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Dominion sees nearly $10B in potential investments tied to Va. clean energy plan

Dominion Energy Inc. sees about $9.9 billion in investment potential at its Virginia subsidiary through 2024 as it adds thousands of megawatts of renewables and storage to its generation mix.

Company management also said they have seen manageable revenue and electricity demand impacts thus far tied to the COVID-19 pandemic.

"While the impact of COVID on our financial results during the first quarter was muted, we are not assuming that that will continue indefinitely," Dominion Energy Executive Vice President, CFO and Treasurer James Chapman said on the company's first-quarter 2020 earnings call. "That is why we are redoubling our efforts to identify opportunities to reduce costs generally across our businesses as we look to be prepared to achieve our affirmed annual guidance range."

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Despite the pandemic, the company also has rolled forward its capital spending plan for clean energy projects recently outlined by subsidiary Dominion Energy Virginia.

Dominion Energy Virginia, known legally as Virginia Electric and Power Co., on May 1 unveiled plans to add about 5,100 MW of offshore wind, nearly 16,000 MW of solar and about 2,700 MW of energy storage to its portfolio through the end of 2035.

The utility's integrated resource plan aligns with the Virginia Clean Economy Act, signed in mid-April by Virginia Gov. Ralph Northam.

As a result, Dominion Energy Virginia forecasts a $4.1 billion increase in capital expenditures from 2020 through 2024 on offshore wind, solar and storage.

This includes spending $3.5 billion on offshore wind through 2024 with a total potential investment of $8 billion to $17 billion from 2020 through 2035.

Dominion Energy Virginia in September 2019 announced plans to build the "largest offshore wind project" in the U.S. off the coast of Virginia Beach in three phases of 880 MW each. If approved, the first phase of the $8 billion project would be completed in 2024, with the final phases expected to come online in 2025 and 2026.

Dominion forecasts a second, large-scale offshore wind project will come online by 2035.

Construction on Dominion Energy Virginia's 12-MW Coastal Virginia Offshore Wind pilot project is scheduled for completion in 2020.

"Despite the pandemic, the primary pilot project components have arrived from Europe ... and we expect installation to begin this quarter with commercial in service by year-end," Dominion Energy Chairman, President and CEO Thomas Farrell II said on the call.

Dominion previously outlined the potential for $1.1 billion in offshore wind investments through 2023, inclusive of the $300 million pilot project, as part of its five-year capital plan.

Dominion also sees a $5.5 billion investment opportunity through 2024 for Virginia solar and onshore wind projects, up from $3.7 billion in the previous plan. The utility has outlined about $19 billion in potential investment in primarily solar generation along with onshore wind through 2035.

The Virginia Clean Economy Act allows about 10,000 MW of the mandated 16,000 MW of solar capacity to be utility-owned, Farrell said.

"In other words, Dominion will install, on average, nearly 700 MW of solar every year for each of the next 15 years," the CEO added.

Dominion's energy storage plans include a pumped storage facility in the southwestern part of Virginia.

"Assuming 65% utility ownership is provided in the law, energy storage represents approximately $7 billion of capital investment over the next 15 years," Farrell said.

Earnings, demand impact

Dominion on May 5 also affirmed its full-year 2020 operating EPS guidance range of $4.25 to $4.60 and its 5% or more post-2020 annual operating EPS growth rate.

"In affirming our annual guidance today, we have assumed that the economy begins to ramp up through late summer though ... demand in Virginia thus far is positive relative to recent years despite the pandemic," Chapman said. "Of course, variations in the duration and the severity of the economic recovery may ultimately impact our financial results more or less than our current forecast."

As far as electricity demand impacts tied to the pandemic, management said Dominion Energy Virginia saw year-over-year residential load increase by about 3% in April. This segment accounts for about 45% of Dominion Energy Virginia's operating revenue.

"Despite a statewide stay-at-home order, April weather-normalized commercial load decreased by only 3% as a result of COVID mostly due to the stabilizing effect of data center demand growth," Chapman said.

"While we saw industrial demand decrease by around 3% in April, only 6% of [Dominion Energy Virginia's] revenue is attributable to industrial usage," Chapman added.

Dominion has indicated that a 1% change in residential sales at subsidiary Dominion Energy Virginia would impact 2020 earnings per share by approximately 1.5 cents, while its EPS sensitivity to a 1% change in commercial volumes is about 1 cent.

"Based on observable data, we are not at present forecasting major COVID-driven revenue impacts associated with reduced load at Dominion Energy Virginia during the remainder of 2020," Chapman said, adding "the situation is dynamic."

At Dominion Energy South Carolina Inc., April's electric demand "was off almost 10% on a relative basis" versus average daily electric sales volume in April 2018 and April 2019.

Dominion Energy South Carolina's operations are "more exposed to industrial load" with 10 of the utility's top 30 manufacturing customers temporarily idling at least some production, Chapman said.

"The future is difficult to predict, but we currently expect that load trends will gradually rebound through the late summer," the CFO said.

Dominion Energy said it has total liquidity of about $7.8 billion as of May 1.

"As volatility in capital markets increased significantly in March, we moved quickly and opportunistically to enhance our liquidity position out of an abundance of caution," Chapman said. "Over a period of around 15 days, we added nearly $5 billion of available or funded debt capital."

Dominion Energy, however, said there is no change to its long-term debt financing or equity issuance plans. The company also has not changed its capex guidance for the year.