Dominion Energy, Inc.
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

Ladies and gentlemen, welcome to the Dominion Energy First Quarter 2021 Earnings Conference Call . I would now like to turn the conference over to Mr. Steven Ridge, Vice President, Investor Relations.

[Steven Ridge:]

Thank you, David, and thanks to everyone for joining today's call. Earnings materials, including today's prepared remarks, may 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'll 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 Web site to review webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chairman, President and Chief Executive Officer; Jim Chapman, Executive Vice President, Chief Financial Officer and Treasurer; and other members of the executive management team.

[Bob Blue:]

Thank you, Steven. Before we provide our business update, I'd like to take a moment to remember our friend, Tom Farrell. Tom's passing on April 2nd was heartbreaking to those of us who loved, admired and respected him. We've heard from so many people including many of you about Tom's impact on the industry and the people who work in and around it. It's quite clear that while Tom's list of professional accomplishments was long, the list of people whose lives he touched was much, much longer. He can be gruff occasionally, many of us participating on this call may have experienced that from time to time but much more often, we experienced his generosity, his loyalty, his dry sense of humor and his focus on improving our company, our community and our industry. We should all seek to emulate his example, a consistent commitment to ethics and integrity to excellence and perhaps most of all, to the safety of our colleagues. He cherished his friends and family most of all. I can't …

[Jim Chapman:]

…from around the world. Thank you all. As Bob said, we will very much miss Tom. Let me now turn to our business update. Following the in depth review and roll forward of our capital spending outlook we provided last quarter, our prepared remarks today will be relatively brief. We are very focused on overall execution, including extending our track record of meeting or exceeding our quarterly guidance midpoints as we did again this quarter. I'll start my review on Slide 4, with a reminder of Dominion Energy's compelling total shareholder return proposition. We expect to grow our earnings per share by 6.5% per year through at least 2025, supported by our updated $32 billion five year growth capital plan. Keep in mind that over 80% of that capital investment is emissions reduction enabling and that over 70% is rider eligible. We offer an attractive dividend yield of approximately 3.2%, reflecting a target payout ratio of 65% and an expected long term dividend per share growth rate of 6% this resulting approximately 10% total shareholder return proposition is combined with an attractive pure play, state regulated utility profile characterized by industry leading ESG credentials and the largest regulated decarbonization investment opportunity in the country, as shown on the next slide. Our 15 year opportunity is estimated to be over $70 billion with multiple programs that extend well beyond our five year plan and skew meaningfully towards rider style regulated cost of service recovery. We believe we offer the largest, the broadest in scope, the longest in duration and the most visible regulated decarbonization opportunity among US utilities. The successful execution of this plan will benefit our customers, communities, employees and the environment.

[Bob Blue:]

Thank you, Jim. I'll begin with safety. As shown on Slide 9, through the first three months of 2021, we're tracking closely to the record setting OSHA rate that we achieved in 2020. In addition, we're seeing record low levels of lost time and restricted duty cases, which measure more severe incidents. Of course, the only acceptable number of safety incidents is zero, and we will continue to work toward that critical goal. Let me provide a few updates around our execution across the strategy. We're pleased that the 2.6 gigawatt Coastal Virginia offshore wind project has been declared a covered project under Title 41 of the Fixing America's Surface Transportation Act program, also known as FAST 41. The federal permitting targets now published under that program are consistent with the project schedule that we shared on the fourth quarter call in February. Key schedule milestones are shown side by side on Slide 10. We continue to be encouraged by the current administration's efforts to provide a pathway to timely processing of offshore wind projects. In the meantime, we're advancing the project as follows

[Operator:]

Our first question comes from Shar Pourreza with Guggenheim Partners.

[Shar Pourreza:]

Just a couple of quick questions here. First, we've seen others revise estimates on Uri. Any update on how kind of how Uri impacted your customers and fuel costs, are you still okay there? And how are you sort of thinking about maybe resiliency spend for renewables based on maybe some of what you've observed as a result of Uri, any incremental spend associated with that, that we should be thinking about there?

[Bob Blue:]

Shar, it's Bob. I'll let Jim take the first part of that question, and then I'll answer the second.

[Jim Chapman:]

We're hearing a lot about this topic across the industry this quarter, of course. For us -- let me walk through it. So there's no impact for us at all in our electric operations, of course, given our geographic location. On the gas side, very minimal cost impact in Ohio, West Virginia, North Carolina, those businesses kind of leveraged their storage assets to minimize purchasing during that week. In Utah, it's interesting, though, we did see increased gas purchases. We saw price spikes in the Rockies region for gas during that week, of course. And we had increased gas purchases of our own during that period in the range of about $60 million. Now as a reminder, those costs are covered by customers, but we think it's a modest cost to customers. So no financial impact to the company from that. But what's interesting is the strength of the operational and the regulatory design there, really saved customers very significant costs during that period. And those are twofold. One is Wexpro, the regulated fuel supply arm. So during that week, customers got the benefit of that cost of service supply, so insulated from price spikes. And then second, contracting. Questar Gas is, I think it's the largest contractor for a storage capacity for Clay Basin there in the Rockies region. So without those features, that $60 million would have been multiples and many multiples higher. So pretty positive reflection of the operational and regulatory profile there. But overall, big picture, pretty manageable and scale for us. Bob?

[Bob Blue:]

I think it's important to remember that the regulatory models in the states where we do business and particularly our electric states in Virginia and South Carolina are very well suited to operate a reliable system for our customers, and that is absolutely the number one priority for our customers, is keeping the lights on. And so on the generation side that means things like having diverse fuel mix, making sure the design basis for equipment is right for the circumstances under which it's going to operate, considerations for fuel security, firm transportation for natural gas. And on the T&D side, it would be advanced simulations of the effect of events on the grid, innovative equipment and engineering new voltage control devices, for example, And it means a robust communications infrastructure. And in Virginia, all of those types of investments that I was just describing are contemplated in both the Clean Economy Act and Grid Transformation and Security Act from 2018, things like grid mod, strategic undergrounding storage. So we feel very good about that now. But we're reviewing to see whether any of our resiliency efforts need to be expanded or we need to add new resiliency programs. And we do that all the time, by the way. We learn from experiences on our own system and other systems. So I'd just sum up by saying nothing changes on the clean energy capital investment front. We're confident we will continue that investment and operate reliably and the scope of any additional reliability investments and resiliency investments remains to be seen, but we're studying what is best for our customers right now as we've been doing for decades.

[Shar Pourreza:]

And then just two very super quick ones on South Carolina. First, obviously, Santee, NextEra pulled their offer, the senate passed their bill that's more focused on internal restructuring. Do Dominion have any stance remaining here, including maybe an MSA opportunity or is that sort of behind us?

[Bob Blue:]

Our position on that hasn't changed, it's the same. We've offered - we've worked cooperatively with Santee. We continue to work cooperatively with Santee and we look forward to other opportunities to work cooperatively with Santee Cooper. So no change there, Shar. We want to do what is best for South Carolina.

[Shar Pourreza:]

And then just the GRC, I appreciate the comments that you made. But is there any sort of sense of timing, maybe just some of the pushes and takes, is there kind of a point of an overturn we should be thinking about as we think about maybe a breakdown of settlement talks? Just maybe a little bit more visibility and then that concludes.

[Bob Blue:]

So the pause was for six months from January, so it comes to an end on the 12th of July, I believe. And so the case would resume on July 12, so a little more than two months from now. But as we said in our prepared remarks, everyone appears to be approaching this, looking for a constructive outcome and that's what we're focused on.

[Shar Pourreza:]

Terrific, thank you guys. And I echo your comments around Tom. He's going to be greatly missed, and he was the true gentleman. So I appreciate your comments.

[Operator:]

Our next question comes from Jeremy Tonet with JPMorgan.

[Jeremy Tonet:]

So I just want to start with the caveat, granted we're very early innings here and things will change. But are there any thoughts you could share on how the current version of the Biden infrastructure plan might impact D, such as the tax credit front. Could this potentially impact wider spread deployment of storage in Virginia?

[Bob Blue:]

Your preface to the question was exactly right. It is indeed early days. So we don't know what's going to come out in the final analysis. So I think the best way to think about it is we're just very well positioned, we think the approach to decarbonize as quickly as we can reliably and affordably makes all the sense in the world. We're very well positioned to do that. This is not something that's new for us. And we see, to the extent we see opportunities with the Biden plan, we'll take advantage of them. But at this point, we don't exactly know. We just know the atmosphere is really good. We think it's smart for customers. We're excited about it.

[Jeremy Tonet:]

And then also, I guess, under the new administration, you kind of touched on this a bit, but maybe you could just comment a bit more on your interaction with BOEM here, and how you kind of feel about things progressing moving forward through the process now versus before?

[Bob Blue:]

We've had the opportunity to be involved in a couple of different industry conversations with BOEM leadership and other leadership in the administration. I think it's very clear that they see the advantages to offshore wind development. And I think the best evidence when it comes to us is, as we mentioned earlier, the schedule for the notice of intent and for the record of decision line up exactly with what we talked about on our fourth quarter call. So we have a very good sense that the professionals at BOEM, as they always have, are going to move forward efficiently. The leadership and the administration clearly thinks offshore wind is good economically and to meet carbon goals. And we're looking forward to sort of taking advantage of the experience that we have with the only wind farm operating in Federal waters off the coast of the United States today as we expand into something much bigger.

[Jeremy Tonet:]

And just one last one, if I could, and I think you've touched on this a bit. But just wondering what you're learning from initial hydrogen efforts here. How does this inform the relative opportunity between hydrogen and RNG for your gas distribution system going into the future?

[Diane Leopold:]

This is Diane Leopold. So just as a reminder on our hydrogen pilot, we're in our very early stages as in days. Our gas distribution business is implementing some blending programs at a training facility starting in Utah. And we just commissioned it and it's started testing just a couple of weeks ago. So we're really moving forward with that. We're looking to expand that if it's successful to a small customer use application and then follow the pilots in our other service territories. In fact, we requested a similar pilot at a training facility as part of our North Carolina rate case. So we're starting small, very important on hydrogen blending. So we see a combination of moving forward with continued pilots and testings of hydrogen blending throughout our LDC system, including putting it into the LDC, production and even methanation in the future. as well as an increased percentage of RNG into the system, which is really one for one offset with methane. So increased RNG, increased hydrogen blending possibly towards methanation as we move to continue to decarbonize the LDC system.

[Operator:]

Our next question comes from Steve Fleishman with Wolfe Research.

[Steven Fleishman:]

Good morning, and best to Tom's family and all of you. While we heard from Diane there, just you have been kind of early investor in RNG projects. And I'd just be curious kind of where that stands and do you see a lot more coming over the next few years?

[Diane Leopold:]

So yes, we have been an early investor. We announced our intention to spend about $650 million on two main partnerships. We've been focusing on the agricultural RNG. So the hog farms with Smithfield and the dairy farms with Vanguard renewables. We have one project that's in service as of the second half of last year. We have three projects under construction now and expect to have about five more under construction later this year. So we're really ramping up on actually bringing forward the projects. On the demand side, we really see a significant strong demand right now from a variety of customers. You can see people like the refiners that have LCFS obligations to make and we see more states looking to implement LCFS standards. We see utilities, both on the power generation side and direct customer use side. And then we see a lot of colleges and universities and other corporations that are kind of carbon conscious fires that are looking to offset their fossil usage. So we really see a lot of demand starting to pick up for multiyear contract terms at attractive prices. So long term, we're still looking at these projects as critical supply sources for our LDCs as an important tool for customers to achieve net zero. And so starting to access through our green therm tariff that we already have in Utah now and have requested in North Carolina and will continue to do so, but we're really continuing to see strong demand and our projects are ramping up.

[Bob Blue:]

I will mention that I had the opportunity last week to actually visit our operating site in Utah. It's quite something with the scale of the farming operation. It's also interesting that it happens to be not too far from one of our solar farms as well as there's a wind farm there, too. So it's become a center of renewable energy. And we just think that in the scope of what we're doing in our decarbonization investment, there are a lot of opportunities, as Diane described, in RNG that will serve us well for the long term.

[Steven Fleishman:]

And then just one quick question. Just sales trends in Virginia, South Carolina, any quick thoughts there?

[Jim Chapman:]

Sales trends are occurring kind of like we expected. I'll share a few stats. In Virginia, year-to-date, still pretty resilient like we saw most of last year. So year-to-date, up a little over 2%. Residential is still strong, up almost 4%. C&I also up almost 5%. So pretty good. Keep in mind that one underlying trend, I know we mentioned this a lot, is the continuation of data center growth, that number is up like 25%. Of course, it's small but growing, a third of our commercial segment is data centers. We expect to connect another 20 or so data centers in our service territory this year. We connected 19 last year. So that trend is very supportive of overall sales and continues to be strong.

[Operator:]

Our next question comes from Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith:]

Perhaps if I can pivot off that last question on sales, perhaps, can we talk about the next clean energy filing later this year? Should we be expecting more of the same on resources versus PPAs? But also how are you thinking about that filing against sales trends and also against some of these other headlines from independent IPPs, just looking at accelerating their procurement efforts in and around your service territory maybe by, shall we say, corporate procurements of various flavors and sorts? If you can speak to sort of the overall backdrop, if you mind.

[Bob Blue:]

So I think the answer, should it look similar to the filing that we just got approved, the answer to that is, no, and that this next filing will be larger in scale. And I think you particularly asked the split between PPA and utility owned and that will be different going forward. That's what the Clean Economy Act is, it's quite specific on this point that for the new solar build, 65% is to be utility and 35% is to be third party or PPA, and sort of the total amount of that is on the order of 1,000 megawatts a year for the next 15. So that's what you should be thinking about, really long term for us is we will match the VCEA proportions and the magnitude going forward. The sort of second part of your question, where our focus, our growth is in regulated renewables to the extent that we -- and if I'm understanding correctly, to the extent we have customers, important customers who are looking for contracted approaches, we expect to do some of that. But our focus on growing our solar portfolio is on the regulated side.

[Julien Dumoulin-Smith:]

And then with respect to South Carolina here, I know that you're coming up on the July time frame, at least we're broadly approaching it. I know we got some updates here in the interim. But feel confident that perhaps by that point in time, we can reach some sort of resolution, if you will. Is that fair as far as it goes?

[Bob Blue:]

Julien, I used to be a lawyer and as a profession, we seem to be procrastinators. So I wouldn't read too much into the fact that there's two months left. You can get a lot of work done in two months. And as we said in the script, everyone is approaching this constructively. So yes, we think we can get it done.

[Julien Dumoulin-Smith:]

And if I could squeeze in one last one, just LNG, I know you guys have obviously sold out a chunk here, but you've seen some pretty elevated valuations here in the space of late. Any comments, reactions to that? Just wanted to throw that in there quickly.

[Jim Chapman:]

I'll repeat what I think what we've said many times before, we very much like our new look and our asset mix. The dynamics you're speaking to, we're not blind to that. At some day, that could be an opportunity to raise capital in a place what we have in our plan for modest continued equity issuance, but no current focus on that topic. We're aware, following, but we're focusing on executing our plan with our current asset mix.

[Operator:]

Our next question comes from Durgesh Chopra with Evercore ISI.

[Durgesh Chopra:]

Just a quick clarification, Jim, on 2021 guidance. What are we assuming in terms of the timing on the South Carolina rate case? If you could just clarify that, please.

[Jim Chapman:]

So on the South Carolina rate case, we've been, again, here consistently saying a couple of things. One is that given the size of that business in relation to Dominion, of course, that's just the electric part of DESC, we're talking about base rates on the electric side. Any reasonable outcome is going to be within our guidance range, so no material impact. And then as far as the impact of the delay, we've seen some folks suggesting that a delay of a year would be kind of in the $0.05 range. So take half of that for six months, you're talking about a couple of pennies, that's probably in the ballpark, but still not material and within our guidance.

[Durgesh Chopra:]

So basically, regardless of the timing of a final decision there sort of the '21 guidance is intact?

[Jim Chapman:]

Any reasonable outcome should lead to that. That's right.

[Durgesh Chopra:]

And just a quick one on the nuclear plant extensions. Does that change or give you an opportunity to deploy more CapEx, or kind of this is in line with your thinking when you sort of develop the CapEx plan four, five years out?

[Bob Blue:]

It's in line with our thinking when we developed the CapEx plan.

[Jim Chapman:]

There's $1.3 billion of spend related to the nuclear license in our five year plan that we went through on the fourth quarter.

[Durgesh Chopra:]

Understood. And it's really a lost, losing, Tom. So my best for Tom and his family.

[Operator:]

Our next question comes from Michael Weinstein with Credit Suisse.

[Michael Weinstein:]

On the triennial filing, the revenue deficiency that you guys identified, is that mostly related to rate base and service or is it a new investment, or is it more operationally related?

[Bob Blue:]

So I think you're asking about the '22 test year and our measurement versus a ROE. And the answer is just with the way the law works, we project forward sort of known and knowables for year '22 and we calculate what the return is. And in this case, that return is slightly below the that we believe is the appropriate authorized ROE. So I don't know that I can identify any one specific thing, there's a number of sort of components that go into that. But we do that analysis compare it against what we believe is an appropriate ROE, and that's how we end up with that slight revenue deficiency and the regulatory speak.

[Michael Weinstein:]

So a combination of everything. Diane, on RNG, just one other question on that subject. Do you anticipate a time when blending RNG and maybe even into the system would enable a utility and pure utilities specifically to say that they are greenhouse gas neutral or greenhouse gas zero or even negative and when do you think that will happen? And how many years do you think in the future would you have to wait for that?

[Diane Leopold:]

In fact, it was part of our thinking when we committed to net zero by 2050 across both our gas and electric businesses, was blending renewable natural gas and hydrogen into the system as part of a component of that. So it certainly already worked into the plans, I believe, of numerous utilities in their net zero plans, especially RNG and the agricultural RNG, which is why we're trying to attract so much of it into our LDC systems and with regulators and investing in it to get it in the networks is because it's so much more carbon negative than a lot of other forms. So instead of just being carbon neutral, you just get a lot of bang for the buck out of smaller quantities of it to help meet those net zero goals.

[Michael Weinstein:]

One last question, on the solar business. Are you seeing any impact as a result of global supply demand tightness in that segment and also shipping logistics issues, chip shortages? We're hearing in the solar industry that the supply is tight and prices are up, just wondering if it's affecting you at all.

[Jim Chapman:]

We're seeing the same, not in a material way. And the shipping and logistics issue, we're not seeing as much. There’s just some upward price pressure on poly, on glass, on steel. But it's something we're watching, but it's not -- for our business, it's not a material issue but certainly, there is upward pressure on costs right now.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude this morning's conference call. You may disconnect your lines and enjoy your day.