Q2 2024 Dominion Energy Inc Earnings Call
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Operator: Welcome to the Dominion Energy Second Quarter Earnings Conference Call. At this time, each of your lines is in a listen-only mode.
Speaker Change: Welcome to the Dominion Energy Second Quarter Earnings Conference Call.
Operator: At the conclusion of today's presentation, we will open the floor for questions. Instructions will be given for the procedure to follow if you would like to ask a question. I would now like to turn the call over to David McFarland, Vice President, Investor Relations, and Treasurer. Please go ahead.
At this time, each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. Instructions will be given for the procedure to follow if you would like to ask a question. I would now like to turn the call over to David McFarland, Vice President, Investor Relations and Treasurer. Please go ahead.
David McFarland: 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.
David McFarland: 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.
David McFarland: 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.
David McFarland: 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.
David McFarland: 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 the webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chairman, President, and Chief Executive Officer; Steven Ridge, Executive Vice President and Chief Financial Officer; and Diane Leopold, Executive Vice President and Chief Operating Officer. I will now turn the call over to Steven.
Speaker Change: Joining today's call are Bob Blue, Chair, President and Chief Executive Officer, Steven Ridge, Executive Vice President and Chief Financial Officer, and Diane Leopold, Executive Vice President and Chief Operating Officer. I will now turn the call over to Steven.
Steven Ridge: Thank you, David, and good morning, everyone. I'll start with the quarterly results on slide three. Second quarter operating earnings were $0.65 per share, which included $0.03 of help from better than normal weather in our utility service areas. Without weather, operating EPS was $0.62. Relative to Q2 last year, positive factors for the quarter included $0.11 from improved weather, $0.10 from regulated investment growth, and $0.17 related to Millstone, including $0.13 from the absence of extended duration outages, and $0.04 due to higher realized power prices. Recall that during the second quarter last year, we experienced both planned and unplanned outages at Millstone.
Steven Ridge: The other material factor for the quarter was an $0.08 year-over-year hurt associated with the revenue reduction at DEV related to moving certain riders into base rates as a result of legislation that became effective in July of last year. A summary of all drivers for earnings relative to the prior year period is included in Schedule 4 of the Earnings Release Kit. Second quarter gap results were also $0.65 per share. Adjustments between operating and reported results include the net benefit from discontinued operations primarily associated with the sale of the gas distribution operations, as well as unrealized and non-cash market-driven changes in the value of nuclear decommissioning trust funds and economic hedging derivatives.
Steven Ridge: Thank you, David, and good morning, everyone.
Steven Ridge: I'll start with quarterly results on slide 3. Second quarter operating earnings were $0.65 per share, which included 3 cents of help from Better Than Normal Weather in our utility service areas. Weather Normal operating EPS was $0.62.
Speaker Change: Relative to Q2 last year, positive factors for the quarter included $0.11 from improved weather.
Steven Ridge: $0.10 from regulated investment growth and $0.17 related to Millstone, including $0.13 from the absence of extended duration outages and $0.04 due to higher realized power prices. Recall that during the second quarter last year, we experienced both planned and unplanned outages at Millstone.
Steven Ridge: The other material factor for the quarter was an 8-cent year-over-year hurt associated with the revenue reduction at DEV related to moving certain riders into base rates.
Steven Ridge: as a result of legislation that became effective in July of last year. A summary of all drivers for earnings relative to the prior year period is included in Schedule 4 of the Earnings Release Kit.
Steven Ridge: Second quarter gap results were also $0.65 per share.
Steven Ridge: A summary of all adjustments is included in Schedule 2 of the Earnings Relief Kit. Turning to guidance on slide four, we're reaffirming all of the financial guidance we provided at our March 1st investor meeting. First, 2024.
Steven Ridge: We continue to expect 2024 operating earnings per share to be between $2.62 and $2.87, with a midpoint of $2.75. Year-to-date operating earnings are consistent with the illustrative quarterly earnings cadence ranges that we provided on March 1st. Looking ahead, we expect that better-than-normal weather during the first half of July, combined with the 3 cents of weather help in the second quarter, will nearly offset the 6 cents of weather hurt we experienced in the first quarter.
Steven Ridge: Turning to guidance on slide four, we're reaffirming all of the financial guidance we provided at our March 1st investor meeting.
Steven Ridge: Year-to-date operating earnings are consistent with the illustrative quarterly earnings cadence ranges that we provided on March 1st.
Steven Ridge: Looking ahead, we expect that better-than-normal weather during the first half of July , combined with the 3 cents of weather help in the second quarter, will nearly offset the 6 cents of weather hurt we experienced in the first quarter.
Steven Ridge: During the second half of the year, we expect to see some headwinds from higher-than-budgeted short-term interest rates and back-loaded O&M expense, which puts us on track for the midpoint of our guidance range. A summary of the year-over-year drivers and illustrative EPS cadence for the third and fourth quarters is replicated from our March 1st meeting in today's appendix. Turning to 2025 through 2029, we are reaffirming our guidance for 2025 operating earnings per share of between $3.25 and $3.54, inclusive of approximately $0.10 of RNG45Z credit income, with a midpoint of $3.40.
Steven Ridge: A summary of the year-over-year drivers and illustrative EPS cadence for the third and fourth quarters is replicated from our March 1st meeting in today's appendix.
Steven Ridge: We also continue to forecast an operating earnings annual growth rate range of 5 to 7 percent through 2029 off a midpoint of $3.30, which excludes the impact of the R&G 45Z credits. As a reminder, we continue to expect to see variation within our annual 5 to 7 percent growth range as a result of the millstone refueling cadence, which requires a second planned outage once every third year.
Steven Ridge: We also continue to forecast an operating earnings annual growth rate range of 5-7% through 2029 off a midpoint of $3.30, which excludes the impact of the RNG45Z credits.
Steven Ridge: As relates to 2025 specifically, earlier this week, PJM published the clearing prices in the 2025-2026 Planning Year Base Residual Auction. Elevated capacity prices at the RTO and DOM Zone affirm what we've been saying for the last several years, that robust investment in all-of-the-above generation resources and new transmission infrastructure is critical to reliably serve the growing needs of our customers in Virginia. As a vertically integrated utility, we have a natural hedge in that the capacity purchases to serve our load are mostly offset by the capacity revenue our own generation receives. As a result, customers do not have material exposure to the outcome of the capacity market, and therefore, higher prices do not automatically translate into higher customer costs.
Speaker Change: As a vertically integrated utility, we have a natural hedge in that the capacity purchases to serve our load are mostly offset by the capacity revenue our own generation receives.
Steven Ridge: At the time of our most recent biennial rate review, net capacity expense represented only about 1% of customer bills. Since then, we've seen a variety of actual and potential bill drivers, like the elimination of the Reggie Rider, that have the potential to significantly mitigate any net effect of higher capacity expense on customer bills. And remember, DEV's rates are currently approximately 22% below the national average.
Steven Ridge: At the time of our most recent biennial rate review, net capacity expense represented only about 1% of customer bills.
Steven Ridge: Since then, we've seen a variety of actual and potential bill drivers, like the elimination of the Reggie Rider, that have the potential to significantly mitigate any net effect of higher capacity expense on customer bills. And remember, currently DEV's rates are approximately 22% below the national average.
Steven Ridge: We'll have a holistic view of customer bill impacts when we file our next biennial case next March, with rates effective by the end of the year. Until those new rates become effective, and as a result of a small, short generation position, we expect the impact of higher capacity prices in the second half of 2025 relative to our prior assumptions to be about a 4 cent headwind in 2025, which we fully expect to overcome. That's a temporary impact, but in the big picture, this is a clear and forceful signal of the continued need for robust levels and investment in our system for many years to come.
Steven Ridge: Finally, and for the avoidance of doubt, no changes to any of the financial guidance we provided on March 1st, including earnings, credit, and dividend guidance. Turning now to a status update on our business review debt reduction initiatives, as shown on slide 5. During the review, we announced transactions that represent approximately $21 billion of debt reduction. With the closings of Cove Point, East Ohio Gas, Questar Gas, and WEXPRO sales, and completion of the DEV fuel securitization, we've now achieved 72% of our business review target.
Steven Ridge: We're making excellent progress towards the timely closing of the two remaining debt reduction initiatives, the sale of Public Service Company of North Carolina to Enbridge and the non-controlling equity financing by Stone Peak in the Coastal Virginia Offshore Wind Project. Let me provide a little more color about what to expect here.
Steven Ridge: As relates to PSNC, all parties reached a comprehensive settlement in late May, followed by an evidentiary hearing on June 11th. On July 24th, the joint proposed order was filed with the Commission, representing the final procedural step. We expect a final Commission order during the third quarter, with closing to follow shortly thereafter. And as relates to CVAL, on June 26, we received Affiliates Act approval, representing the first of two required Virginia approvals from the State Corporation Commission on June 26.
Steven Ridge: Last week, SEC staff filed its comments on the Transfers Act and Financing Partner Petition, the second of two required Virginia approvals. No other parties filed comments, and we consider the staff comments to be constructive. A hearing is scheduled for August 27th, and we expect a final order later this year. In North Carolina, the financing requires affiliate agreement approval. This week, the NCUC public staff was the only party to file comments, and we consider their comments to be constructive.
Steven Ridge: A hearing is scheduled for August 27th, and we expect a final order later this year.
Steven Ridge: This week, the NCUC public staff were the only party to file comments, and we consider their comments to be constructive.
Steven Ridge: Next steps will be commission hearings, if requested, followed by a commission order. We continue to expect the CFAL financing partnership to be completed by the end of the year, and we look forward to continuing to work with all parties involved. Turning to financing on slide six, since our last call, we successfully issued $2 billion in enhanced junior subordinated notes. These tax-deductible securities receive 50% equity credit from the credit rating agencies.
Steven Ridge: Next steps will be commission hearings, if requested, followed by a commission order. We continue to expect the CFAL financing partnership to be completed by the end of the year, and we look forward to continuing to work with all parties involved.
Steven Ridge: We've also issued approximately $400 million of equity under our ATM program, representing 80% of the midpoint of our annual guidance, as well as roughly $100 million under our DRIP program. Consistent with our prior guidance, during the remainder of the year, we'll complete ATM and DRIP issuance, complete a final long-term debt issuance at DEV, and utilize proceeds from the closings of the PSNC sale and the CVAL partnership financing to further reduce debt and lower interest expense.
Speaker Change: Consistent with our prior guidance, during the remainder of the year, we'll complete ATM and DRIP issuance, complete a final long-term debt issuance at DEV, and utilize proceeds from the closings of the PSNC sale and the CVAL partnership financing to further reduce debt and lower interest expense.
Steven Ridge: In conclusion, I'll reiterate that I am highly confident in our ability to deliver on our financial plan. The post-review guidance has been built to be appropriately, but also not unreasonably, conservative to weather unforeseen challenges that may come our way. And with that, I'll turn the call over to Bob. Thank you, Steven.
Robert Blue: Thank you, Steven. Good morning.
Robert Blue: I'll begin my remarks by highlighting our safety... As shown on slide 7, our employee OSHA injury recordable rate for the first half of the year was.38, reflecting the continued positive trend from the last two years. This is a good start, but safety is much more than just a number on a page. It's our first core value and represents the well-being of our people.
Speaker Change: As shown on slide 7, our employee OSHA injury recordable rate for the first half of the year was .38.
Steven Ridge: reflecting the continued positive trend from the last two years. This is a good start, but safety is much more than just a number on a page. It's our first core value and represents the well-being of our people. Our focus continues to be on driving workplace injuries to zero.
Robert Blue: Our focus continues to be on driving workplace injuries to zero. Moving now to C-Val. The project is proceeding on time and on budget, consistent with the timelines and estimates previously provided. Let me start by highlighting the exciting progress we've made on monopile installation. Thus far, we've taken receipt of 72 monopiles at the Portsmouth Marine Terminal, representing 40% of the project total. Our partner, EEW, continues to make excellent progress, and we expect deliveries to continue steadily in the coming weeks. As shown on slide 8, we began monopile installation using DMA's heavy crane vessel, the Orion, on May 22nd. As of yesterday, we've successfully installed 42 monopiles.
Speaker Change: Moving now to CVAL.
Speaker Change: The project is proceeding on time and on budget, consistent with the timelines and estimates previously provided. Let me start by highlighting the exciting progress we've made on monopile installation.
Robert Blue: After a startup period, during which we successfully calibrated our sound verification process in accordance with our permits, we've been able to ramp up the installation rate markedly, including achieving two monopile installations in a single day on July 21st and again on July 28th. Last week, the project welcomed a second bubble curtain vessel, an important ancillary installation vessel. A bubble curtain is deployed around the pile driving site during every monopile installation, as depicted on slide 9.
Robert Blue: The second vessel will effectively reduce the time between installations. In summary, we're confidently on our way to achieving our goal of 7,100 monopiles installed during the first of two planned installation seasons. And another important milestone, installation of scour protection for the monopiles began in June. We've started work on 23 monopiles to date, which is consistent with the final project schedule. Turning now to slide 10 for a few additional updates
Steven Ridge: After a start-up period, during which we successfully calibrated our sound verification process in accordance with our permits, we've been able to ramp the installation rate markedly, including achieving two monopile installations in a single day on July 21st and again on July 28th.
Robert Blue: We have received all federal permits. This is unchanged on Materials and Equipment. We're on track and making excellent progress. Two of the three offshore substation topside structures have been completed and delivered to Simcoe in Denmark for outfitting. Thirty-three transition pieces have been fully fabricated, and fifteen have been delivered to the Portsmouth Marine Terminal. All 161 miles of onshore underground cable have been manufactured, and about half of the 600 miles of offshore cable have been produced.
Steven Ridge: Turning now to slide 10 for a few additional updates on permits. We have received all federal permits, this is unchanged. On materials and equipment, we're on track and making excellent progress.
Robert Blue: In fact, we expect to begin installing the export cable later this quarter, and the schedule for the manufacturing of our turbines remains on track. Fabrication of the towers for our turbines began in June. It's worth noting that even though we won't begin turbine installation until 2025 per our schedule, DMA recently finished supporting a monopile installation campaign for Moray West, a project off the coast of Scotland that has now successfully installed the same Siemens Gamesa wind turbine model that SeaVal will use.
Speaker Change: It's worth noting that even though we won't begin turbine installation until 2025 per our schedule, DMA recently finished supporting a monopile installation campaign for Moray West.
Robert Blue: Roughly half of the turbines have been installed, and the first turbines are already producing power. The lessons learned from that project will benefit our project installations in the future. Moving onshore, construction activities remain on track, including civil work to support overhead lines, horizontal directional drills, and duct banks to support the underground work and bores where the export cables come ashore. On regulatory, last November, we made our 2023 rider filing, representing $486 million of annual revenue.
Steven Ridge: The lessons learned from that project will benefit our project installation in the future.
Steven Ridge: Moving onshore, construction activities remain on track, including civil work to support overhead lines, horizontal directional drills, and duct banks to support the underground work and bores where the export cables come ashore.
Speaker Change: On regulatory, last November we made our 2023 Rider filing, representing $486 million of annual revenue. And a final order was received on July 25, approving our revenue request.
Robert Blue: And a final order was received on July 25, approving our revenue request. Turning to slide 11, the project's expected LCOE is unchanged at $73 per megawatt hour. Project to date, we've invested approximately $4.5 billion and remain on target to spend approximately $6 billion by year-end 2024. Per the quarterly update filing today, the current unused contingency is $143 million compared to $284 million last quarter. The use of this contingency is as expected.
Steven Ridge: Per the quarterly update filing today, current unused contingency is $143 million, compared to $284 million last quarter.
Robert Blue: I just note that the current unused contingency as a percentage of the remaining project costs, at 3%, is equal to the same percentage as the time of the original filing in November 2021, despite being some 33 months further along with the project. The current contingency level continues to benchmark competitively as a percentage of total budgeted costs when compared to other large infrastructure projects that we've studied and ones that we've completed in the past.
Steven Ridge: Use of this contingency is as expected. I just note that the current unused contingency as a percentage of the remaining project costs at 3% is equal to the same percentage as the time of the original filing in November 2021, despite being some 33 months further along with the project.
Robert Blue: We've been very clear with our team and with our suppliers and partners that delivery of an on-budget project is the expectation. Lastly, the project is currently 33% complete, and we've highlighted the remaining major milestones on slide 12. Let me now provide a few updates on Charybdis.
Steven Ridge: Lastly, the project is currently 33% complete, and we've highlighted the remaining major milestones on slide 12.
Robert Blue: Since May, we've installed the main crane structures and the helideck structure, as shown on slide 13. And the upper leg construction continues on track. We've commenced the main engine load testing, which is on track. In the coming weeks, we will perform the main crane load testing. Turning to slide 14, the vessel is currently 89% complete, up from 85% as of our last update.
Speaker Change: Let me now provide a few updates on Charybdis.
Steven Ridge: Turning to slide 14, the vessel is currently 89% complete, up from 85% as of our last update.
Robert Blue: There is no change to the expected delivery time frame of late 2024 or early 2025, which will be marked by the successful completion of sea trials, after which the vessel will return to port for additional work that will allow it to hold the turbine towers, blades, and cells. There is no change to the vessel's expected availability to support the current CVAL construction schedule, which we anticipate will start in the third quarter next year.
Steven Ridge: There's no change to the expected delivery time frame of late 2024 or early 2025, which will be marked by the successful completion of sea trials, after which the vessel will return to port for additional work that will allow it to hold the turbine towers, blades, and the cells.
Speaker Change: There's no change to the vessel's expected availability to support the current CVAL construction schedule, which we anticipate will start in the third quarter next year.
Robert Blue: As reflected in today's materials, we've updated the project's current estimated costs, including financing costs, to $715 million compared to $625 million last quarter. The drivers for the increased costs are modifications to accommodate project-specific turbine loads based on final certified weights and dimensions of the equipment and additional financing costs. The modifications will enable Charybdis to handle the latest technology turbine design.
Speaker Change: As reflected in today's materials, we've updated the project's current estimated costs, including financing costs, to $715 million, compared to $625 million last quarter.
Speaker Change: The drivers for the increased costs are modifications to accommodate project-specific turbine loads based on final certified weights and dimensions of the equipment and additional financing costs. The modifications will enable Charybdis to handle the latest technology turbine design.
Robert Blue: Charybdis is vital not only to CVAL but also to the growth of the offshore wind industry along the U.S. East Coast and is key to the continued development of a domestic supply chain by providing a homegrown solution for the installation of offshore wind turbines. We continue to see strong interest in the use of the vessel after the C-Val commercial project is complete.
Robert Blue: On July 12th, we, along with the Office of Regulatory Staff and other interveners, submitted a comprehensive settlement agreement in our pending electric rate case for approval by the Public Service Commission of South Carolina. The settlement includes all parties signing on or not opposing and reflects the strong collaboration throughout the process. This settlement is premised on a 9.94% allowed ROE and a 52.51% equity capital structure.
Speaker Change: On July 12th, we, along with the Office of Regulatory Staff and other intervenors, submitted a comprehensive settlement agreement in our pending electric rate case for approval by the Public Service Commission of South Carolina.
Speaker Change: The settlement is premised on a 9.94% allowed ROE and a 52.51% equity capital structure.
Robert Blue: Compared to rates at the time of our original request in March and offset by the fuel reduction and other factors, the settlement's rate request would represent a net 1% increase for residential customers' electric rates. If approved, the new rates will go into effect on September 1st. We look forward to further collaboration with stakeholders in South Carolina. Moving out of data centers on slide 16, as I've said before, we're ramping up to the very substantial and growing multi-decade utility investment required to address resiliency and decarbonization public policy goals, plus the very robust demand growth we're observing in real time across our system.
Robert Blue: This growth has been recognized by third parties. As just one example, Virginia was recently named America's top state for business in 2024. This was Virginia's record sixth time at the top of CNBC's rankings and its third win in five years, a record unmatched by any other state since the study began in 2007.
Robert Blue: For full year 2024, we expect DEV sales growth to be between 4.5 and 5.5%, driven by economic growth, electrification, and accelerating data center expansion. It's worth noting that in July, we registered six new all-time peak demand records. And just as we expect, our customers likely had no idea of these demanding load conditions given the high-quality operational performance delivered by our colleagues. The data center industry continues to grow in Virginia. We've connected nine new data centers year to date through July, consistent with our expectations to connect 15 data centers in 2024. Since 2013, we've averaged around 15 data center connections per year.
Speaker Change: And just as we expect, our customers likely had no idea of these demanding load conditions given the high quality operational performance delivered by our colleagues.
Robert Blue: However, growth is accelerating by orders of magnitude, driven by the number of requests, the size of each facility, and the acceleration of each facility's ramp schedule to reach full capacity. We're taking the steps necessary to ensure our system remains resilient and reliable. We had accelerated plans for new 500 kV transmission lines and other infrastructure in Northern Virginia, and that remains on track. We were awarded over 150 electric transmission projects totaling two and a half billion dollars during the PJM open window last December.
Robert Blue: PJM's latest open window, which commenced on July 15th, is anticipated to be equal to or greater in investment needs as the RTO looks to accommodate data center growth both in Northern Virginia and beyond with additional transmission upgrades.
Speaker Change: PJM's latest open window, which commenced on July 15th, is anticipated to be equal to or greater in investment needs as the RTO looks to accommodate data center growth both in Northern Virginia and beyond with additional transmission upgrades.
Robert Blue: We're working expeditiously with PJM, the FCC, local officials, and other stakeholders to fast-track critical projects. We're committed to pursuing solutions that support our customers and the continued growth of the region. This includes assessing dispatchable generation needs, especially during winter, and on-site backup fuel stores. To that end, in June, we filed a petition with the SEC to construct and operate a backup fuel source for Brunswick and Greensville power stations to support operations and improve system reliability.
Speaker Change: We're working expeditiously with PJM, the FCC, local officials, and other stakeholders to fast-track critical projects.
Speaker Change: We're committed to pursuing solutions that support our customers and the continued growth of the region. This includes assessing dispatchable generation needs, especially during winter, and on-site backup fuel storage.
Speaker Change: To that end, in June , we filed a petition with the SEC to construct and operate a backup fuel source for Brunswick and Greensville power stations to support operations and improve system reliability.
Robert Blue: Additionally, in July, we announced the acquisition of an additional offshore wind leasehold in North Carolina from Avangrid, which we view as an attractive option for future regulated offshore wind development, as well as a request for proposals to evaluate the feasibility of the development of small modular reactors at our North Ana site.
Robert Blue: These projects reflect an all-of-the-above approach to meet growing demand. When we consider this demand growth, we think about the full value chain, transmission, distribution, and generation infrastructure investment that has and will continue to drive utility rate-based growth. Given these drivers, we continue to believe there may be opportunities for incremental regulated capital investment towards the back end of our plan and beyond. As I've said before, we will look at this capital through the lenses of customer affordability, system reliability, balance sheet conservatism, and our low-risk profile.
Speaker Change: These projects reflect an all-of-the-above approach to meet growing demand.
Speaker Change: Given these drivers, we continue to believe there may be opportunities for incremental regulated capital investment towards the back end of our plan and beyond.
Speaker Change: As I've said before, we will look at incremental capital through the lenses of customer affordability, system reliability, balance sheet conservatism, and our low-risk profile.
Robert Blue: Looking forward, we'll file a new IRP in October. Last year's IRP factored in significant load growth and investment in generation and transmission over the next 15 years to meet that load growth while keeping the cumulative average annual growth in the customer bill below 3%. The most recent PJM DomZone load projections, as shown on slide 17, which were only modestly different from last year's, along with our work to optimize the best ways to meet this load, will be factored into our planning for this year's IRP.
Speaker Change: Looking forward, we'll file a new IRP in October . Last year's IRP factored in significant load growth and investment in generation and transmission over the next 15 years to meet that load growth, while keeping the cumulative average annual growth in the customer bill below 3%.
Speaker Change: The most recent PJM DomZone load projections, as shown on slide 17, which were only modestly different than last year's, along with our work to optimize the best ways to meet this load, will be factored into our planning for this year's IRP.
Robert Blue: Before I summarize our remarks, let me touch on data center cost allocation on slide 18, which has been a topic of investor interest. We routinely examine cost allocations and corresponding rate designs to ensure they're fair and reasonable. Distribution and generation rates are reviewed by the SEC every two years, and with our next biennial review in 2025. Transmission rates, on the other hand, are reviewed by the FCC every year during our Rider T1 proceedings.
Speaker Change: Before I summarize our remarks, let me touch on data center cost allocation on slide 18, which has been a topic of investor interest.
Speaker Change: We routinely examine cost allocations and corresponding rate designs to ensure they are fair and reasonable. Distribution and generation rates are reviewed by the SEC every two years, and with our next biennial review in 2025.
Speaker Change: Transmission rates, on the other hand, are reviewed by the FCC every year during our Rider T-1 proceeding.
Robert Blue: In both proceedings, if the cost of serving one or more customer classes has changed over time, then costs are reallocated to ensure each customer class is paying their fair share. If the cost of serving one customer class has increased, for example, then their cost allocation will increase, and the cost allocation for all other customers will decrease. The most important example in recent years has been the significant reallocation of transmission costs from residential customers onto larger energy users such as data centers.
Speaker Change: In both proceedings, if the cost of serving one or more customer classes has changed over time, then costs are reallocated to ensure each customer class is paying their fair share.
Speaker Change: If the cost of serving one customer class has increased, for example, then their cost allocation will increase, and the cost allocation for all other customers will decrease. The most important example in recent years has been the significant reallocation of transmission costs from residential customers onto larger energy users, such as data centers.
Robert Blue: Since 2020, residential customers' allocation of transmission costs has declined by 10%, while GS4, our largest energy usage customer class, has increased by 9%. This reflects the growing share of our system that is made up of data, along with a shift in how we allocate transmission costs among classes. We've also adopted other rate mechanisms in recent years that, combined with regular and routine assessment of cost allocation and rate design, ensure costs are shared equitably across rate classes.
Speaker Change: This reflects the growing share of our system that is made up of data centers, along with a shift in how we allocate transmission costs among the classes.
Robert Blue: We have a long and exciting history of working with data center customers, and we look forward to supporting all of our customers going forward. With that, let me summarize our remarks on slide 19. Our safety performance this quarter was outstanding, but there's more work to do to drive injuries to zero. We reaffirmed all financial guidance. Our offshore wind project is on time and on budget. We continue to make the necessary investments to provide the reliable, affordable, and increasingly clean energy that powers our customers every day, and we are 100% focused on execution. We know we must deliver, and we will. With that, we're ready to take your questions.
Speaker Change: We have a long and exciting history of working with data center customers and we look forward to supporting all of our customers going forward.
Speaker Change: With that, let me summarize our remarks on slide 19.
Speaker Change: Our safety performance this quarter was outstanding, but there's more work to do to drive injuries to zero.
Operator: And 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. If at any time you would like to remove yourself from the queue, please press star two. Again, to ask a question at this time, please press star one. We'll pause for just a moment to allow questions to queue, and it does look like we have our first question from Konstantin Lednev of Guggenheim Partners.
Speaker Change: And 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. If at any time you would like to remove yourself from the queue, please press star two.
Konstantin Lednev: And it does look like we have our first question from Konstantin Lednev with Guggenheim Partners.
Konstantin Lednev: Hi, good morning, team. Thanks for taking my questions.
Unknown Executive: Morning. Starting off on the offshore progress, definitely some strong progress there on the pile driving season. Looks like you've been able to hit that two monopiles per day target. Could we see you exceed the top end of the 70 to 100 target range for the year? And maybe any remaining hurdles that we should think about?
Konstantin Lednev: Hi, good morning team. Thanks for taking my questions. Morning.
Konstantin Lednev: Starting off on the offshore progress, definitely some strong progress there on the pile driving season. Looks like you've been able to hit that two monopiles per day target. Could we see you exceed the top end of the 70 to 100 target range for the year? And maybe any remaining hurdles that we should think about?
Diane Leopold: Hi, good morning. This is Diane Leopold.
Diane Leopold: Yes, we are excited that we've been able to hit the two. And the second vessel that we have will keep us in production mode for longer into this season. We're kind of right in peak season right now, as the weather starts to change a little bit.
Speaker Change: will keep us in production mode for longer into this season.
Speaker Change: We're kind of right in peak season right now. As the weather starts to change a little bit, you know, we may not be able to keep hitting two quite as often. So we feel really confident in the 70 to 100.
Diane Leopold: You know, we may not be able to keep hitting two quite as often, so we feel really confident in the 70 to 100. And just also keep in mind that during this season, we want to put in at least enough pin piles to be able to set one of the offshore substations, so we have to take that into account. So overall, I would say the team, both our own internal team and the Demi team, is doing a fantastic job. And that 70 to 100 is a great range. We're very confident in it.
Speaker Change: And just also keep in mind that during this season we want to put in at least enough pin piles to be able to set one of the offshore substations.
Speaker Change: So we have to take that into account. So overall, I would say the team, both our own internal team and the DEME team, is doing a fantastic job. And that 70 to 100 is a great range. We're very confident in it.
Unknown Executive: Thanks for that. And you touched on this on the resource adequacy side; we obviously saw the Dominion zone breakout significantly earlier this week. Can you speak to how your capacity plans are evolving as it relates to the forthcoming IRP? And maybe you are looking for more Chesterfield style gas projects at this point?
Speaker Change: Okay, thanks for that.
Speaker Change: And you touched on this on the resource adequacy side, we obviously saw the Dominion zone breakout significantly earlier this week. Can you speak to how your capacity plans are evolving as it relates to the forthcoming IRP? And maybe are you looking for more Chesterfield style gas projects at this point?
Unknown Executive: Yeah, Constantine. When we think about our plans going forward, you know, we gave our five-year capital plan at investor day in March, and we'll update that annually. That's our expectation. And then we'll file our IRP in the fall. We update that annually as well, and that takes a longer-term view.
Speaker Change: at the Investor Day in March, and we'll update that annually. That's our expectation. And then we'll file our IRP in the fall. We update that annually as well, and that takes a longer term view.
Unknown Executive: But when we think about demand growth, you know, we saw a big jump, as the slide demonstrates with PJM between their 22 and 23 forecast, a little more modest, much more modest increase from 23 to 24. So, as we described in the prepared remarks, sure, there may be some opportunities toward the back end of the plan to increase CapEx and lots of data points indicating that we need generation, which we've been saying for some time, both renewable and dispatchable in our service territory here in Virginia.
Speaker Change: But when we think about demand growth...
Speaker Change: You know, we saw a big jump as the slide demonstrates with PJM between their 22 and 23 forecasts, a little more modest.
Speaker Change: much more modest increase from 23 to 24.
Speaker Change: So, as we described in the prepared remarks, sure, there may be some opportunities toward the back end of the plan to increase CapEx.
Speaker Change: and lots of data points indicating that we need generation, which we've been saying for some time, both renewable and dispatchable in our service territory here in Virginia.
Unknown Executive: So we'll update the capital plan next year. We'll have an updated IRP based upon the PJM forecast, which was not hugely different from last year's. And we'll remain very focused on making sure that we're able to meet demand for our customers. This is a really exciting time to be in Virginia. We're very excited to help keep the state number one for business going forward, and that'll require investment in distribution, transmission, and generation as outlined in the plans we've put forward.
Speaker Change: So we'll update the capital plan next year. We'll have an updated IRP based upon the PJM forecast, which was not hugely different than last year's, and we'll remain very focused.
Speaker Change: on making sure that we're able to meet demand for our customers.
Speaker Change: This is a really exciting time, has been in Virginia. We're very excited to help keep the state number one for business going forward and that will require investment in distribution, transmission, and generation as outlined in the plans we've put forward.
Unknown Executive: I really appreciate the details here. I'll be jumping back in a cube. Thanks so much.
Speaker Change: Excellent, really appreciate the details here. I'll be jumping back in Cube. Thanks so much.
Nick Campanella: And we have our next question from Nick Campanella with Barclays.
Speaker Change: And we have our next question from Nick Campanella with Barclays.
Nick Campanella: Hey, thanks for taking the time and hope you're having a good summer. Hey, so I just wanted to follow up on the auction comments, just because I know you went through those pretty quickly.
Nick Campanella: Hey, thanks for taking the time and hope you're having a good summer.
Nick Campanella: Hey, so I just wanted to follow up on the auction comments just because I know you went through those pretty quickly. So
Nick Campanella: So, your short generation for next year, that's a 4 cent impact. What does that look like as you get into 26? Like, do you have additional generations coming online? I'm just kind of trying to think that if things continue to be really kind of tight here for 26, 27, will that 4 cents continue? And can you just kind of expand on like the mechanism and what differentiates the VIU, the Vertically Integrated Model versus these T&Ds, and why you have this kind of dynamic going on?
Speaker Change: Your short generation for next year, that's a 4 cent impact.
Speaker Change: What does that look like as you get into the 26? Do you have additional generation coming online? I'm just kind of trying to think that
Speaker Change: If things continue to be really kind of tight here for 26-27, does that 4 cents continue?
Speaker Change: And can you just kind of expand on the mechanism and what differs the VIU vertically integrated model versus these T&Ds and why you have this kind of dynamic going on? Thank you.
Nick Campanella: Thank you.
Unknown Executive: Yeah, Nick, I'll take it. So, as I mentioned, we've got a natural hedge, which is the generation we own is bidding into the capacity market and receiving the elevated price, or will receive the elevated price, you see. So that revenue is credited to customers. Simultaneously, we have an obligation as a load-serving entity to also go out and procure enough capacity to satisfy our load, and we'll be paying that high price as well.
Speaker Change: Yeah, Nick, I'll take it. So as I mentioned, we've got a natural hedge, which is the generation we own is bidding into the capacity market and receiving the elevated price or will receive the elevated price you saw clear.
Speaker Change: So that revenue credits to customers. Simultaneously, we have an obligation as a load-serving entity to also go out and procure.
Speaker Change: you've got to have enough capacity to satisfy our load and that we'll be paying that high price as well. So, naturally we have this hedge of...
Unknown Executive: So naturally, we have this hedge of effectively receiving revenue at the same time as we're outlaying expense. The reason we have a small hurt in the second half of 25 related to this is because we do have a short position between the organic generation that we own and bid into the market versus the load, and we typically satisfy that through imports from PJM, and that's not news. And that short position is anywhere between 2,000 and 3,000 megawatts.
Speaker Change: effectively receiving revenue at the same time as we're outlaying expense. The reason we have a small hurt in the second half of 2025 related to this is because we do have a short position between the organic generation that we own and bid into the market versus the load, and we typically satisfy that through imports from PJM, and that's not news.
Speaker Change: and that short position is anywhere between 2,000 and 3,000 megawatts.
Unknown Executive: Going forward, the reason it's leakage, so to speak, is because we're in between rate cases, and we weren't able to, because of the timing of this auction in particular, we weren't able to include the expected cost in the cost of service that we filed as part of the last biennial, and we can't change rates until the end of 2025. So for six months, or I guess seven months, because it starts in June, for seven months, we will bear the cost effectively of that leakage, but then it will go into rates, and rates will be effective.
Speaker Change: Going forward, the reason it's leakage, so to speak, is because we're in between rate cases.
Speaker Change: and we weren't able to because of the timing of this auction in particular we weren't able to include the expected cost in the cost of service that we filed as part of the last biennial and we can't change rates until the end of 2025 so for six months
Speaker Change: I guess, seven months, because it starts in June. For seven months, we will bear the cost, effectively, of that leakage. But then it will go into rates, and rates will be effective. Capacity is part of base rates. It's a prudently incurred cost. It's recoverable from customers, and that's why we shared some comments on the potential impact on customers. So this is a very, very temporary. It's driven partly by the fact that we were not in a position to increase rates as part of the most recent biennial settlement.
Unknown Executive: Capacity is part of base rates. It's a prudently incurred cost. It's recoverable from customers, and that's why we shared some comments on the potential impact on customers. So this is very, very temporary. It's driven partly by the fact that we were not in a position to increase rates as part of the most recent biennial settlement. It has to do with the timing of this particular auction.
Unknown Executive: And going forward, we fully expect to be able to recover 100% of this leakage in our rates from customers. So that's why it's temporary, and that's why we kind of said we wanted to be transparent with folks to say, hey, here's the math, here's how it works, here's what it is, but also point to that being temporary, the bigger picture, as was alluded to in the last question. This is a consistent signal of what we've been saying about the need for incremental regulated investment.
Speaker Change: And going forward, we fully expect to be able to recover 100% of this leakage in our rates from customers. So that's why it's temporary, and that's why we kind of said we wanted to be transparent with folks to say, hey, here's the math, here's how it works, here's what it is, but also point to that being temporary, bigger picture, as was alluded to in the last question.
Speaker Change: This is a consistent signal of what we've been saying of the need for incremental regulated investment will help elongate
Unknown Executive: We'll help elongate our growth rate over a longer period of time as we put more and more capital to work on our system. So that's why we've got this natural hedge. That's what's different between the vertically integrated plants. And to the extent that the short position persists, which it will for some period of time, we'll have offshore wind come in, we'll have the Chesterfield CTs come in. But demand is growing. So as that persists, we'll think about ways to become effectively self-sufficient, as we have been in the past, as we catch up with demand. But from a financial impact, it truly is just a temporary item.
Speaker Change: our growth rate over a longer period of time as we put more and more capital to work on our system.
Speaker Change: So that's why we've got this natural hedge, that's what's different between the vertically integrated. And to the extent that the short position persists, which it will for some period of time, we'll have offshore wind come in, we'll have the Chesterfield CTs come in.
Speaker Change: So, but demand is growing, so as that persists, we'll think about ways to become effectively self-sufficient, as we have been in the past, as we catch up on demand. But from a financial impact, it truly is just a temporary item.
Nick Campanella: Okay, that's super helpful. I really appreciate it. Thanks for that color.
Diane Leopold: On the Charybdis ship, you know, you're 90% complete or 89% complete. Costs are up $90 million. Can you just quickly speak to what's driving that and, you know, why this really should be the last revision there? Thank you.
Speaker Change: Okay. That's super helpful. I really appreciate it.
Speaker Change: Thanks for that color. On the Charybdis ship, you're 90% complete or 89% complete, costs are up $90 million. Can you just quickly speak to what's driving that and why this really should be the last revision there? Thank you.
Diane Leopold: Sure, good morning Diane again.
Speaker Change: Sure, good morning. Diane again. So, as Bob talked about, these modifications, it really wasn't any change to the base ship. Those costs did not increase.
Diane Leopold: So, as Bob talked about, these modifications really weren't any change to the base ship. Those costs did not increase. But these types of modifications just aren't unusual; they aren't unusual. We had to order this ship long before the final turbine design was complete for our project. So, based on the final loadings, there's some additional deck stiffening and hull reinforcement for the towers and to support the cantilevered blade rack. So that's really what's driving it.
Speaker Change: but
Speaker Change: These types of modifications just aren't unusual, are not unusual. We had to order this ship long before the final turbine design was complete for our project.
Speaker Change: So based on the final loadings, there's some additional deck stiffening and hull reinforcement for the towers and to support the cantilevered blade racks.
Diane Leopold: It's not any kind of scope change on the ship. It's just some of these normal modifications. So we're doing a lot of those. The work is already starting. And a lot of that will happen while we're completing the internals of the ship, finishing the piping, the electrical work, the crane loading. We'll go for sea trials, and then we'll bring it back and finish the last of that work to make sure that we can get the sea fasteners on to support our specific towers, blades, and nacelles.
Speaker Change: So that's really what's driving it. It's not any kind of scope change in the ship. It's just some of these normal modifications.
Speaker Change: So we're doing a lot of those. That work is already starting.
Speaker Change: and a lot of it will happen while we're completing kind of the internals of the ship, finishing the piping, the electrical work, the...
Speaker Change: crane loading. We'll go for C trials and then we'll bring it back and finish the last of that work to make sure that we can get the C fasteners on to support our specific towers, blades, and nacelles.
Speaker Change: And, Nick, I'd just add that of that increase, about 55 of it is pure CapEx, the rest of it is associated financing costs. And the way we finance this vessel is...
Unknown Executive: And Nick, I'd just add that of that increase, about 55 percent of it is pure CapEx; the rest of it is associated financing costs. And the way we finance this vessel is through a lease arrangement with a consortium of banks.
Unknown Executive: And we're working with them, and they've been great partners along this way. And we don't expect there to be any other increases. I'll say that. We're very confident in that.
Speaker Change: through a lease arrangement with a consortium of banks and we're working with them and they've been great partners along this way and we don't expect there to be any other increases.
Unknown Executive: And by working with this consortium, we've been able to ameliorate the potential cost increase from a financing cost perspective. So we view this as being less than a penny in terms of, I think it's about a half a penny in terms of 2025 costs as a result of this increase. So it's not a big financial thing, but again, I wanted to be transparent.
Speaker Change: I'll say that, we're very confident in that.
Speaker Change: And by working with this consortium, we've been able to ameliorate the potential cost increase from a financing cost perspective. So we view this as being less than a penny in terms, I think it's about a half a penny.
Nick Campanella: Really helpful. Thanks. Thanks for all the answers. Have a good day. Thanks, Nick.
Speaker Change: Really helpful. Thanks for all the answers. Have a good day.
Jeremy Tonet: And our next question comes from Jeremy Tonet of J.P. Morgan.
Speaker Change: And our next question comes from Jeremy Tunnett with JP Morgan.
Unknown Executive: Morning, Jeremy.
Unknown Executive: I just wanted to pivot the conversation, if I could, towards Millstone and the possibility for data center co-location there. If you could just provide any incremental thoughts on the outlook there and, I guess, maybe navigating stakeholder sensitivities, sure.
Speaker Change: Hi, good morning. Morning, Jeremy. Morning, Jeremy.
Unknown Executive: Sure. As we've discussed before, Jeremy, you know, Millstone is just a great asset for us. For New England, it provides 90% plus of Connecticut's carbon-free electricity. And, as you know, 55% of its output is under a fixed-price contract through late 2029. The remaining output is significantly de-risked by our hedging program, so we're actively working with multiple parties to find the best value for Millstone beyond that current PPA. We're certainly open to some longer type of PPA.
Speaker Change: For New England, it provides 90% plus of Connecticut's carbon-free.
Speaker Change: electricity. And as you know, 55% of its output is under a fixed price contract through late 2029. The remaining output significantly de-risked by our hedging program. So we're actively working
Speaker Change: with multiple parties.
Speaker Change: to find the best value for Millstone beyond that.
Speaker Change: current PPA.
Unknown Executive: You know, there's been some legislative activity up in New England aimed at authorizing future further procurements. We'll have to see where all of that lands. We're certainly open to the idea of a co-located data center, and we continue to explore that option. We do clearly realize that any co-location option is going to have to make sense for us, our potential counterparty, and stakeholders in Connecticut. So, not any new news there. We continue to look for options for Millstone, but it remains a tremendous asset for us.
Speaker Change: We're certainly open to some longer type of PPA.
Speaker Change: You know, there's been, over the last year, some legislative activity up in New England aimed at authorizing future further procurements. We'll have to see where all of that lands.
Speaker Change: We're certainly open to the idea of a co-located data center. We continue to explore that option. We do clearly realize any co-location option is going to have to make sense for us.
Speaker Change: our potential counterparty and stakeholders in Connecticut. So, not any new news there. We continue to look for options for Millstone, but it remains a tremendous asset for us.
Unknown Executive: Got it. Makes sense. And just wanted to dive in a little bit more if you could kind of touch on other angles here. But as far as the ISA protest in front of FERC, where we might hear some news tomorrow, just wondering. Any thoughts on the subject that you might be willing to share?
Speaker Change: Got it. Makes sense. And just wanted to dive in a little bit more if you couldn't kind of touch on other angles here but as far as the ISA protest in front of FERC where we might hear some news tomorrow just wondering
Unknown Executive: We're not a party to that proceeding, Jeremy, so my thoughts would not be appropriately educated, so we'll let FERC and others decide that.
Speaker Change: Any thoughts on the subject that you might be willing to share?
Speaker Change: We're not a party to that proceeding, Jeremy, so my thoughts would not be appropriately educated. So we'll let FERC and others decide that.
Unknown Executive: Fair enough. And I think you mentioned that net capacity expenses were previously only about 1% of customer bills, and just Any thoughts on the range of what that could look like now after this auction?
Speaker Change: Fair enough and I think you mentioned that net capacity expenses were previously only about 1% of customer bills and just any any thoughts on the range of what that could look like now after this auction?
Unknown Executive: It's still going to be very small, Jeremy, and we try not to think about customer bill impacts as driven by isolated drivers. We try and think about all the different parts and pieces that go into that.
Speaker Change: It's still going to be very small, Jeremy.
Speaker Change: We try not to think about customer bill impacts as an ice driven by isolated drivers We try and think about all the different parts and pieces that go into that so I mentioned in my prepared remarks that
Unknown Executive: So I mentioned in my prepared remarks that we've seen the elimination of the Reggie Rider. That was $3 or $4 a month. So when we come back to the commission in March with a holistic approach, we're very, a high priority for us in making the best possible offer to our customers. So, I can't give you any specific information about this, but it's not going to be a big number.
Unknown Executive: Got it. That's helpful.
Speaker Change: We've seen the elimination of the Reggie Rider, that was $3 or $4 a month.
Speaker Change: So, when we come back to the Commission in March with a holistic approach, we're very, very focused on making sure customer bills are...
Speaker Change: a high priority for us in making the best possible offer to our customers. So, can't give you any specific information about this, but it's not going to be a big number.
Jeremy Tonet: I'll leave it there. Thanks. Thank you. And we have reached our goal!
Speaker Change: Got it. That's helpful. I'll leave it there. Thanks.
Operator: And we have reached our allotted time for our question and answer session. This does conclude this morning's conference call. You may disconnect your lines and enjoy your day.
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Speaker Change: And we have reached our allotted time for our question and answer session. This does conclude this morning's conference call. You may disconnect your lines and enjoy your day.
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