The operator welcomes participants to the Dominion Energy Third Quarter Earnings Conference Call and introduces David McFarland, Vice President of Investor Relations. McFarland discusses the company's forward-looking statements and non-GAAP measures, and encourages listeners to review the earnings materials on the investor relations website. CEO Bob Blue highlights the company's strong safety performance and gives an overview of the past year's business review, acknowledging the challenging environment for utility investors.

The decision to launch a review was taken seriously and is being executed with urgency and care. Investors were dissatisfied with the company's inconsistent earnings growth, earnings mix, regulatory model, and balance sheet. The review must comprehensively address these concerns in order to restore investor confidence. Partial solutions will not be enough.

The company has conducted a thorough review and is close to finalizing a strategic and financial plan that will benefit shareholders, customers, and employees. They have made progress in the past year, including supporting legislation in Virginia to ensure reliable and affordable energy for customers. They are also investing in low-carbon resources and infrastructure to maintain grid reliability and attract investor capital.

In this paragraph, the author discusses several recent strategic moves made by the company. These include maintaining a commitment to their current dividend, eliminating sources of low-quality earnings, selling their remaining interest in Cove Point and their gas utilities, and using the proceeds to reduce debt. The author also mentions that all necessary regulatory filings have been completed for these transactions.

Enbridge has received positive feedback from employees, regulators, and policymakers regarding their recent acquisition and has taken steps to fund it. They expect to close all three transactions in 2024. The company has also focused on cost savings and efficiency, and the Board has made changes to align executive compensation with shareholder interests. Two directors will not stand for re-election next year, and two new directors will join the Board in December. The company has been regularly refreshing its Board, with six new directors added since 2019 and an average tenure of six years for current directors.

The Board is committed to representing the interests of shareholders through strong governance and various measures to strengthen the company's regulatory model, earnings quality, and balance sheet. The offshore wind project is a major focus and is progressing according to plan, with a potential partner being sought to share project costs. The project's attractive characteristics and de-risking factors have generated interest from high-quality potential partners.

The process of finding an offshore wind project partner has generated strong interest and the company expects to make a final decision by the end of the year or early 2024. The CEO is optimistic about the future of the company and believes they will have a solid financial foundation after the review. The company is committed to consistently delivering high-quality earnings growth and will provide updates as needed. An investor meeting will be held after the review is completed to discuss the company's repositioned strategic and financial outlook. The CEO also mentions other key business updates, starting with the offshore wind project.

The project is progressing according to plan, with significant milestones being achieved. The first monopiles have arrived at the port and the next shipment is expected in December. Turbine blades and cells are also on track for production. The project is expected to be completed by the end of 2026. Construction mobilization has begun and regulatory approvals have been obtained. The project has over 100 dedicated personnel and is receiving support from national, state, and local leaders.

The company's offshore wind project leaders and personnel have experience managing complex construction projects, including large gas fire generation and offshore wind test turbines. They have expertise in contract management, vendor relationships, scheduling, engineering, procurement, construction, and oversight. The team is also supported by offshore wind industry experts. The company maintains regular communication and monitoring with key project partners and expects timely completion of the project. The test turbines have shown high reliability and strong operating performance, providing confidence in the capacity factor of the commercial project. The key metrics on Slide 9 serve as a reminder for the project's cost.

The project's expected LCOE has been updated to $77 per megawatt hour, reflecting refined estimates around production tax credit, cost of capital, and REC values. The project total cost remains $9.8 billion, with 92% of costs now fixed. The remaining costs to be fixed include aboveground electrical work, transportation and installation fuel, and project oversight costs. The current contingency estimate has increased modestly but is still competitive compared to other large infrastructure projects. The Jones Act compliant installation vessel, Charybdis, is currently 77% complete.

The delivery of the Charybdis vessel is expected to be delayed until late 2024 or early 2025, but the project is still on track for timely completion. Seatrium, the company in charge of construction, has dedicated experienced management and increased labor to address delays. Recent construction milestones have been met and the vessel is on track for engine startup. There have been no changes to the underlying construction cost estimate for Dominion Energy, and any increases in project costs are mostly due to financing and ancillary expenses. The vessel is still expected to be available for the CVAL construction schedule and any third-party charter agreements in 2025. More information on the offshore wind project can be found on the investor relations website. The Virginia biennial review is currently in the testimony phase.

DEV submitted a biennial filing in July to review base rates, which represents about a third of their total rate base. The majority of growth at DEV comes from Virginia rider investments in renewable energy and transmission projects. They have made a clean energy rider submission and expect an order from the SCC in the second quarter of 2024. They are also advancing infrastructure upgrades for data center customers and developing a new transmission line. PJM has advanced numerous projects for further evaluation to ensure reliability and transition to cleaner energy resources. DEV has also provided updates on their grid transformation and fuel securitization proceedings.

In the third quarter of 2023, Dominion Energy South Carolina's electric rates for residential customers were 8% below the national average, representing a 21% improvement since the merger announcement. The company has also reached settlements in both electric and gas-based rate cases, demonstrating improved regulatory and stakeholder relationships in the state. The third quarter operating earnings were $0.77 per share, above the updated guidance range midpoint of $0.74. The GAAP net income was $0.17 per share, with adjustments made due to the sale of Cove Point and the announcement of the sale of the gas utilities.

The company has reclassified Cove and the gas utilities as discontinued operations and held them for sale, resulting in their removal from operating earnings. The renewable natural gas business is now reported with the contracted energy segment. 2023 is considered a transition year due to various factors, making it difficult to accurately model. The year-to-date operating earnings per share through September 30 have been recast to remove the contributions from Cove Point and the gas utilities.

The company expects fourth quarter operating earnings to be around $0.35 per share assuming normal weather. There are several factors that will impact year-over-year changes, including historically mild weather in the first two quarters, additional interest savings from parent debt repayment, and a non-recurring extended unplanned outage at a plant. These factors should be taken into consideration when assessing 2023 results. Additionally, 2023 will have a double planned outage for a plant, which will result in an additional decrease in earnings.

In 2023, we expect a $0.15 improvement in operating earnings per share due to market-based revenues and lower interest expenses. However, there will also be a $0.18 reduction in earnings related to a rider revenue decrease. This transition will continue into 2024, and the company will provide a comprehensive post-review financial outlook, including 2025 earnings expectations, in the coming months. The company is committed to enhancing transparency and simplifying their financial presentation for investors.

The author advises against using a growth rate assumption based on 2023 operating earnings to estimate 2025 earnings for Dominion Energy. This is because there are many factors that will impact future earnings, such as increased investment in regulated projects, capital structure decisions, cost-saving initiatives, potential interest rate changes, tax benefits, and growth in their contracted energy segment. The company will provide more information and guidance on their strategy and financial plans during an upcoming investor event.

Dominion Energy's presentation will provide valuable information for investors to understand the company's updated profile and key value drivers. The sale of their interests in Cove Point and natural gas distribution companies will positively impact their credit, as noted by rating agencies. However, the company expects financing for customer-driven growth to put pressure on their debt-to-FFO ratio. They are committed to maintaining a strong credit foundation and managing interest rate exposure through various strategies, including pre-issuance interest rate hedges.

The speaker provides an update on the company's planning assumptions for rates, interest expense, and hedging strategies. They commend the company's safety performance and mention their progress in achieving the objectives of a business review. They also discuss the offshore wind project and partnerships, and mention their investments in providing reliable and clean energy. The speaker then addresses a question about the messaging around breaking ahead and explains that they are not putting a growth rate on 2025, but rather focusing on tailwinds and potential drivers such as the balance sheet, hedge portfolio, and free cash flow growth. They also clarify that the pending growth rate guide will be based on a higher base in 2025.

The company plans to provide a forecast for 2025 and a multiyear growth rate at their investor meeting. They have included detailed information about the option for a win sale process and have clarified that nothing else is for sale like Scana. The company may potentially accept a portion of their partner's construction costs in the sale, but it will depend on balancing the risk for rate payers and shareholders. The company did not have legislative authorization or an EIS for the project, but now they do. They have also started manufacturing equipment for the project.

The company's first shipment of monopiles has arrived on time and project costs have been fixed at 92%. They are pleased with the progress and have multiple parties interested in being equity partners. The question about potential common equity needs in the future was not answered, but the company plans to provide more information at their upcoming investor meeting. The company's capital budget will be significantly higher than any in their history due to the strategic review.

Steve Fleishman asked about the offshore wind cell and Bob's objective to find a partner for pro-rata risk sharing. He asked if the potential partners are willing to do that.

Bob Blue and Steve Fleishman are discussing a potential deal and Blue explains that they will consider various factors such as credit metrics, shareholder value, and reliable performance. He also mentions their objective of finding a true equity partner for the project. Fleishman asks about potential issues with suppliers for the offshore wind project, and Blue assures him that they regularly communicate with them and they are all performing on time. He also mentions recent challenges faced by Siemens, one of their suppliers.

Jeremy Tonet from JPMorgan asked about the growth opportunities and challenges that have been in the news. The speaker assured him that they are committed to their contractual obligations and that their partnership is still strong. They are regularly communicating with their providers and all projects are performing well and on time. Steve Fleishman asked about the slide that mentioned a growth rate of 290 for 2023 and whether it could be even better. The speaker clarified that they are not giving guidance, but they wanted to provide a comprehensive list of factors that could impact their earnings in 2025. He mentioned that some of these factors are tailwinds, but they did not want to give partial guidance.

During a Q&A session, a speaker named Jeremy Tonet asks about Dominion Energy's dividend policy and whether it will remain intact even if they keep all of their wind assets. Bob Blue, a representative for Dominion Energy, responds by reaffirming their commitment to the dividend and stating that they have not wavered on this commitment since the beginning. Another speaker named Carly Davenport asks about the timeline for the business review and if there are any potential risks that could delay it. Bob Blue responds by saying that they are in the final stages and there are no other factors that could push it beyond the late 2023 to early 2024 timeline. Carly also asks about the interest rate exposure and the tenor of the $8 billion in interest rate derivatives that Dominion Energy has. Bob Blue responds by saying that they have derivatives at both VEPCO and the holding company, with more at the holding company, and that the average coupon is below 3%.

VEPCO has restrictions on when they can use their hedges due to hedge accounting. They have flexibility to use them anytime between now and 2028, based on the current notional. More information on how they plan to use the portfolio will be provided during the investor day. The conference call has ended.

This summary was generated with AI and may contain some inaccuracies.