The operator welcomes listeners to the Dominion Energy Fourth Quarter Earnings Conference Call and introduces the speakers. The speakers remind listeners of the risks and uncertainties involved in the company's performance and discuss non-GAAP measures. The CEO discusses the company's safety record and its impact on the company's ability to achieve its mission.

The company has maintained reliable service for its electric customers in Virginia and South Carolina, with a 99.9% power supply rate. They have also reduced carbon emissions and kept residential rates below national and regional averages. The company is committed to delivering an exceptional customer experience and has announced an agreement with Stonepeak to add a non-controlling equity partner in the Coastal Virginia Offshore Wind project as part of their comprehensive business review to address investor concerns and provide long-term value for shareholders, customers, and employees.

The project is proceeding on time and on budget, with significant milestones being achieved. Permits have been obtained and materials and equipment are on track. Monopiles have been received and will be installed in two seasons. The first offshore substation is complete and transition pieces are expected to be delivered soon. All necessary cables have been manufactured and the schedule for turbine installation remains on track. DEME is currently supporting an installation campaign for a similar project using the same wind turbine model.

The lessons learned from a previous project will benefit the current project installation. Construction activities have begun onshore and regulatory processes are in progress. There have been no changes to the expected LCOE and the project remains below the legislative prudency cap. The project has invested $3 billion and expects to spend an additional $3 billion by 2024. The current unused contingency is benchmarked competitively and the team is committed to delivering an on-budget project. An important video update featuring representatives from all primary commercial partners has been posted and stakeholders are encouraged to watch it.

The speaker expresses confidence in the progress and completion of the project, citing the support of key suppliers and partners. They provide updates on the construction milestones and labor levels, highlighting the vessel's expected delivery time and project costs. The project has been thoroughly evaluated by potential partners and deemed to be on track for on-time and on-budget completion. The speaker then moves on to discuss the CVOW transaction on the next slide.

Dominion Energy has partnered with Stonepeak, a major energy infrastructure investor, for their offshore wind project. Stonepeak will invest in a subsidiary of Dominion Energy and have a non-controlling equity interest. The agreement includes robust cost sharing, with Stonepeak contributing up to $11.3 billion on a 50-50 basis. If project costs exceed $11.3 billion, Stonepeak will continue to share in costs through a gradually increasing dilution of Dominion's ownership.

Slide 10 shows how Dominion and Stonepeak will share project funding and ownership under hypothetical cost scenarios. Stonepeak will reimburse 50% of capital spent to date, less $145 million, and will fund their share of capital calls during construction. At commercial operation, Stonepeak will make a payment to Dominion Energy, dependent on final construction cost. Approvals from regulatory agencies are required and expected to be obtained by the end of 2024. Slide 12 highlights the benefits of the partnership, including a well-capitalized partner, cost sharing, and improved credit profile for Dominion.

The transaction is expected to improve the company's consolidated FFO to debt by 1% in 2024, and has been positively reviewed by credit rating agencies. This will result in a financially healthy utility with a strong balance sheet, which will benefit customers by reducing business and financial risk. The sale of the company's gas utilities is progressing as expected, with regulatory approvals and closings expected in 2024. The estimated after-tax proceeds of $9 billion will be used to reduce parent-level debt, resulting in a reduction of $500 million in pre-tax interest expense annually. The company also supports reasonable regulatory reform in Virginia, and a comprehensive settlement was reached in the current biennial review with no opposition from involved parties.

Last month, the key parties involved in the comprehensive agreement reaffirmed their support and the final order is expected in early March. The General Assembly elected two new members to the State Corporation Commission, and the original business review commitments and priorities remain unchanged. The company is committed to its current dividend and has aligned executive compensation with shareholder interests. Cost-cutting efforts are also a focus, particularly in corporate overhead.

The company is focused on maintaining its reputation as one of the most efficient and reliable electric utility companies in the country. They have been evaluating investor feedback and will provide updates on unregulated investment tax credits and retirement benefit plans. They have scheduled an investor meeting to provide a comprehensive update and will engage with investors afterwards. The CEO is optimistic about the company's future and emphasizes the importance of consistently meeting financial targets. The CFO provides a summary of the company's fourth quarter and full year 2023 earnings and provides a reconciliation of actual earnings to previous guidance.

The company experienced a variance to their earnings guidance due to worse-than-normal weather, outages at Millstone, and a change in accounting methodology. The 2023 results were also affected by historically mild weather and expected interest savings from parent-level debt repayment. However, the benefit from the sale of certain assets was not fully captured in the 2023 results.

In 2023, the company expects to see a $0.11 hurt from outages at Millstone, but also expects a $0.15 improvement from market-based revenues and lower interest expense due to a fuel securitization transaction. However, there will be an additional $0.18 hurt from a rate reduction at DEV. These adjustments would result in an illustrative 2023 operating earnings per share of $2.85. The company expects the transition to continue into 2024 and will provide a comprehensive outlook for 2025-2029 at an investor meeting.

Dominion Energy has engaged with shareholders and received feedback regarding earnings quality and risk levels. They have made commitments to not pursue certain investments for the purpose of generating upfront operating earnings or reflecting gains from asset sales. In December, they changed their accounting methodology for investment tax credits to reduce operating earnings volatility. This change was made in response to the Inflation Reduction Act, which made their investments in renewable natural gas projects eligible for tax credits.

Dominion Energy has changed its accounting method for renewable natural gas (RNG) credits from the flow-through method to the deferral method. This reduces earnings volatility and aligns with GAAP standards and industry practices. The change will result in recasting past financial results and will impact future results, with an average annual operating earnings per share of $0.03 to $0.04 expected from ITC income, including RNG credits, through 2029. The change was a factor in the difference between actual results and previous guidance for 2023.

Paragraph 15 discusses the lack of change in the economics of RNG &D investments due to a change in accounting methodology, and then moves on to address Dominion Energy's plans to rebalance their retirement benefit plans towards lower-risk assets in order to reduce funding risk. This decision is based on the current robust funding levels and a desire to increase the portfolio's implied hedge ratio. The impact on the company's financial plan cannot be predicted at this time due to various factors.

The company believes that a rebalancing could result in a 100 basis point reduction in their EROA, putting them in line with industry peers. This would result in a decrease in operating earnings of $0.08 to $0.10 per share each year, with retirement plan-related earnings accounting for around $0.20 per share between 2025 and 2029. They highlight their strong safety performance and progress on their offshore wind project, as well as their steps towards completing the business review. They are eager to discuss their strategic and financial update at their Investor Meeting on March 1. In regards to the sale, they received significant interest and settled on a sharing structure with a non-controlling equity financing partner. The structure is a true 50-50 pro rata sharing, with the 1% difference on Slide 10 being tied to the potential movement of the withholding amount.

Bob Blue discusses the process of attracting interest from financial and strategic partners for their offshore wind project. He notes that all parties who diligenced the project were impressed and that the partnership with Stonepeak meets their objectives. He also mentions the importance of cost sharing and improving their credit profile. Shahriar Pourreza asks if they have the option to farm down a stake in future offshore wind projects, to which Bob Blue responds that the legislation only permits this structure for the current project.

The company is focused on on-time and on-budget offshore wind projects and has a good partner to work with. They have sought to minimize external equity through the process and will share a comprehensive strategic and financial plan next week. They are seeking to meet and exceed their downgrade thresholds while minimizing the need for external equity. The company has introduced a pension and ITC disclosure, with the pension detriment being $0.08 to $0.10 and the ITC being $0.03 to $0.04, which is incremental to their 2025 view.

Steve clarifies that the company has never given 2025 guidance and has been careful not to do so. The list of factors they shared on the last call was to highlight the complexity of creating a view on 2025. The company does not have insight into what other parties have assumed in their internal models or estimates. They will not be providing any further information on this and will wait until next week to share their results. The agencies have given positive feedback and the company has seen a 100 basis points increase in FFO to debt from the transaction. However, they will not disclose their pro forma credit metrics and will provide that information next week.

Steven Ridge thanks Nick and looks forward to next week. He also congratulates Nick and says that the agencies have previewed the transaction and agree with how it was described. They have been deliberate in keeping the agencies informed and gathering their perspectives on the review.

The company has been engaging with rating agencies to ensure that they have a good understanding of their business risk profile. They have also walked the agencies through the terms of their recent offshore wind partnership transaction, which they believe will be viewed positively. There is no new information regarding the dividend, and the company remains committed to maintaining it. There is no expected change in messaging about the dividend at the upcoming meeting. There was a technical issue with the call, but the operator is working to requeue the other callers.

Bob Blue, a representative from Dominion Energy, discusses the stakeholder feedback and regulatory approvals needed for the company's recent partnership announcement. He explains the process and timeline for obtaining approval from the State Corporation Commission in Virginia, the North Carolina Utilities Commission, and BOEM. He also mentions the importance of a strong balance sheet and how both Virginia and North Carolina policymakers value a AAA bond rating.

The speaker discusses the importance of a strong balance sheet for both the state and their company, as it allows for better service and investment opportunities. They mention the emerging PJM transmission opportunity and the recent increase in PJM's 10-year low-growth CAGR. They also mention the $2.5 billion of additional projects awarded in the last PJM open window, with a focus on supporting growth in data centers.

A question was asked about the FFO to debt ratio and the possibility of a downgrade from the agencies. The response was that it is likely to stay the same. The legislative session did not have any major issues related to energy. Another question was asked about commercial load growth, specifically in Northern Virginia where there are data centers. There have been some transmission constraints, but projects are underway to relieve them.

The company has been able to start up connections on data centers and expects to be able to serve the expected growth in this area. They will require investment in transmission, but they have good relationships with data centers and expect to continue seeing growth. They will gradually lock in more fixed costs as they move closer to the end of the project, and the announced offshore sale is the last asset sale expected.

The speaker confirms that the potential for an offshore wind equity partner was the last strategic step before the Investor Day next week. The question is then directed to Steve about the ITC and pension accounting changes, and he explains that in 2023, $0.40 of earnings will come from pension-related income. He also mentions that they smooth the actual asset returns over a 4-year period and apply their expected return on assets, and that the impact of a significant loss in 2022 will be fully recognized by 2026.

The speaker explains that calculating asset value and expected operating EPS is not as simple as taking a portion of the previous year's value. They use a "stacked Excel spreadsheet" method to smooth out the numbers. The switch to deferral method in 2023 will result in a decrease of $0.03 to $0.04 in expected operating EPS from ITC credit. The speaker clarifies that the $0.20 decrease in net EPS from 2023 to 2025-2029 is not exact, but an average, with some fluctuation. The call then concludes.

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