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Resilient residential, data center sales help Dominion manage load declines

Dominion Energy Inc. pointed to strong residential sales as helping to offset retail electric load declines during the second quarter that were prompted by business closures and phased economic reopenings in response to the coronavirus pandemic.

Dominion primary subsidiary Dominion Energy Virginia, which serves Virginia and North Carolina, has seen a slight uptick in summer weather-normalized retail sales on a seven-day rolling average compared to the past two years, after a slight drop in May.

"Strong residential and data center demand continues to support overall load levels that modestly exceed the historic average," Dominion Executive Vice President, CFO and Treasurer James Chapman said July 31 on the company's second-quarter earnings call. "This is a continuation of the theme we've seen since the pandemic began, and looking forward, we expect this trend to continue."

At Dominion Energy South Carolina Inc., the company reported weather-normalized load declines of nearly 10% in April versus the prior two-year average, but management believes that this could "represent a bottoming out with gradual improvements through the summer."

"Fortunately, at least so far, that has been the case, with July demand only 1% off weather-normal historic averages," Chapman said. "I would also point out that the higher volumes sold in the summer months, like July, tend to have a larger impact on our annual sales revenues than the lower-volume shoulder months. We currently expect this general recovery trend to continue in South Carolina through the remainder of the year."

Dominion also has seen a modest increase in customer arrears and has established a COVID-19 reserve of about $20 million, which represents "our current expectation for incremental expense associated with future uncollectable accounts," Chapman said.

"We estimate that through the end of June, lower-than-budgeted sales associated with the impact of COVID-19 across our electric utility operations have impacted operating income by approximately 4 cents per share, which thus far has been largely offset with corporate initiatives," Chapman said.

The CFO added that Dominion views the debt capital markets as "healthy" and has nearly $7 billion in available liquidity.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

On its first earnings call since announcing the $9.7 billion sale of its natural gas transmission and storage business to Berkshire Hathaway Energy and the cancellation of the 604-mile Atlantic Coast natural gas pipeline project, Dominion provided a closer look at its pivot to a cleaner energy growth strategy.

Dominion plans to grow its renewable energy capacity by more than 15% per year over the next 15 years, from 2,900 MW in 2019 to 28,300 MW in 2035.

Dominion executives said the majority of the added renewable energy capacity will consist of solar generation in Virginia.

Meanwhile, Dominion Energy Virginia's 12-MW pilot Coastal Virginia Offshore Wind project off the coast of Virginia Beach, Va., is expected to begin generating electricity in the third quarter. Dominion Energy Virginia, known legally as Virginia Electric and Power Co., also has announced an $8 billion, 2,640-MW offshore wind project, which management said is on track to come online from 2024 through 2026.

However, Dominion Chairman, President and CEO Thomas Farrell II said there is still a need for the natural gas capacity the Atlantic Coast Pipeline would have provided.

"The pipeline was over 90% subscribed for 15 years by utility companies that were going to use it to serve gas distribution customers and convert coal plants to natural gas facilities over the years to come," Farrell said. "That need will now go unmet."

Dominion took a $2.8 billion charge in the second-quarter tied to the cancellation of the Atlantic Coast Pipeline and the related Supply Header project.

Farrell said he does not see the need for Atlantic Coast Pipeline being met by the Mountain Valley pipeline project.

Farrell is stepping down as president and CEO of Dominion Energy on Oct. 1 after 15 years at the helm of the company. Farrell will become executive chairman of Dominion Energy's board of directors.

Executive Vice President and co-COO Robert Blue will succeed Farrell.