Dominion Energy, Inc.
Q4 2020 Earnings Call Transcript

Published: 12 Feb 2021

[Operator:]

Welcome to the Dominion Energy Fourth Quarter 2020 Earnings Conference Call. At this time, each of your line is in a listen-only mode. At the conclusion of today’s presentation, we will open the floor for questions. . I would now like to turn the call over to Steven Ridge, Vice President, Investor Relations.

[Steven Ridge:]

Good morning, and thank you 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.

[Thomas Farrell:]

Thank you, Steve, and good morning, everyone. I want to start by outlining Dominion Energy's compelling 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 capital growth plan. We offer an attractive dividend yield of approximately 3.5%, reflecting a target payout ratio of 65% and an expected long-term dividend per share growth rate of 6%. This resulting 10% total shareholder return proposition is combined with an industry-leading ESG profile, characterized by what we believe is the largest regulated decarbonization investment opportunity in the country. We plan to invest tens of billions of dollars over the next several years to the benefit of the environment, our customers, our communities and our local economies. Our strategy is anchored on a pure-play state-regulated utility operating profile that centers around five premier states, as shown on Slide 5. I'll share the philosophy with a common sense approach to energy policy and regulation puts a priority on safety, reliability, affordability and, increasingly, sustainability. These states also strive to create environments that promote sensible economic growth, which like the rising tide, lifts all boats. For instance, three of these state jurisdictions rank consistently in the top four best states for business as determined by independent analysis carried out by CNBC and by Forbes. Our state-regulated utility model offers investors increased predictability and is enhanced by our concentration in these fast-growing, constructive and business-friendly states. Turning to Slide 6. Dominion is a purpose-driven company and has adopted a comprehensive stakeholder approach. We are driven by the belief that the world's best companies consider the interest not just of investors, but also employees, customers and communities and the well-being of the environment. Our actions are grounded in adherence to our five core values, and we embrace transparency and stakeholder engagement as hallmarks of responsible corporate citizenship.

[James Chapman:]

Thank you, Tom, and good morning. Our fourth quarter 2020 operating earnings, as shown on Slide 14, were $0.81 per share, which included a $0.01 hurt from worse-than-normal weather in our utility service territories. Both actual and weather-normalized results were above the midpoint of our quarterly guidance range. Full year 2020 operating earnings per share were $3.54, above the midpoint of our guidance range and included a $0.09 hurt from weather. Weather-normalized results of $3.63 were at the top of our annual guidance range. Note that our fourth quarter and 2020 GAAP and operating earnings, together with comparative periods, are adjusted to account for discontinued operations, including those associated with the sale of assets to Berkshire Hathaway Energy. And then a summary of such adjustments between operating and reported results is, as usual, included in Schedule 2 of our earnings release kit. As shown on Slide 15, this represents our 20th consecutive quarter, so 5 years now, of delivering weather-normal results that meet or exceed the midpoint of our quarterly guidance range. We've highlighted here the July 5 Gas Transmission & Storage sale announcement on the chart as this was obviously -- obviously has had an impact on our original annual guidance, which is, of course, prior to that transaction. But regardless, we believe the historic consistency across our quarterly results is worth highlighting and it's a track record we are absolutely focused on extending.

[Robert Blue:]

Thanks, Jim, and good morning, everyone. I'll begin on Slide 25, which provides an overview of the Virginia Clean Economy Act. The law mandates a renewable energy portfolio standard that over the next 25 years moves towards a 0 carbon future. In order to achieve the RPS milestones, the law calls on the state's utilities to add significant amounts of wind and solar power generation as well as battery storage, ramps up energy efficiency and demand side management programs, requires the use of Virginia-based renewable energy credits, mandates that Virginia join the regional Greenhouse Gas Initiative and requires the retirement of substantial coal-fired generation by 2025 and all ossified units by 2046, subject to reliability and energy security considerations. The largest single investment project come out of the passage of the VCEA is Dominion Energy's initial 2.6-gigawatt offshore wind deployment, as described on Slide 26. I'm not going to go through every line item on this slide but will highlight the following

[Operator:]

Thank you, sir. At this time, we will open the floor for questions. . Our first question comes from Steve Fleishman with Wolfe Research.

[Steven Fleishman:]

Hi, thanks. Good morning. So just a first question on the -- your growth rate now goes out to 2025, which would encompass, I guess, the 2024 triennial outcome in it. Can you talk a little bit about how you're kind of including that in your assumptions? What are you assuming for that?

[Robert Blue:]

Yes. Thanks, Steve. Appreciate the question. We’re - as I mentioned earlier, we're only 43 days into a three-year period that's going to be reviewed, and we don't even file the case for more than three years. So not surprisingly, lots of details to come. I do think it's important, though, when we look at developing a long-term growth rate, we look at a variety of planning scenarios. We don't assume a single outcome for the 2024 triennial or any other major planning assumption that far out in our plan. I will say one theme that is certainly assumed in all of our forecasted outcomes. 2024 or any other years that Virginia regulation continues to be constructive, just the way it's worked over the years, which has provided our customers with solid reliability rates more than 10% below the national average and a greener and greener generation portfolio. And then I think it's also important to remember, as Jim and I talked about earlier, that a portion of our base rates -- that the portion of our earnings that come from base rates in Virginia decline as we go through time, and riders and other mechanisms outside Virginia grow in importance. Our growth between now and the 2024 triennial and then after the 2024 triennial is driven by rider investments that are outside the 2024 triennial or any other triennial proceeding.

[Steven Fleishman:]

Okay. So is the punchline then that you kind of feel like you've got ability to deal with a variety of outcomes for that or in the scheme of things or -- and that's kind of encompassed in there in your assumptions?

[Robert Blue:]

Yes, this is what we do. It’s what we've done over the years is we work with regulators, policymakers on constructive outcomes for customers and the health of the utility. And we fully expect that we'll be able to continue that going forward.

[Steven Fleishman:]

Okay. And then one other question related to that is, I did notice that it does seem like the base component of the rate base in Virginia and the percentages seemed lower than they have been in some of your other recent disclosures. Could you just explain maybe some of the changes there, I guess, maybe, Jim?

[James Chapman:]

Okay, Steve. Good morning. Let me take that, and I'm not sure if everyone has the full deck in program, but for future references, it's set out on Page 60 in the appendix. But you're right, the total rate base in Virginia has not changed other than through the passage of time and the completion of the year. But what we did do is we refined the calculation of the elements of total rate base. We have been showing the schedule since like 2019 when we started this, I guess, our last Investor Day, where we, at that time, the triennial was very far away, we were trying to make it simple. So we lumped some things together. And now we've refined that. And the refinement relates to about $4 billion of rate base that previously we had categorized as Virginia-based and other, and the $4 billion is really the other. And we've now reallocated that to other categories. So what's in the other? Those are contracts where we serve various entities in the state, municipalities, the state of Virginia itself, the federal government, entities like that, where the contracts reflect different economic construct. Some of them are just sort of negotiated. Those are in the other category and our new slide and others track more some of the riders, whether it's a transmission rider or legacy A6 riders. So we've reallocated, to be more precise. Now Virginia-based is not Virginia-based and other. It's just Virginia-based, and it brings down that number to about $9 billion. So I think that's helpful to folks as they do math and sensitivities to have that more refined division on the various buckets of our total Virginia rate base.

[Steven Fleishman:]

Okay. Thank you very much.

[Robert Blue:]

Thanks, Steve.

[Operator:]

Thank you. Our next question comes from Dan Ford with UBS.

[Dan Ford:]

Hi, good morning. Thanks very much for the time today. So…

[Robert Blue:]

Hi, Dan, thanks for joining.

[Dan Ford:]

Hey, thank you. So this question is for you, Bob. So the Virginia legislature has several live utility and energy economy-related bills still floating around, and Governor Northam's asked for a special session. Can you put all the noise that this creates for investors into perspective for us?

[Robert Blue:]

Yes, sure. I don't think I can remember a fourth quarter call we've done where we didn't get a question on the Virginia General Assembly. I guess that's a function of the timing of our fourth quarter call and the session. So I'm glad you asked us. We would have been disappointed if we didn't get one this year. It's been now, I guess, more than 15 years since I worked in the governor's office in Virginia, but there are a few things about the legislative process that I think are probably still true. The first one, the legislature doesn't follow a script that -- you make a mistake or you make predictions with certainty about the outcome of legislation at your peril, and I think that is still true. The second is that bill for it to become law have to clear a number of hurdles. It's not just one House or the other, it's both Houses and it's committees of both Houses. And an example of that from this year's session would be the one bill introduced in the Senate that related to our regulatory model was defeated in committee on a pretty strong bipartisan vote. And then the last thing that is still true about the legislature in Virginia is it moves quickly. So I don't think we're going to have to wait a long time. This year, the timing has been a little bit different, as you mentioned. The session went -- it's constitutionally mandated 30 days and then the governor called a special session, but the process is still moving pretty quickly. And so I think those bills that you're referring to will be resolved relatively soon because that's the way the Virginia General Assembly moves. We'll keep an eye on them. But I think it's important to remember that they've got hurdles they would still have to clear before they could become law.

[Dan Ford:]

Okay. Thanks very much. And I guess one also for Jim. So Jim, thanks for all the detail on the CapEx going forward as well as what's rider-eligible versus not. Can you talk a little bit about the impact that the CapEx mix and the rider-eligible projects will have on cash flow conversion as we go through the next five years?

[James Chapman:]

Yes. Thanks, Dan. Let me do that. So as I mentioned, almost -- well, over 70%, almost 3/4 of our capital spending in this five-year plan is in rider format in Virginia and elsewhere. So what that means, as we invest that capital, there's no regulatory lag. There is a proportional increase in operating cash flow from that investment. So that's quite an assistance in our plan for the sources and uses of cash, given the lack of regulatory lag and kind of the proportional advancement of our rider spend and our rider rate base growth and also our operating cash flow. We think it's quite a nifty feature of the structure.

[Dan Ford:]

Great. Hey, thanks very much, guys.

[James Chapman:]

Thanks, Dan.

[Operator:]

Our next question comes from Shar Pourreza with Guggenheim Partners.

[Shahriar Pourreza:]

Just a quick housekeeping and then I have a quick follow-up. Just maybe starting with the '21 guidance. I mean, obviously, you've highlighted an expectation for 10% or better growth off that 2020 base, but the bottom end sort of implies about 6% year-over-year growth. There's a lot of visibility with the plans. So just trying to get a sense on any scenarios outside of weather that could put you at that lower end. And then I know the midpoint of the range is about $0.025 lower versus prior. Is that South Carolina GRC delay-related? Can you manage it? Is there sort of a conservatism built in there?

[James Chapman:]

Yes. A lot of parts of that question as normal. So let me first for it. South Carolina had no impact on that guidance range, none. Well, let me walk through the elements of our guidance. So we have our long-term EPS growth guidance of 6.5%, which is intended to be more precise than our peers as opposed to a 200 basis point range. And what we do every year as we go along that 6.5% long-term growth rate, we choose a midpoint for our annual guidance. And around that midpoint, we have a range. And every quarter, we mention that, that range is intended primarily to capture different weather outcomes. Now going back a few years, that range was pretty wide. Within the last 5 years, it was $0.50, then it was $0.45. $0.30. But the primary reason for that range this year included is to incorporate -- to accommodate various weather outcomes. The midpoint of the range is 3 85. And we're very confident in making that number. And in continuing our track record of meeting or exceeding on a weather-normal basis, like we talked about for the last 5 years. So there's a range, there's a midpoint. That midpoint, again as I said in my prepared remarks, is consistent with the very narrow range of potential midpoint we guided in July. No relative to the South Carolina process.

[Shahriar Pourreza:]

Got it. And then just lastly, on the ratings, obviously, you're presenting a really healthy cash flow outlook. The business risk profile has obviously improved. 9% utility growth, a lot of it is rider treatment, single issue rate making, 15% FFO to debt levels. Any sort of -- an agency obviously also has a positive outlook. metrics seem to point you closer to A-. Any sense on how the conversations are going with the rating agencies?

[James Chapman:]

Let me say it this way. I think generally, the three rating agencies, there's a recognition of the senior management focus on credit that's been a part of all the transactions and financings we've done in the last two years. And there's a recognition of the improvement that we've accomplished. So we're in a good spot. Going forward, I wouldn't speculate on an upgrade. But what I would expect, maybe I'm not trying to get ahead of the agencies, but what I'd hope for is increased recognition of the very material improvement in our business risk profile from a credit perspective overall in last year. They were just -- the dust has barely settled right on a last step of that with the sale of Gas Transmission & Storage. But I would hope that, that element would work its way more into the dialogue and even the thresholds that the various agencies apply to our company.

[Shahriar Pourreza:]

Terrific. All right. That's what I was trying to get at, Jim.

[Operator:]

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

[Julien Dumoulin-Smith:]

Perhaps to follow up on some of the last questions. I got a couple real quickly, if you can. I believe you just said a second ago, with respect to the 6.5% and the increased level of precision, I think Steve brought up earlier. Obviously, there's a lot baked into that 5-year outlook through '25. How do you get yourself so confident around that 6.5% precision that you guys articulated? I mean, obviously, it's purposeful, as you just said. If you can speak to it a little bit more narrowly about the level of confidence you have in these outcomes to drive that number, that would be great. And then I have a quick follow-up, if you don't mind.

[Thomas Farrell:]

Yes. I mean, I think I'd answer it simply this way, Julien, we were confident in July when we announced the 6.5% growth rate and nothing has changed since then. We're still confident. We've outlined, as you've heard today, some roll-forward of our CapEx. We've got a lot of clarity on rider recoverability of that CapEx, and all of that contributes as we sort of develop our assumptions around our long-term growth rate to maintaining the confidence that we had last summer in that 6.5%.

[Julien Dumoulin-Smith:]

Got it, fair enough. And then turning back to South Carolina quickly, if you can. Obviously, I heard what you said about '21 here. How do you think about prospects for settlement time line there, just given some of the generations? Then ultimately, obviously, we're paying attention to what's going on with Duke in the Carolinas here, too. How do you think about CapEx opportunities as well?

[Robert Blue:]

Yes. So on settlement, we're working through the pause that was ordered by the commission that we agreed to, with monthly reports on that. And we're always optimistic about our prospects of selling cases because we think we're very creative in finding ways that we can resolve issues that are beneficial for customers and for the company. Ultimately, it requires all the parties to agree to settle. And it's -- I can't tell you what's in the mind of the counterparties. I can just tell you that we're working very hard toward that. And we have an endpoint that the commission said, if you haven't settled, we'll start the case back up again. So we'll get there either with a settlement or we'll finish the case, and it's a strong case. We were very confident in the case that we filed. We haven't had a base rate case in 8 years, and we've invested substantially in the system and improved the system, and we're entitled to return on those -- to our return on those investments. So we think it's a very strong case. Hopefully, we can settle it. If we can't, we're very comfortable with our ability to defend the position that we took in that case. As to potential future growth, I mean, obviously, we need to get through this rate case and see. And that's our focus at the moment, along with making sure that we maintain our commitments that we made in the merger process. The IRP process obviously suggests that going forward, there may be some further investment opportunities, and we'll certainly take advantage of those. But right now, what we're focused on is getting this first rate case resolved in a constructive manner.

[Operator:]

Our next question comes from Michael Weinstein with Crédit Suisse.

[Michael Weinstein:]

I'm wondering if -- to what extent has additional tax credit extensions and some of the renewable stimulus planning that you're expecting to see from the Democrats over the next few months built into the plan? And is there potential for upside, especially when I look at like the solar section and maybe even -- just in terms of customer affordability. Maybe you could afford to do some more work maybe in undergrounding or grid transformation?

[Robert Blue:]

Yes. That's a great question, Michael. And you're right, for us, in the regulated environment that we're talking about, the extension of the ITCs and various tax credits is customer rate beneficial and doesn't change the investment return but definitely reduces the rate that customers pay. So we'll look at whether there are opportunities. We have a pretty aggressive plan, as you've seen in the Virginia Clean Economy Act last year passed an aggressive plan. So we're moving very quickly. If there are opportunities to advance, we'll take them. But the main effect of ITC extension is going to be benefit to customers on rate.

[James Chapman:]

One thing, Michael, I'll add to that it's Jim, is when it comes to ITCs that we recognize the earnings benefit from outside of a regulatory context, that, just to be clear, is not really a growth industry for us. Most of what we do that relates to ITC is in a regulated format, where it benefits our customers, as Bob said. But two years ago at Investor Day, we gave some guidance that, that ITC recognition and earnings would be somewhere in the up to $0.15 per year range. And where we bid is really below that. In '18, we're at $0.09. In '19, we're $0.11. In '20, we were at $0.16. But we still plan to trend within that run rate up to 15% -- $0.15 per year guidance. So there's not a big impact in that area. It's mostly on the regulated customer benefit side, as Bob described.

[Michael Weinstein:]

All right. And just to be clear, the ITC doesn't reduce the rate base in any of the projects that you're working on, on the regulated side?

[Robert Blue:]

Yes, that's exactly right.

[Michael Weinstein:]

And my understanding is the strategic undergrounding has driven the limit -- there's a limit to the amount you can invest there by law. Is there any talk of perhaps to be expanding that, considering maybe things might be getting more affordable to the federal tax credits?

[Robert Blue:]

Yes. So that's a legislative. That cap is in legislation that you're referring to. It has to do with a percentage of overall rate base. There's no legislation pending in Virginia right now on that issue. So if it were to be extended, it's unlikely that would happen this year.

[Operator:]

Our next question comes from Jeremy Tonet with JPMorgan.

[Jeremy Tonet:]

You've outlined the decarbonization opportunity for 2035.

[Robert Blue:]

Jeremy, we can barely hear you.

[Jeremy Tonet:]

Sorry about that. Is that better?

[Robert Blue:]

Yes.

[Jeremy Tonet:]

You outlined the decarbonization opportunity through 2035 today. How do you think about customer growth and other investments for that period? And given the magnitude of your clean spend here, do you expect this to capture an increasing share going forward, absent large changes in customer growth?

[Robert Blue:]

I'm sorry. We can talk a little bit about customer growth. I mean, we've had pretty consistent growth in our electric utility over the course of the last decade or so that we would expect to continue, on the Virginia side, for example, 35,000 new customers connected a year or so. On the gas side of our business, as we mentioned in our prepared remarks, strong -- very strong new customer growth. But I'm not sure I totally followed the second part of the question, I apologize.

[Jeremy Tonet:]

Just the relative share, I guess, of the green CapEx is -- just wanted to see if that's going to continue to be a large portion of what you're doing going forward. Or are there other chunky investments in the nonclean side we should think about there?

[Robert Blue:]

Yes. No, it's -- the outlook is very much, and I think it's really reflected on the slide that shows that $72 billion opportunity. That is all -- these are all decarbonization-related or enabling investments. So that's going to be the absolute lion's share of our investment going out, and we would expect that to continue even beyond that long-term period. Obviously, 15 years from now is a long time in this business.

[Jeremy Tonet:]

Right. Great. And then how much timing and recovery flexibility do you have with CCRO-eligible CapEx for the second triennial review period? Does your plan currently assume kind of baked in recovery of any of this spend explicitly?

[Robert Blue:]

Yes. As I mentioned, we have a variety of assumptions, not 1 single assumption related to the '24 triennial. We do have a slide that shows what's eligible and the total there. And we'll sort of take advantage of that as circumstances warrant. It's too early for us to know how much of it we would expect to use in the '24 triennial. We just know what we're likely to have available. You can see that on that slide.

[Jeremy Tonet:]

Got it. And 1 last 1, if I could. You talked about Virginia legislation and just want to see about South Carolina legislation and if securitization came through, how would you deal with that?

[Robert Blue:]

Yes. We think securitization makes sense in certain circumstances. Storm recovery, for example, makes a lot of sense. Obviously, we didn't think it made sense with respect to new nuclear. So we'll see if it passes. If it passes in a way that would be constructive, that's great. We'll just have to wait and see how it is. I know that bill has been introduced a number of times in South Carolina in the past and hasn't been enacted. But in circumstances like makes a lot of sense.

[Operator:]

Our next question comes from Durgesh Chopra with Evercore ISI.

[Durgesh Chopra:]

Jim, on Slide 20, I'm just curious, the cash flow sources and uses go through 2020 and the planned Am I reading too much into it or are there differences in the kind of the composition of cash sources and uses in '24 and '25 as you ramp up your offshore investment?

[James Chapman:]

Yes, Durgesh. The reason we went to just a 3-year average view here is that over 5 years, the numbers get pretty big and maybe a little bit more difficult to bridge from where we are now and where we were in '20. But -- you probably are reading too much into it. We have elsewhere, of course, disclosed our equity financing plan through the end of the period on the next slide. So you can see that the financing is going to continue. What will change is the operating cash flow, which will grow on a 5-year basis. And the investing cash flow, which will grow slightly as it increases a little bit back dated in the 5-year plan. But nothing more interesting than that, I'd say.

[Durgesh Chopra:]

Understood. I get it, okay. So more sort of granularity and conviction in the years and -- but no significant changes in the makeup of source and uses.

[James Chapman:]

Bigger numbers? That's not it.

[Durgesh Chopra:]

Okay. All right. And then just quickly following up, just on Slide 10 and maybe, Bob, this for you or perhaps even Jim. Just the largest regulated decarbonization plan, love it. But in terms of when I'm thinking about any legislative support that you need, is it fair to assume that this opportunity of $72 billion sort of is you can accomplish this with the Virginia Clean Energy Act? Or do you need further legislative support to opportunities?

[Robert Blue:]

Yes, your assumption is correct. This is based upon the Virginia Clean Economy Act and the Grid Transformation and Security Act in 2018. So all of this is already legislatively authorized. Now we obviously have to seek approval from the commission for projects, and we've demonstrated on solar. And as I mentioned in earlier remarks, we've had 3 solar filings approved by the commission already. And we've had our electric transmission spend and those kinds of things approved consistently over the years. But we don't need additional -- we're not looking for additional legislative enactments to carry out this 15-year regulated book.

[Operator:]

Our next question comes from James Thalacker with BMO Capital Markets.

[James Thalacker:]

I just wanted to circle back on your comments just on bill affordability as you implement your capital plan, and Mike Weinstein actually raised a good question, as we saw the extension of the ITC at 30% at the end of the year. Could you potentially talk to how that's going to -- how we maybe quantify or how it's going to impact customer rates and making things more affordable as you implement your capital plan?

[Robert Blue:]

Yes. I don't think we've quantified that yet. So we filed an integrated resource plan earlier this year and -- or last year, I guess we're in 2021. The 2020 integrated resource plan, we showed a 10-year look at 2.9% that we talked about. Well, I'm confident updating that. We certainly have an IRP update later this year in Virginia. And I would expect as part of that, we'll run the numbers on the customer rates. But we don't have -- we haven't quantified customer rate impacts of that ITC at this point.

[James Thalacker:]

That's great. But I would assume that it would give you a little bit more flexibility as we're looking down the road here?

[Robert Blue:]

That is absolutely true. It's going to have benefits to customers in rates and offers us flexibility as we go forward.

[James Thalacker:]

Great. And just, I guess, just to stay along that line and I know we're looking a little bit farther out, but like maybe you could touch a little bit about some of the programs or -- I don't know if you're ready to quantify, but how you're thinking about controlling costs to create more headroom to continue to implement your capital plan over the next, say, 5 to 7 years?

[James Chapman:]

Yes, let me talk about that, it's Jim. ITC has 1 element which will benefit customers, for sure. But the other is O&M. And let me give some kind of high-level thoughts on that. We talked at our last Investor Day about flat normalized O&M, so normalized is normalizing for new riders that haven't associated acquired O&M or things like pension benefits, which discount rates and the like, make that number go up and down. So we normalize for all that. And then we keep it flat. And in 2019, we gave an estimate that by keeping it flat for 3 years across our entire business, we were going to stay versus a 2% escalator like $200-ish million in cumulative basis, and we did. So now it's still flat and we're rolling that out for the full 5-year period. Now we did have some savings that actually went down a little bit in 2019 -- sorry, in 2020 from COVID, not all that's permanent. But our effort to keep that flat O&M inflation or wage increases and things like that, it's not easy. But it's not through big things like some of our peers have talked about step changes in O&M discovered during COVID. We had some COVID savings for sure, but our approach is a little bit different. It's kind of programmatic, is pushing cost savings as part of the system, the culture, so finding ways to use technology and work smarter throughout the business. So we have examples of that, that helps us keep that flat O&M. They're tiny in comparison to Dominion

[Operator:]

Our next question comes from Michael Lapides with Goldman Sachs.

[Michael Lapides:]

Great slide deck today Lots of detail. I have two questions. One, can you remind us as a percent of rate base or dollar millions, what is the cold generation in rate base, both in Virginia and South Carolina?

[James Chapman:]

We set that out on a whole company basis, Michael, on Page 32. And as a percentage of total investment base, which is rate base plus the fixed assets, the PP&E for our smaller contracted assets business, is 7%. 7% of rate base effectively. And just for the 5-year plan, given obviously the spending on other areas, that goes to 4% by 2025 and down from there.

[Michael Lapides:]

Got it. So if I think about it at the Virginia level and you've done a significant amount of coal retirements in Virginia, if you wanted to retire facilities even earlier than planned, some of the coal facilities there, that would accrue or account as part of the CCRO in the 2021 to 2024 time frame? Am I thinking that, that's also an alternative, not just investing new capital that wouldn't necessarily get a cash return but the write-downs of some of the older coal plants might as well?

[Robert Blue:]

Yes. A couple of things there, Michael. One is obviously, we don't make decisions on fossil retirements based on the timing related to regulatory proceeding. That's -- we make those decisions based on the sustainability of those plants going forward or if there's a change in the law or those kinds of things. So I think that's an important thing to keep in mind. And then the other is that you are sort of conflating 2 different topics, I think. One is this customer credit reinvestment offset, which is provided for by statute. Those are projects that are either grid transformation projects or renewable projects, where that capital investment can be applied as essentially the customer benefit in an earnings sharing mechanism. When you calculate what the -- when the triennial review is done and there are available earnings, there's an earnings sharing mechanism. And then for the customer portion of that to either be a refund or one of these renewable or grid transformation projects. I think what you're thinking of is if there is -- if we retire a plant early, there's a write-down. And then that expense would be treated logically as an expense in the period if there are available earnings. That's the best for customers. It's what long-standing practice has been in Virginia. So 2 sort of slightly different things you're talking about there. Both have some impact on the calculation and the triennial, but we're obviously a long ways away from the second triennial here.

[Michael Lapides:]

Understood. And just coming back to the coal generation question, do you think your coal units in both states, given how much power prices have come down, given how much CapEx costs for renewables and storage have come down, do you think the coal units are currently economic still to the existing operating coal units? And is there a dramatic difference between the ones in Virginia and the ones in South Carolina?

[James Chapman:]

Yes. I don't know that I'd say there's a dramatic difference. We obviously look at the economics of those plants regularly and make a determination whether they are viable in the future and whether they're properly valued. So we'll do that, continue to do that on a regular basis.

[Operator:]

Our final question comes from Srinjoy Banerjee with Barclays.

[Srinjoy Banerjee:]

Just on thinking about FFO to debt metrics as well as the ratings. So obviously, you guys have seen a consistent improvement to those metrics, 15% in 2020. If you look at the S&P and Moody's targets for high BBB, I guess S&P requires 15% and Moody's requires 17%. So how do you see your FFO debt metrics to evolve over the time period? Would you expect to stay around the 15% mark or expect an improvement, given the riders that you have?

[James Chapman:]

Good to hear from you. Yes, the way we think about that is we've -- it hasn't been easy to achieve the improvement that we show that 1 slide to get to the solidly mid-teens level. And that's where we expect it to stay. So I think maybe you were suggesting, is there an upgrade in the air? Of course, not gets But we -- what we really hope comes to pass at some point is, again, further recognition of the business risk profile improvement. So I wouldn't expect material changes in the metrics and where we are from what we've achieved and where we landed. I think that's in a good spot. Probably it will stay. But we'd love to have a little bit more headroom to that recognition I mentioned. And we want that headroom not because we want to blow through it but just because we think it's more the better. So that's kind of where we are on credit.

[Operator:]

Thank you. This does conclude this morning's conference call. You may now disconnect your lines and enjoy your day.