Q3 2024 Dominion Energy Inc Earnings Call
Hello.
Speaker Change: [music]. Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.
Speaker Change: Welcome to the Dominion Energy third quarter earnings Conference call.
At this time each of your lines is in a listen only mode.
Speaker Change: 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 Mcpartland, Vice President of Investor Relations and Treasurer.
Speaker Change: Good morning.
David Mcpartland: 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.
David Mcpartland: To differ from management's estimates and expectations.
David Mcpartland: 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.
David Mcpartland: I encourage you to visit our Investor Relations website to review webcast slides as well as the earnings release kit.
David Mcpartland: 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: Thank you David and good morning, everyone.
Steven Ridge: Now that the final transaction associated with the business review is complete let.
Steven Ridge: Let me start by saying that we have repositioned dominion energy to provide compelling long term value for shareholders customers and employees.
Steven Ridge: Since our March 1st Investor meeting, we've consistently communicated the three following priorities.
Steven Ridge: One hitting our financial plan.
Steven Ridge: Two delivering offshore wind on time and on budget and three achieving constructive regulatory outcomes.
Steven Ridge: By achieving these goals, we empower our employees to deliver on our critical mission.
Steven Ridge: To provide the reliable affordable and increasingly clean energy that powers our customers every day.
Steven Ridge: On today's call will address each of these areas of focus.
Steven Ridge: First hitting our financial plan third.
Third quarter operating earnings as shown on slide three where 98 cents per share which for this quarter represented normal weather in our utility service areas third quarter GAAP results were $1 12 per share. There's always a summary of all drivers for earnings relative to the prior year period is included in schedule four of the earnings release.
Steven Ridge: Kit and a summary of all adjustments between operating and reported results are included in schedule two.
Steven Ridge: With nine months of 'twenty 'twenty four financial results reported we're narrowing our full year guidance range to $2 68 to $2.83 per share while preserving the original guidance midpoint of $2.75.
Steven Ridge: As we highlighted on the last call fourth quarter earnings are expected to be impacted by higher than expected financing costs and normal course movement of operating and maintenance expense from the first half to the second half of the year.
Steven Ridge: Fourth quarter earnings will also be negatively impacted by the earlier than planned closing of the <unk> partnership because the associated Noncontrolling interest hurt net of debt reduction is beginning earlier than we expected.
Speaker Change: Honestly, that's an assumption I'm happy to have been too conservative about his early closing of the transaction represents a meaningful derisking of our plan.
Steven Ridge: Quickly turning to 2025 through 2029, where there are no changes to our prior guidance. We are reaffirming reaffirming all guidance, including 20 twenty-five operating earnings per share of between $3.25 and $3.54 inclusive of approximately 10 cents of <unk>.
Steven Ridge: N G 40, fives, the credit income with a midpoint of $3 40.
Steven Ridge: We continue to forecast an operating earnings annual growth rate range of 5% to 7% through 2029 off of 2025 midpoint of $3 30, which excludes the impact of the RMG forty-five Z credits due to the legislators sunset of that credit at the end of 2027.
Steven Ridge: As a reminder, we continue to expect to see variation within our annual 5% to 7% growth range. As a result of the millstone refueling cadence, which requires a second planned outage once every third year.
Steven Ridge: Finally, we will provide a comprehensive capital investment forecast update through 2029 on our fourth quarter earnings call, which will take place as usual in early 2025.
Turning now to slide four as I mentioned earlier I'm delighted to report that we have now closed on 100% of the debt reduction initiatives that we announced during the business review.
Steven Ridge: Since our last update we have successfully closed on the sale of the public service company of North Carolina to Enbridge and the partnership with Stone peak <unk>.
Steven Ridge: Combined with previous closings. This effort represented approximately $21 billion in debt reduction across six separate transactions, requiring multiple federal and state regulatory approvals all of it all of which were completed in line with or ahead of our publicly announced timeline we.
Steven Ridge: We view this as a significant achievement made possible by the collaboration of our Counterparties and hard work of our employees. We appreciate the thorough and comprehensive reviews performed by our regulators.
Steven Ridge: I'll finish my remarks on our financing plan as shown on slide five with the completion of our third quarter financing activities, including our $1 2 billion dollar of that co debt issuance and $200 million of ATM issuance, we have fully achieved our 2020 for financing plan.
Steven Ridge: We'll continue to monitor ways to Derisk, the company's 2025 financing needs by Opportunistically accessing the market through the remainder of the year, if and when conditions warrant for instance, as Youll see in the 10-Q filing we've gotten a head start on 2025 guided ATM issuance selling approximately $200 million of shares into.
Steven Ridge: The traditional forward sales structure that we expect to settle at the end of 2025.
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 with that I'll turn the call over to Bob. Thank.
Bob Blue: Thank you Stephen and good morning.
Bob Blue: I'll start my remarks by highlighting our safety performance.
Bob Blue: As shown on slide six our employee Osha injury recordable rate for the first nine months of the year was <unk> four four in line with the continued positive trend from the last two years I commend my colleagues for their consistent focus on employee safety, which is our first core value.
Bob Blue: In late September Hurricane Helene caused historic devastation to many communities, including within our South Carolina service area. As a result, we saw significant destruction of our infrastructure, which caused nearly 450000 service disruptions at its peak Helene left nearly half of our South Carolina electric customers.
Bob Blue: Our power. This was the largest storm to hit our South Carolina system since Hurricane Hugo 35 years ago.
Bob Blue: Our employees, many of whom didnt have power or water themselves worked around the clock and challenging conditions to quickly and safely restore power to our customers. They were joined by over 1000 of our Virginia team members and partners, who traveled south to lend their assistance the restoration involve replacing over 1000 Transformers 'twenty 300 pulse.
Bob Blue: <unk> 7000 spans of wire.
Bob Blue: Although we've not completed our final accounting our preliminary estimate of restoration costs, including capital expenditures is in the range of $100 million to $200 million.
Bob Blue: Given that cost are expected to be in excess of 100 million, we intend to work with the office of regulatory staff and key stakeholders to evaluate a potential securitization of those deferred costs.
Bob Blue: We know that this storm impacted the lives of many including our employees and our thoughts continue to be with the families and communities that are rebuilding.
Bob Blue: Incredibly proud of our employees and commend all involved for their commitment to serving our customers.
Bob Blue: We provide a direct financial aid to over 20 different local organizations in the communities impacted by the storm to support disaster recovery in response, including meals shelter emergency services and supplies and we will continue to look for ways to support our customers employees and communities.
Bob Blue: With that let me provide a few updates on the execution of our plan.
Bob Blue: Beginning receive out the project is proceeding on time and on budget consistent with the timelines and estimates previously provided with.
Bob Blue: We just completed a very successful first mono pilot installations season.
Bob Blue: On slide seven we've installed 78 monopoles as well as for Penn piles that support the first of three planned offshore Substations. Additionally, we've laid the first two of nine marine deepwater export cables ahead of schedule I'm very pleased with our progress. During this first season not only did we achieve our installations target.
Bob Blue: We also gained invaluable experience and process expertise that will make the next installation season, even more productive.
Bob Blue: So I want to thank our partners at del Mar for the high quality work they delivered.
Bob Blue: Additionally, <unk> our project updates can be found on slide eight but a few items to highlight.
All materials and equipment, thus far we've taken receipt of 96 motto piles at the Portsmouth Marine terminal, representing 55% of the project total our partner E. W continues to make strong progress and we expect deliveries to continue steadily in coming weeks.
Bob Blue: All three offshore Substations remain on track with the first substation and final commissioning and expected to be completed and shipped to Virginia for installation before the next bond a pile season begins.
82 transition pieces have completed final assembly of which 33 have been delivered to the Portsmouth Marine terminal.
Additionally, with fabrication of towers commencing last June the schedule for the manufacturing of our turbines remains on track, we anticipate them to sell and blade production will begin in the first quarter of 2025.
Bob Blue: On regulatory as you may have seen we made our 'twenty 'twenty four offshore wind rider filing this morning, representing $640 million of annual revenue.
Bob Blue: Turning to slide nine the project's expected L. C. O E has improved to approximately $56 per megawatt hour. The primary driver being forecasted rec prices, which have increased in value considerably keep in mind that higher rec prices our credit against the level is cost of energy is value delivered to customers.
Bob Blue: <unk> to date as of September 30th we've invested approximately $5 $3 billion and remain on target to spend approximately $6 billion by year end 2024.
Also part of the quarterly filing update today current unused contingency is $121 million compared to 143 million last quarter.
Bob Blue: The current contingency level continues to benchmark competitively as a percentage of total budgeted cost remaining when compared to other large infrastructure projects. We've studied and ones that we've completed in the past we have been very clear with our team and with our suppliers and partners that delivery of an on budget project is the expectation.
Bob Blue: Lastly, the project is currently 43% complete and we've highlighted the remaining major milestones on slide 10.
Bob Blue: Turning to slide 11, let me now provide a few updates on charybdis since August we've completed engine load testing to support Crane operations with parallel engine testing underway in the coming weeks. The final sections of the legs will be set by the crane as well as overall electrical work to allow for commissioning activities.
Bob Blue: Vessel is currently 93% complete up from 89% as of our last update.
We expect completion of charybdis in early 2025, consistent with our previous guidance range of late 'twenty for early 'twenty five the vessel will complete sea trials and then returned to port for additional work that will allow it to hold the turbine towers blades and the cells. There is no change to the vessels expected availability to support the currency of our construction.
Bob Blue: <unk>, which we anticipate will start in the third quarter next year. There's also no change to the vessels cost of $715 million.
Bob Blue: Moving now to slide 12, we continue to see strong data center growth in Virginia and have already connected 14, new data centers year to date, we now expect to connect 16 data centers in 2024 up from 15 as of our last update since 2013, we've averaged around 15 datacenter connections per year.
Turning to data center demand on slide 13. These contracts are broken into one substation engineering letters of authorization to construction letters of authorization and three electrical service agreements as customers move from one to three the cost commitment and obligation by the customer increases we're currently studying.
Bob Blue: Approximately eight gigawatts of data center demand within the substation engineering letters of authorization stage, which means our customers requested the company to begin the necessary engineering for new distribution and substation infrastructure required to serve the customer.
Bob Blue: They are also about six gigawatts of data center demand that have executed construction letters of authorization, which are contracts that enable construction of the required distribution and substation electric infrastructure to begin.
Bob Blue: Should customers in this stage elect to discontinue projects, they're obligated to reimburse the company for our investment to date.
Bob Blue: Finally, the eight Gigawatts included an electrical service agreements or Esa represent contracts for electric service between Dominion energy in a customer each contract is structured for an individual account by signing an Esa the customers committing to consuming a certain level of electricity annually, often with ramp schedules, where the contracted usage grows.
Bob Blue: Overtime.
Bob Blue: In aggregate, we have data center demand of over 21 Gigawatts as of July 2024, which compares around to around 16 Gigawatts as of July 2023. These contracted amounts do not contemplate the mini data center projects that are in development phase and have not yet reached a point in the service connection process, where a contract is executed.
Bob Blue: Turning to slide 14, let me update you on our transmission system planning as I've shared previously the PJM Dom zone is experiencing unprecedented low growth. This has resulted in a similarly unprecedented increase in both the quantity and size of delivery point requests for transmission service on our system.
Bob Blue: For context, we've received 63 construction delivery point request year to date September representing nearly 13 gigawatts of capacity. Since 2020, we received 280 construction delivery point requests representing nearly 40 gigawatts of capacity.
We've recently began implementing changes to our process that will only affect new delivery point requests. This will allow us to organize load requesting the batches and serve them in the order. They are received importantly, this will ensure our customers can continue to count on high system reliability, even as demand increases materially.
Bob Blue: Since we began communicating these changes we've continued to see robust demand from customers.
Turning to slide 15, let me share a few additional business updates.
First on the transmission side, we submitted project proposals in September in Pjm's latest open window process for our own transmission portfolio and as part of a joint planning agreement along with AEP and Firstenergy.
Bob Blue: We believe this regional collaborative approach allows our companies to offer better solutions to customers than what we could offer alone.
Bob Blue: While final project selections by P. J M won't be made until early 2025, there is a robust need for new transmission across the region and we expect this open window to reflect that recall that last year. We were awarded over 150 transmission projects totaling $2 $5 billion.
Bob Blue: On the generation front, we've announced a number of updates in recent weeks.
Bob Blue: First on October one we filed our annual update in the subsequent license renewal proceeding for our nuclear units at Surry and North Anna <unk>.
Bob Blue: Seeking recovery of costs incurred for the north Anna extension and costs for phase two of the overall nuclear life extension program consisting of investments during calendar years 2025 through 2027.
Bob Blue: On October 15th we filed our next set of utility scale solar projects with the Virginia, SCC, representing approximately $600 million of investment.
Also on October 15th we filed our 2024, Virginia integrated resource plan, which presented several possible generation build portfolios with additional resource capacity across both renewable and dispatch will generation technologies in response to continued robust load growth and changes in Pjm's resource adequacy values.
Bob Blue: The I R. P calls for more of every resource, including more solar more storage more wind more gas and even more nuclear.
Bob Blue: On that note turning to slide 16 on October 16th we announced an Mou with Amazon to further explore the feasibility of developing S. EMR technology at North Anna.
Bob Blue: To be clear our interest is in supporting customer power needs and advancing next generation nuclear in a way that protects our customers our capital providers, our business risk profile and balance sheet from development risks, including first of a kind risk. We're in early stages here, so I'm going to be limited in what I can share on potential structures.
Bob Blue: And the like but I've explained the factors will consider in evaluating any final agreement and we will provide more details in the future as we're able I will say, that's very encouraging to see large power users, including technology companies Express a willingness to invest partner and collaborate to bring this exciting baseload carbon free technology into.
Bob Blue: Fruition.
Bob Blue: I'd note that we're actively involved in discussions with other potential partners that are very interested in pursuing similar arrangements.
On October 24th we closed on the acquisition of an approximately 40000 acre offshore wind lease from Avon grid, representing approximately 800 megawatts of additional possible regulated offshore wind generation.
Bob Blue: In addition to the lease area, we secured adjacent to see Val which could support even more regulated offshore wind in the future no timelines on how or when or how much. It will cost to advance. These options further our unique expertise and proprietary knowledge associated with offshore wind developed through our sieve out project gives our <unk>.
Bob Blue: Customers a competitive advantage.
Bob Blue: These announcements altogether reflect an all of the above approach to meeting growing demand and we look forward to working constructively with all stakeholders on these projects.
Bob Blue: As we've said before when we consider demand growth, we think about the full value chain transmission distribution and generation infrastructure investment that has and will continue to drive utility rate base growth.
Given these drivers we expect there to be opportunities for incremental regulated capital investment towards the backend of our plan and beyond.
Bob Blue: As noted we plan to update our capital guidance on our fourth quarter earnings call. In early 2025 as always we will look at incremental capital through the lenses of customer affordability system reliability balance sheet conservatism and our low risk profile.
Bob Blue: On customer affordability as shown on slide 17, our current residential electric rates at D and E. S. C are 14% and 11% below U S average, respectively and based on the build plans per boat proposed in both states latest IR piece, both will maintain customer bill growth rates through the forecast periods.
Bob Blue: Below current electricity inflation levels.
Bob Blue: Turning to regulatory updates in South Carolina, and North Carolina on Slide 18, as mentioned last quarter, we agreed to a settlement with the opposite of regulatory staff and other intervenors in South Carolina, and our electric rate case, proceeding, which was approved by the South Carolina Public Service Commission in August with rates, becoming effective on September one.
Bob Blue: In addition, policymakers continue to evaluate potential energy legislation and we're appreciative of the significant time spent to date by the legislature on this important topic.
Bob Blue: As we've indicated in the past, we're committed to supporting South Carolinas growing economy.
Bob Blue: However, as we've testified the regulatory framework for D. E. S. C creates regulatory lag that makes it practically impossible to earn our allowed return, especially as compared to other regulated jurisdictions and the surrounding southeast regulated regulatory jurisdictions as well.
Bob Blue: In North Carolina, we reached a settlement with the public staff and other intervenors in our base rate proceeding on October one.
Bob Blue: Providing approximately $37 million increase in revenue requirement premised upon a $9, 95% ROE and a 52, 5% equity layer. The agreement also stipulates that $9 million in annual ongoing CCR costs be removed from base rates and placed in a standalone rider subject to approval.
Bob Blue: Interim rates become effective today in North Carolina pending the Commission's final order overall, we continued to achieve constructive outcomes in all of our regulated service territories.
Bob Blue: Before I conclude my remarks, let me provide a few comments on millstone.
Bob Blue: As we've said in the past we view Millstone is a very valuable asset that provides more than 90% of connecticut's carbon free electricity and 55% of its output is under a fixed price contract through late 2029 the.
Bob Blue: The remaining output is significantly de risked by our hedging program.
Bob Blue: As many of you are aware there has been recent legislative activity in new England and in Massachusetts, specifically aimed at authorizing future additional procurements of nuclear power and we've continued to engage with multiple parties there to find the best value for Millstone.
Bob Blue: In addition to state sponsored procurement, we're exploring the idea of supporting incremental data center activity as well, we feel strongly that any datacenter option needs to be pursued in a collaborative fashion with stakeholders in Connecticut at.
Bob Blue: At this point, we don't have a timeline for any potential announcements, but this remains top of mind for us.
Bob Blue: With that let me summarize our remarks on slide 19, our safety performance. This quarter remained strong, but there's more work to do to drive injuries to zero, we reaffirmed all financial guidance for March one and narrowed our 2024 earnings guidance range. Our offshore wind project remains on time and on budget, we continue to make the necessary investment.
Bob Blue: To provide a reliable affordable and increasingly clean energy that powers, our customers' everyday and we are 100% focused on execution. We know we must continue to deliver and we will with that we're ready to take your questions.
Yeah.
Thank you.
Speaker Change: At this time, we will open the floor for questions. If you would.
Speaker Change: 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 question queue. Please press star two again to ask a question at this time. Please press star one now.
Speaker Change: And we will take our first question from Shar <unk> with Guggenheim Partners. Please go ahead.
Speaker Change: Hey, guys good morning.
Good morning Shar.
Shar: Bob just coming back to your comments around the Amazon deal and other potential partners and can you just give us a bit more color on what these other conversations or whats. The timeline is it the same technology different types of SM Mars and have you had any kind of hyperscale or interest in the O S. W. Thanks.
Bob Blue: Yeah sure Great question.
Bob Blue: Our conversations with Amazon and others have really focused around this new technology of <unk>, Let me, let me talk a little bit.
Bob Blue: About that if I could.
Bob Blue: If you think about why <unk> have become prominent and the national conversation recently, it's really three reasons. One is significant demand growth driven in large part by large users like data centers second.
Bob Blue: Continued focus on a round the clock carbon free generation to meet reliability and carbon reduction goals in the third a view that U S leadership in nuclear technology is important to national security and if you think about it our Virginia utility is right at the intersection of all three of those were obviously continue.
Bob Blue: To see significant load growth in Virginia.
Bob Blue: Our power demand forecasted to double by 2039, we have a state law in Virginia, The Virginia Clean economy Act that calls for a carbon free grid by 2045 with off ramps for reliability and then we serve some of the most important national security and defense installations in the country like the Pentagon the CIA.
Bob Blue: Fort Belvoir, the Norfolk Naval base.
Bob Blue: And then I might add Virginia is arguably the most nuclear friendly state.
Bob Blue: The United States with strong bipartisan support for next generation nuclear initiatives.
Bob Blue: Governor young can centers more cane of all endorse these efforts they were at our Amazon announcement recently, the Virginia legislature on a very bipartisan and overwhelming basis passed legislation that allows companies to petition for cost recovery related to certain <unk>.
Bob Blue: <unk> project development and then if you think about it our state is home to significant nuclear operations Huntington Ingalls, Newport News BWXT and Framatome in Lynchburg, and then of course.
Bob Blue: Our long operating units at North Anna and Surry. So if you think about that context.
Bob Blue: Not surprising that our large customers would be interested as they think about us as a good operator of nuclear.
Bob Blue: To work together on maybe advancing those kinds of technology. So we've been a top.
Bob Blue: Talking with our with Amazon, obviously and.
Bob Blue: Others now all that said, we've got to be very clear headed in the way. We go about this and we've got to make sure we mitigate a.
Bob Blue: Potential cost and development risks for our customers and our provider of capital. So we're going to think very clearly and evaluate the feasibility of S. EMR technology to support our customers' needs. They they can play a role in our all of the above approach along with offshore wind and battery storage.
Bob Blue: They're going to potentially be an important part of Virginia as growing clean energy mix. So we issued an RFP last summer.
Bob Blue: To evaluate technologies, but beyond technology, we also need to be smart about financing.
Bob Blue: And as I mentioned in our prepared remarks, I can't really talk about the specifics of our.
Bob Blue: Positioning with Amazon or <unk>.
Bob Blue: These other interested parties.
Bob Blue: But I can tell you. It builds on these are customers, particularly Amazon and we have a long standing relationship with them.
Bob Blue: And they've indicated a willingness and interest to participate in funding so our structure could be something like a build own transfer.
Bob Blue: But fundamentally in any structure, we agree on with Amazon or other parties, who have expressed interest in this.
Bob Blue: That structure needs to address first of a kind risk it needs to address cost overrun risk so that our customers and Dominion energy don't bear that burden.
And we need to protect our balance sheet and our business risk profile. So we're very excited and optimistic about our agreement with Amazon and our conversations with other.
Bob Blue: Parties around small modular reactors.
Bob Blue: And we're gonna be on yielding on those principles that I just identified.
Speaker Change: Do any of the Hyperscale ours have interest in offshore wind.
Speaker Change: You know, we've talked a little bit about them, but the focus of our conversations recently with them has been on.
Speaker Change: On <unk> remember we.
Speaker Change: We've got the contracted.
Speaker Change: I mean, the regulated Steve.
Speaker Change: <unk> that we're building now that's already.
Speaker Change: Cost recovery is already well identified and as we said.
Speaker Change: And the prepared remark shar.
We've got these other two options, but we're not at a point now where we have any decisions or timelines, we're very focused in bringing.
Speaker Change: Steve out in on time and on budget. So it really would be premature to be having conversations with them about future offshore wind and we've got.
Speaker Change: The offshore wind project underway today under.
Speaker Change: Standard regulatory construct.
Speaker Change: Got it and then just lastly on the ERP filed a few weeks ago. The portfolio scenarios seem to indicate you would be somewhat of a short position in the state from a capacity standpoint, why not add more generation to the plan at this point too much political sensitivity to gas in this state wide lean on.
Speaker Change: PJM so much in the plan thanks, guys.
Speaker Change: Yeah sure that's a great question.
Speaker Change: We've got a lot of slow growth in our Virginia jurisdiction, which is really exciting and we're if you look at the IRR P. We're building a heck of a lot.
Speaker Change: And it's across all facets of the generation portfolio.
Speaker Change: Potentially doubling the amount of offshore wind, it's adding a substantial amount more natural gas than last year's IOP, it's adding additional solar even beyond what the clean economy Act calls for and also.
Speaker Change: Large amounts of battery storage, so I think it would be fair to say.
Speaker Change: That while we're certainly mindful of what Pjm's capabilities are.
Speaker Change: We are building a heck of a lot in this plan.
Speaker Change: We will always look for opportunities when it makes sense from a reliability and our customer affordability point of view to do more.
Speaker Change: But we feel like it's a pretty aggressive plan as it is based on.
Speaker Change: A very substantial <unk>.
Speaker Change: <unk> forecast.
Speaker Change: Perfect. Congrats guys on the results really seen a week.
Speaker Change: Thanks Shar.
Speaker Change: Thank you and we will take our next question from Nick <unk> with Barclays. Please go ahead.
Speaker Change: Hey, Thanks for taking my questions.
Speaker Change: Hey, Nick.
Nick: So I wanted to check in on the Millstone commentary just continue on the nuclear side, you're kind of talking about finding the best value for it does seem like the opportunity set has expanded.
Nick: What maybe you were kind of contemplating at the analyst day offset there.
Nick: And maybe can you just talk about like if there was to be a data center. There I believe you've already done and operate there but are there any options for additionality to contemplate and how could this all come together.
Speaker Change: Yeah, Nick we're studying whether there is a possibility of up rates at Millstone, particularly unit two there which is the smaller of the two units.
Nick: But.
Speaker Change: As we said in our prepared remarks.
Speaker Change: There are potential options for.
Speaker Change:
Speaker Change: Contracted procurement and new England.
Speaker Change: There are potential options for data center location, if it can be done in a way that works for all stakeholders in Connecticut.
Speaker Change: But it's early days in terms of those conversations. So we don't have more to report to you today than what we've already identified.
Speaker Change: Okay I appreciate that and then.
Speaker Change: Just.
Speaker Change: You know thinking through what kind of incrementals since you've outlined.
Speaker Change: What day you filed this AARP, you've highlighted that our test process, which.
Speaker Change: I'm sure, we'll get clarity on by the fourth quarter call and obviously capex is going up but just when you consider the balance sheet the financing outlook.
Speaker Change: And also considering that maybe some of this capital is going to be more formulaic.
Speaker Change: Then it has been in the past just where do you think you can really bring rate base growth from where it where it stands today is it does it extend the current rate base growth or is it really kind of more additives and I'll leave it there.
Speaker Change: Yes, Nick that's a great question.
Speaker Change: And we think about that a lot so at our March one analyst day.
Speaker Change: We're very clear that we were providing a high quality durable operational and financial plan with targets that we expect to achieve consistently and I put emphasis on that word consistently. So the plan is built on appropriately conservative assumptions.
Speaker Change: Now we operate in premium markets in the southeast in Virginia, and South Carolina. So we've we see additional opportunities that can further strengthen our position and as you alluded to potentially even extend the long term growth rate that's going to be in the later part of the plan.
Speaker Change: But we're focused on a an approach that positions us to deliver predictable year over year results.
Speaker Change: And strong performance for the long term. So we'll as you noted provide an update on our Capex plan on the fourth quarter call. Just three months from now and there we will underscore our commitment to disciplined growth and operational excellence.
Speaker Change: But I the investor feedback that I have received.
Speaker Change: Agrees with an approach of consistent execution against the targets that we already laid out on the first of March and Nick I would just add we've said I think in several venues in here on this call again today is.
Speaker Change: I think we believe if there is bias around our capital plan it is upward.
Speaker Change: We think that that opportunity would probably presented itself given how long it takes to get projects planned in capital invested and deployed it would be towards the back end of that.
Speaker Change: The framework of 25 through 2029.
Speaker Change: And you mentioned balance sheet, we've worked really hard during the review.
Speaker Change: To establish a balance sheet with an appropriate amount of cushion is as new capital comes into our plan, we will be thoughtful about how we finance that not all capital projects are equal we spent a lot of time internally thinking about the speed of cash conversion.
Speaker Change: Projects turn investment into cash flow more quickly than other projects and we will need a mix of those characteristics as we build our plan, but we will be very mindful about how we make sure we finance it in a way that preserves that cushion that we've worked so hard to achieve and we will continue to have.
Speaker Change: Alright, thanks for the thoughts today.
Nick: Thanks, Nick.
Speaker Change: Thank you and we will take our next question from Ross <unk> with Bank of America. Please go ahead.
Speaker Change: Good morning.
Speaker Change: So just.
Speaker Change: Maybe maybe talking about South Carolina.
Speaker Change: Scott the electric settlement there.
Speaker Change: Approval, how do you think about the.
Speaker Change: <unk>.
Speaker Change: Schedule from here around legislation moving forward potentially next year and is that sort of thoughts around.
Speaker Change: Economic development on one side, but also sort of as you said, it's kind of in your comments Bob you just got to be something there to sort of address regulatory lag in the state as well.
Speaker Change: And then the corollary is there is there also a new nuclear opportunity darrin opportunity around nuclear.
Speaker Change: And how do we contextualize the experience with V C summer that we've been through versus.
Speaker Change: Aerospace on that site, and maybe <unk> or something else.
Speaker Change: Yeah. So let me start with the second part first I think as we said publicly we're not pursuing a restart of V. C summer on that of the new units on that site.
Speaker Change: So more broadly though on your question.
Speaker Change: As you know as you referenced the Senate select Energy Committee is still meeting regularly.
Speaker Change: To produce a companion bill to the one that the house sent over at the end of the 24 session.
Speaker Change: Those discussions as you know of.
Speaker Change: <unk> to center on our authorization.
Speaker Change: For us to partner with Santee Cooper on a combined cycle plant. There are they focus on permitting reform and also theres been a lot of conversations recently.
Speaker Change: On regulatory lag.
Speaker Change: The original legislation.
Speaker Change: Talked about the financial health of the utility and as we think about the financial health of the utility addressing regulatory lag is very important and that conversation has I think its focus has sharpened.
Speaker Change: Recently.
Speaker Change: So we're very supportive of the work that they're doing.
Speaker Change: It's a great South Carolina, it's a great place to do business as fastest growing state in the country are certainly among them.
Speaker Change: It's a great state for business and I think we've got great opportunities to invest there we're going to work with policymakers to address this lag issue. It's top of mind for us it appears to be on the minds of legislators down there which is good.
And we will have a session coming up at the beginning of next year and see how it all sorts itself out.
Speaker Change: Okay, well. Thank you for that and then maybe maybe moving to to storm recovery.
Speaker Change: Odyssey.
Speaker Change: I think you guys did a phenomenal job on getting everybody back on power that can take power after that after the hurricanes. So congratulations to you on that.
Speaker Change: Right.
Speaker Change: How do I think about it.
Schedule from here around getting cost estimates finalize thinking about how much of that is capital versus O&M, and then remind us how the recovery mechanisms for those those costs kind of work.
Speaker Change: Yeah before before Stephen answers that you know I was able to spend some time down in South Carolina right. After the storm, particularly in Aiken County, which was the most damage and it was the damage there was significant.
And I was just so proud of our team for how hard they were working.
Speaker Change: And continue to work to get the lights back on for folks.
Speaker Change: And as we think about it that's the most important part of this discussion, but I'll turn it to Stephen to talk a little bit about the timing of recovery.
Stephen: In South Carolina, we defer these to the balance sheet given the nature of the storm the bias of that estimated cost is actually more towards capital then O&M, that's a little bit unusual for like large outage events, we have in North Carolina, and South Carolina and in Virginia.
Stephen: As part of our most recent settlement on the electric we agreed with the staff to in good faith pursue potential securitization for storm costs that exceeded $100 million. So we'll have those discussions with them.
Stephen: I don't have specific timing for you, but we would expect this to be a constructive recovery outcome.
Speaker Change: Okay. Thanks, David and then maybe one last one for me back back to you at all with Amazon and I. Appreciate you can't give us any details here, but.
Speaker Change: Theres rate structures in Virginia, we have had under the offshore wind where are there.
Speaker Change: Non utilities can put capital in and I believe it's up to 80% of the capital for a project and is that something.
Speaker Change: You are kind of referencing with your build on transfer potential comments.
Speaker Change: Yes, I'm not exactly sure what you are trying to on the 80% and the investment in <unk>.
Speaker Change: Offshore our offshore wind project was specifically authorized by legislation.
Speaker Change: In 2023.
But there are certainly opportunities for special contract rates with customers or special tariffs.
Speaker Change: So that may be a possibility here, but really beyond that.
Speaker Change: And beyond the principles that I talked about earlier there's.
Speaker Change: Theres not a lot more I can add at this stage.
Speaker Change: Okay I understood. Thank you.
Speaker Change: Thanks Ross.
Speaker Change: Thank you and we will take our next question from Jeremy Tonet with J P. Morgan. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Good morning, Jeremy.
Speaker Change: Yeah. This is Jeremy Tonet from JP Morgan just quick ones. If you could a lot of good detail here for the latest rec value and see vows a L. C O you here.
Speaker Change: Can you walk through the factors driving the revision and how that how sensitive that assumption as to low growth in renewable additions in the future just wanted to see I guess, what we should be thinking here.
Speaker Change: Yeah, Jeremy that's a really good question. So obviously, we saw very substantial move in L. A we foresee vow and we highlighted the driver for that which is higher expected rec pricing.
Speaker Change: And when you think about the LCR calculation, we created that metric to be able to compare it to the reference a legislative cap, which is a combustion turbine which in $2017 is $125 per megawatt hour and so let me walk through those the three components in that in that calc. So you can think about how that number may move.
Speaker Change: So it's the first it's the first is a sort of fairly straightforward revenue requirement associated with cost of service buildup. So its depreciation maintenance property taxes as applicable its return.
Speaker Change: On capital book, the financing for the debt as well as the return on equity so that's pretty straightforward and we've given sensitivities and say hey, if interest rates are financing costs go up or down here's how the LC U L. T O change, we've given sensitivities as capital goes up or down so that would all impact that that's all pretty straightforward the next as ptc's.
Or itc's, it's ptc's, because that's the best for customers, but.
Speaker Change: We credit against that cost of service, the PTC value, which I think makes sense and we don't anticipate huge changes there. We do have a sensitivity for capacity factor, which would affect the denominator and also the amount of PTC and we've shared that sensitivity as well the last item is this rec value.
Speaker Change: So under a renewable portfolio standard, which the Virginia Clean economy Act established in Virginia, just like Rps standards in other states.
Speaker Change: That legislation effectively.
Speaker Change: Gives credit to a renewable generation resource to put it closer to being on a level playing field with a non renewable resource and so in the absence of this project. The <unk> project, our customers would need to procure that rec value and it's it's a phased approach so a person.
Speaker Change: <unk> of our overall load with an adjustment for nuclear megawatt hours and that steps up through 2045, so it sort of gradually moves up a percentage of that load has to be met with us with Rex and and so.
Speaker Change: And that allows us to say hey relative to this reference resource of the combustion turbine you really need to give credit to see Val for the production of these Rex and as the market value of Rex go up the value of the <unk> project with the Rex that it creates becomes more valuable for customers. So that gets netted as well.
Speaker Change: We don't have.
Speaker Change: Perfect.
Clarity as to where market rec prices will go we know theres been upward pressure on it as a result of the two.
Speaker Change: Two things one is a ratcheting up of the demand for which we have to procure a specific percentage of all our capacity in that respect.
Speaker Change: As well as the.
Speaker Change:
Speaker Change: The need for us to achieve.
Speaker Change: Achieved a growing percentage of that demand. So it steps up from 23, and then in 2025, the law stipulates that 75% of those racks need to be procured from Virginia based resources, which is a change in previous who can be procured from anywhere in PJM now it needs to be 75%. So put all that together and the market is reflecting a supply.
Speaker Change: A man balances, which is favoring the higher rec price, so where will it go we don't know we provide you the table with both with and without Rex. So you can sort of see with this impact and without this impact that's how we presented it to our regulators I suspect those values will still be there.
Speaker Change: Stayed strong given the dynamics I just described but we'll just watch it and we'll be transparent with folks but bottom line is that we feel like the regulated construct that our policymakers created for offshore wind has resulted in a very good outcome for our customers and we're very very focused on making sure we deliver on that promise.
Got it that's very helpful. Thank you for that.
Speaker Change: And maybe going back to transmission for a little bit more if I could for Pjm's open window can you expand a bit more on the opportunity three year joint projects with AEP and Firstenergy Theyre, just really how these projects fit within P. J as transmission system today as it stands and as load growth continues here.
Speaker Change: Thinking about also as well I guess further out you mentioned opportunities in the back half of the plan any additional thoughts on the cadence of when that could come to fruition.
Speaker Change: Yeah Jeremy.
Speaker Change: As we.
Speaker Change: Described in our remarks, we submitted these proposals in early October.
Speaker Change: In Pjm's latest open window process.
Speaker Change: And there is growth happening throughout PJM.
Speaker Change: And the opportunity to do something innovative like this with.
Speaker Change: AEP and Firstenergy, we believe.
Speaker Change: Really we're leveraging the expertise of our incredible transmission group Aep's incredible transmission group in Ftes incredible transmission group to get the most cost effective solutions as demand is growing.
Speaker Change: And we're going to.
We've been talking about this for a while need additional transmission in order to remain reliable to be able to work with those companies to do something a little bit different.
We think makes a lot of sense.
Speaker Change: It could represent additional capex above the March one plan if the projects are ultimately awarded by PJM, but those projects are currently under review.
Speaker Change: They are in the early stages of development, we don't anticipate selection by PJM until the first quarter.
Speaker Change: Next year so it is.
Speaker Change: Hard for us at this stage.
I tell you what the cadence of Capex or the amount of Capex would be given.
Speaker Change: We're waiting more from.
Speaker Change: PJM, but I would just leave you with that we expect this open window could be as big if.
Speaker Change: If not even bigger than last year's which was as I mentioned 150 for US 150 transmission projects totaling $2 5 billion.
Speaker Change: Got it fair enough I shouldn't get too ahead of myself here.
Speaker Change: Real quick last one if I could just as far as it relates to the call on generation today, given all of this load growth.
Speaker Change: If you could provide any updated thoughts on how this could or maybe it doesn't impact coal plant retirement timelines in general and at the same time.
Speaker Change: EPA regs as it relates to Ccs for natural gas plants, just wondering any thoughts there on how that impacts your thought process.
Speaker Change: Yeah, Jeremy first I'm impressed that you asked this many questions when you arent the only person in the queue well done.
Speaker Change: But let me let.
Speaker Change: Let me say on the question of <unk>.
Speaker Change: Regulations and fossil retirements first of all you can but both those questions are really address in the.
Speaker Change: The IOP that we just filed so it's a 15 year look and you can see there's no fossil retirements and.
Speaker Change: The IOP planning horizon precisely because of low growth we've been talking about on the load growth that's identified in the.
Speaker Change: The IR page so.
Speaker Change: No expectation as that document that exists today is everything that we see today that we would be retiring any fossil units in the next.
Speaker Change: A decade and a half and then as to the new EPA regulations, we actually ran scenarios in the IOP within without those EPA regulations and it did not swing.
Speaker Change: That much the.
Speaker Change: What we're building.
Speaker Change: So we're going to sort of keep working through the regulations, there obviously being litigated.
Speaker Change: But when we ran our models for the IR P not a huge change.
Speaker Change: Between with and without those new EPA regs.
Speaker Change: Got it. Thank you for that I'll have to think of more questions for next time. Thank you yeah. Thanks Jeremy.
Speaker Change: Thank you and we will take our next question from Anthony <unk> with Mizuho. Please go ahead.
Speaker Change: Hey, good morning team. Unlike Jeremy I just have one question.
Speaker Change: Yeah.
Speaker Change: Kind of off of Nick's question. So honestly, if you say we entered it with Nick's question that's fine.
Speaker Change: He was focused more on the rate base growth story, and maybe updating that obviously news yesterday, we saw utilities revising earnings growth rates I'm, just curious on what's the calculus or what do you guys look at when you evaluate your financial plan, where there is something thats sustainable or not like about whether it's your visions on rate base growth and im actually leaning more towards.
Speaker Change: I can earnings growth number and again feel free to say you answered. It next question.
Speaker Change: Well, we largely answered nicks question, but I will let Steven offer up a little bit more.
Speaker Change: Anthony This is a very good question, it's very topical given.
Calls this season.
Speaker Change: And I guess the way I would describe it as.
Speaker Change: We put out as Bob mentioned, we put out a financial plan on March 1st that we feel very confident in our ability to consistently meet them.
Speaker Change: To the extent that we see continued tailwind in this.
Speaker Change: Among the various drivers we've talked about which is very very strong load growth.
Speaker Change: And more opportunities to deploy capital and strong regulatory regimes.
Speaker Change: Every year, we put out an update we're going to be thinking about what the right plan looks like.
Speaker Change: For us, we think achieving consistently high quality predictable low risk earnings is the number one objective of our financial plan.
Speaker Change: And to the extent that we are in a position to do something better either from a rate base growth perspective or from an earnings growth perspective, we'll consider that very carefully making sure. We're not doing something thats going to jeopardize our ability to deliver on that consistent predictable high quality.
Speaker Change: Low risk earnings trajectory.
Speaker Change: And we will make sure we finance it in a way that preserves that that's framework as well. So it's kind of a little bit of a non answer which is sort of we will evaluate that every year. When we come out with our updated plan our revised our refreshed capital outlook. We obviously have some tailwind like like a number of folks in the industry, but we feel really good about the plan we put out on March one.
Speaker Change: Great. Thanks for taking my question that's all.
Speaker Change: Yeah.
Speaker Change: Thank you and we will take our next question from Carly Davenport with Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, Thanks, so much for taking my question.
Carly Davenport: Just wanted to ask a follow up on Jeremy's question on the ERP and the EPA regulations. So it looks like Theres still a fair bit of gassing, including combined cycle units and that plan. So just to confirm based on your comments that does take into account the constant potentially fitting those assets with Ccs technology.
Speaker Change: Now it doesn't take into account the cost of fitting them of Ccs, but it does take into account the capacity factor limits within those regulations. So.
Speaker Change: As we've said, we don't think that Ccs.
Speaker Change: Is adequately demonstrated that's obviously going to be.
Speaker Change: Subject of litigation with EPA, but the plan that we put out it takes into account the regulations by just adjusting for the capacity factor.
Got it okay I appreciate the clarification there that's super helpful. And then maybe just one quick follow up a high level question as you think about the opportunities surrounding SMS ours as you think about potential timing for commercialization of that technology I know you've got the 2034 kind of starting date in the ERP.
Speaker Change: Is that sort of indicative of your views on when you think you could see sort of scaled commercialization of <unk> or just any broad views on kind of the timing from that perspective would be helpful.
Speaker Change: Yes, the IOP does reflect our view on timing. So again, we're going to stick with the principles I outlined.
Speaker Change: But.
Speaker Change: Assuming that we achieve those what we think is feasible would be.
Speaker Change: And the timelines that we put in the IOP.
Speaker Change: Great. Thank you so much for that color.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session. So I will turn it back to Bob Lee for closing remarks.
Bob Lee: Thanks, everyone for taking time to join the call today, everybody enjoy the rest of your day or weekend and we'll see you at EI. Thanks very much.
Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
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