. We continue to aggressively execute on our de carbonization and resiliency investment programs to meet our customers' needs, while creating jobs and spring new business growth our offshore wind cost sharing settlement agreement was approved which allows the project to continue move.
<unk> forward on schedule and on budget.
And the top to bottom business review is proceeding with pace and purpose I am focused on ensuring that Dominion energy is best positioned to create significant long term value for our shareholders with that we're ready to take your questions.
Thank you.
At this time, we will open the floor for questions.
If you would like to ask a question. Please press the star key followed by the one key on your Touchtone phone now.
Anytime you would if at any time, you would like to remove yourself from the queue. Please press star two.
Again to ask a question please press star one.
Our first question comes from Shar <unk> with Guggenheim partners.
Hey, good morning, guys.
Good morning Shar.
Morning, So just starting off with the business review priority as you kind of discussed in the prepared remarks, and you've kind of laid out on slide five.
Specifically kind of on the dividend comment.
Maybe try to parse through the awards here a little more closely I mean, obviously you know we understand that you guys are holding the dividend at the current level for obvious reasons and that's obviously consistent with your support for the dividend, but I guess what is the language around quote unquote potentially over time mean, as we think about the payout ratio of bounds in the knee.
Near term I guess.
What do you mean by potentially could this mean faster or slower trajectory to get to the 60% range.
We've received a lot of inbounds on these three words, so any sort of visibility you can provide would probably be a reprieve.
Yeah sure sure I appreciate that.
As we said in our prepared remarks.
Slightly more detailed than on the slide our current payout ratio of 65%.
To the extent that that were to go up our expectation and plan would be to return to 65% without cutting the dividend that's consistent with what we said when we announced the review we're doing a business review right now.
So I can't answer exactly what the payout ratio might end up but if it is above 65% our expectation is to get it back to 65 without cutting the dividend.
Got it Okay, I guess, we'll wait for additional color there and then Bob you took you know a large impairment on the solar projects I understand the test was triggered by the decision to not stay on the investment ITC recognition hamster wheel, but what part of the impairment tests did you actually fail.
Sure Hey, its Steve I can take that.
So just to be specific this has to do with our contracted assets solar portfolio and there were really two primary purposes for the development of the portfolio. The first was to develop extra expertise in developing solar so we could employ that expertise credibly across our regulated footprint, which is what we're doing right.
Now so in effect that task has been completed the second was to generate investment tax tax credits, we believe given the attractiveness of our de carbonization and resiliency capital investment opportunity.
The capital that we've used in the past generally those itc's can be employed elsewhere to greater long term shareholder benefit.
The first sort of gating decision was are we going to continue to invest in that portfolio for purposes of generating 90 C. N. The answer we've said is no that led to a subsequent impairment test, where we looked at the carrying value or book value when we compared it to a.
Series of discounted and in non discounted cash flows consistent with accounting guidance and ultimately determined that the fair market value was lower than the carrying value and that led to the impairment.
Okay got it got it that's all.
And then just really quick last one for me just from a legislative process standpoint, I guess, how should we think about the likelihood of slippage into <unk>.
Reconvened session I mean put differently. If you had if you had firm clarity on March 27th could we see the schedule accelerate thanks.
Shar, it's Bob it's way too early to predict what the timing of the Virginia General Assembly and any action on any particular, bill including ones that relate to us maybe.
As we laid out in our prepared remarks. The general Assembly is scheduled to adjourn on the 25th of February and then the Governor bills go to the governor at that point.
Or earlier once they've passed.
And bills that arrive on the Governor's desk with fewer than seven days left in the legislative session. The Governor has 30 days to act on those bills.
If he chooses to propose an amendment or Vito a bill than the General Assembly. As you noted comes back for a one day reconvene session.
And then they address those.
Gubernatorial actions.
So I can't give you any.
Any more clarity because we don't know.
What the timeframe on the General Assembly may be once we do know something that will allow us to address our own schedule.
Okay terrific. Thank you so much and I'll jump back in the queue I appreciate it.
Sure.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research.
Yeah, Hi, good morning, Thanks, Morn theory, Okay, yes.
Yes, great.
So just first on the on the credit comments.
Could you.
You say you're kind of.
Targeting high Triple B, but then also seem to imply.
You know kind of targeting above current met current thresholds, which I think your ratings are triple b at the parent.
Could you just clarify are you targeting a mid triple b and above that or are you targeting high triple B because that's the big difference Yeah, Hey, Steve. This is Steve I'll take the I'll take that one.
On an issuer rating, we're actually high Triple B at two of the three rating agencies Moody's we were mid Triple B.
Our objective is to maintain those targeted rating categories.
And the downgrade thresholds at least at Moody's associated with that is.
14% on the down 17% on the App as we mentioned in the call script, we intend to meet and exceed that downgrade threshold, even in times of temporary pressures from costs like fuel costs and regulatory adjustments and that has been one of the drivers of our underperformance historically.
Relative to our downgrade threshold.
So we're still targeting high Triple B, it's where we are in two of the three agencies from the issuer rating perspective.
And the appropriate downgrade threshold at least from a Moody's perspective is 14%.
Okay. So for the senior unsecured rating, which we typically use that would be mid triple b.
Depending on the specific methodology, but yes.
Okay.
We are basically targeting a ratings you're currently at.
Not a higher rate.
That's right.
Okay.
And then on.
Just on the payout comment.
Just to maybe clarify that a little better which I know.
Disappointed in the process is purposely probably purposely vague.
Is it is it fair to say youre, saying that.
Likely outcome your payout ratio.
We will be above 65% for a period of time.
And then you'll.
Obviously get back and target to that.
Yes, Steve It it's I apologize for.
Not giving you a specific answer but what we're saying is to the extent that the.
The payout ratio changes as a result of the review that if there.
An obvious point if our E.
EPS changes as a result of the review.
And the dividend remains constant as we have said it will.
That changes the payout ratio and what we're indicating is if there is a change in the payout ratio.
We're going to get back to it.
But without reducing the dividend that's the point that we're attempting to make here.
Okay.
<unk>.
But that's more still kind of hypothetical theoretical for now it's not the likely outcome.
Correct. We're in it we're in a business review.
And as we have indicated in.
Prior calls in this call as well, we don't yet know what the outcome of that business review will be so yes. It's hypothetical is a good way of describing it.
And then just lastly, the timeline the over time is there any timeline.
For the overtime.
Again, we can't set that until we're <unk>.
Finished with the review so not yet.
Great understood. Thank you.
Thanks, Steve.
Okay.
Thank you. Our next question comes from Jeremy Tonet with J P. Morgan.
Hi, good morning.
Morning, Jeremy Jeremy.
I just wanted to pivot a little bit if I could towards towards millstone share interesting backdrop here just wondering if you could provide us updated thoughts with what.
Status of the state.
Discussions around Millstone.
How you're thinking about locking in more of this market upsides of the asset.
Thanks, Jeremy as we've talked about before we believe millstone is a great asset.
And we believe the policymakers in new England are recognizing increasingly its value.
For them to meet reliability and any chance to meet the kinds of decarbonization targets that they may have.
Our focus is thinking about ways that we can ensure the long term viability of millstone.
And we're happy to have conversations with policymakers about opportunities to do that as we noted in our opening comments the existing millstone contract has been very good for.
Customers in Connecticut in recent months and over the last year.
We see the possibility of being able to take action with policymakers to give us the certainty we would need in order to extend the life of millstone and have that valuable resource.
For new England for some time to come we don't have as yet specific approach to that but we're certainly interested in engaging with policymakers on that.
Got it that's helpful and then kind of switching gears and realize them.
At risk are put into force ahead of the cart here, but as it relates to potential asset sales.
Just wondering does the software impairment.
Tip that you might look to sell this asset as part of the business review and I guess, we're at with news out of Black held this morning.
With regards to their thoughts on LTE.
LDC sales and so was just wondering if you had any thoughts on what.
You know could potentially be or what could be prioritizing the sale process. If you chose to do that.
Jeremy I would say that as part of the review we're looking at each and every one of our assets and are in <unk>.
Consistent with the priorities and principles that we've laid out on today's call and supplement to what we provided in the third quarter call. That's what will inform our ultimate steps as it relates to the business review to the extent that there is changes to business mix, which is again something we're.
Evaluating as part of review, but no decisions have been made so we'll we'll look at everything dispassionately to position the company to provide the greatest long term value to shareholders.
Got it that's helpful and just a real quick last one if I could if you might be able to kind of.
Parse more finally, what we might expect on <unk> business review update versus the <unk> Investor Day is that really just an outcome of the Virginia legislation or potentially more updates on other elements of the plan.
Let me do it from the reverse perspective, which is the Investor day, we intend to provide a comprehensive business and financial update.
It will effectively be at the conclusion of the review process.
The spring update which is going to coincide with timing around the Virginia Legislative session will give us an opportunity to comment on what if any changes occurred during the session that would impact Virginia.
While our perspectives on that and how that informs the appropriate next steps of the business review.
Got it that's helpful I'll leave it there thanks.
Thanks, Jeremy.
Thank you. Our next question comes from <unk> Chopra with Evercore ISI.
Hey, good morning team. Thanks for taking my question.
Morning, Jeff.
Good morning, Bob just Steve I think this maybe in your wheelhouse I just wanted some clarification on the impairment.
And then how does it impact your base earnings. So so I know like that could impact your future earnings if you decide not to invest there because that's what you're suggesting but when I look at the Q1 'twenty three to Q1 2022 rich on slide eight.
There is a.
A down arrow because of solar ITC. So I'm just is there does the impairment impact your ongoing base business earnings.
No. So the impairment doesn't change the revenue we generate under those existing ppas.
The impairment does have a slight impact on the depreciable life because they are the depreciation rather than the depreciable life because the carrying value is now lower than previously assumed the bridge is something different the bridge when we refer to that.
A T C solar ITC, it's the effectively the lack of.
So Larry T six consistent with the court the comments we've made on this call and previously with regard to pivoting that capital allocation elsewhere in our business. So it's effectively simply saying that a year ago. We would have had some solar ITC in earnings this quarter of this year, we do not have that so the impairment is a different it doesn't have any impact.
On that bridge.
Got it so basically Q1 'twenty two over Q1 'twenty two is really lack of.
You know new solar Itc's right.
That's right it's about four cents.
Thanks, and then just one quick bookkeeping question. The Q2 timeline that you mentioned for the business review update is that the Q1 call.
Or like are you going to do another meeting or 8-K, just any thoughts around around that.
It'll depend a little bit on the timing there.
We do typically have our first quarter call in early may it may coincide it may not that won't that won't keep us from sort of advancing the discussion around the business review when we have the information necessary to actually have that discussion.
Understood. Thanks, guys.
Thanks, guys.
Yeah.
Thank you. Our next question comes from Ross Sandler with UBS.
Hey, Bob Hey, Steve how are you this morning.
Or are they in ROE.
So just a just a couple of things to clean a couple of things happened I apologize the call cut out. So this is already answered but the cap. The go forward Capex that you had had associated with sort of that competitive solar in catchment can you can you sort of scale that for us and sort of the cash that you wouldn't be spending into.
That going forward.
Yeah, Ross that's on the order of about $800 million.
Okay, Okay, and then and then it sort of a bigger picture question. Following on to Jeremy's question and I. Appreciate the fact that you're in a strategic review at the moment, but yes.
Maybe even anecdotally Bob if you look at this you know I think Steve made some comments around the need for significant balance sheet repair and we're going to get above that 14% meaningfully above that 14% <unk> to debt ratio.
Giving you know, giving cod is clearly off the table given your comments, but could you maybe prioritize.
Other options, even just anecdotally in your mind at this point as to how you sort of get back to that level.
Yeah.
The best priority I could give you is that.
Our objective as we have already described is to strengthen the balance.
Balance sheet.
With the goal of using the most efficient sources of capital without with the.
Ability to minimize external equity needs.
And that Ross, we're doing a review of every line of business and.
Once we're finished with that we'll be able to outline.
The ways that we will go about addressing the balance sheet.
Okay I appreciate that Bob and then yeah.
2023 guidance I think your comments were that you're just you're not going to provide it for the full year given the strategic review so.
It is.
Is that just should we expect sort of quarterly guidance going forward as we work through the year.
And you know can we kind of use Q1 guidance, where we're at as sort of a starting point status quo guideposts, and then make our own assumptions around where the strategic review landscape sort of get ourselves to a 2023 or 2024 number or how should we think about that going forward.
Ross.
I anticipate we will be providing quarterly guidance as we go through the year.
With regard to using our first quarter guidance as a as a guide.
I would just say, there's a couple of things.
On our third quarter call, we provided a pathway to our six 5% growth in 2023 much of that has not changed theres a couple of changes that you'll that have impacted the first quarter.
One is we want through as much as 30 cents of of solar I T. CS.
We've obviously made a comment about that and it's the lack of the run rate as well as the lack of the incremental is reflected in the first quarter. The other the other major change really the only other big change besides a little bit of tax timing in the first quarter that we wouldn't we'd expect to balance out through the remainder of the year is interest rates, which effectively in the <unk>.
In the guide we gave on the third quarter call suggested that you know interest rates up 2% to 3% that was <unk> 13 to <unk>.
19 cent hurt or about 15 sensitive midpoint those rates have now gone about four 4%, which takes that sort of 15 ish midpoint to more like 30.
So the combination of the lack of solar plus the incremental headwind with interest rate is what informs the first quarter I would note that over time, we expect that interest rate headwind to ameliorate as I think most people do unsure exactly what the timing of that will be but that should be somewhat temporary.
Okay. Thank you for that I appreciate it.
Yeah.
Thank you that will conclude our question and answer session I'll turn the call back over to management for any additional or closing remarks.
Thanks, very much we appreciate it and we'll talk to you at our next call.
Thank you. This does conclude this morning's conference call.
You may disconnect your lines and have a great day.
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