Welcome to the Dominion Energy Second Quarter 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. Instructions will be given for the procedure to follow if you like to as question. I would now like to turn the call over to David McFarland, Director of Investor Relations.

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. This morning, we will 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 measures -- financial measures which we can calculate are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chair, President and Chief Executive Officer; Jim Chapman, Executive Vice President, Chief Financial Officer; and Diane Leopold, Executive Vice President, Chief Operating Officer. I will now turn the call over to Bob.

Thank you, David, and good morning, everyone. We had another solid quarter and are well positioned to meet our expectations for the year. We're steadily executing on the largest decarbonization investment opportunity in the country, as outlined on our fourth quarter call in February. The successful execution of this plan is already benefiting our customers, communities, the environment and our investors. I'll begin with safety on Slide 4. Through June, our OSHA recordable rate was 0.52, which remains low relative to our historical levels and substantially below industry averages. We take pride in our relentless focus on safety, and it is the first of our company's core values. Now, I'll turn to updates around the execution of our growth plan. First, at Dominion Energy Virginia, our regulated offshore wind project development continues to be on schedule and on budget. On Friday, we received approval from the Virginia SEC for our rider and the CPCN for onshore transmission. The commission concluded that the project is in the public interest. And that our request for cost recovery associated with the project met all requirements as called for in the VCEA. We're continuing to review the specifics of the order, but we are extremely disappointed in the commission's requirement of a performance guarantee. While there are scant details, the order states the customer shall be held harmless for any shortfall in energy production below an annual net capacity factor of 42%, as measured on a three-year rolling average. You may recall that 42% is also our projected 30-year lifetime average net capacity factor, meaning, of course, that roughly half the time, it would be above that level and half below. Effectively, such guarantee would require DEV to financially guarantee the weather, among other factors beyond its control, for the life of the project.…

Thanks, Bob. Now I'm going to discuss our second quarter results and a few related financial topics. Our second quarter 2022 operating earnings, as shown on Slide 14, were $0.77 per share, which included $0.01 of hurt from worse than normal weather in our utility service territories. These results are above the midpoint of our quarterly guidance range, extending to 26th consecutive quarters our track record of delivering weather-normal quarterly results that meet or exceed the midpoint of our quarterly guidance ranges. Positive factors as compared to the second quarter last year included strong sales growth and increased regulated investment across electric and gas utility program. Other factors as compared to the prior year include a millstone planned outage, some tax timing and share dilution. Second quarter GAAP results reflect a net loss of $0.58 per share, which includes the previously announced sale of the retired Kewaunee nuclear power station in Wisconsin, the non-cash mark-to-market impact of economic hedging activities, unrealized changes in the value of our nuclear decommissioning trust funds and other adjustments. A summary of all adjustments between operating and reported results is included in Schedule 2 of our earnings release kit. Turning now to guidance on Slide 15. For the third quarter of 2022, we expect operating earnings to be between $0.98 and $1.13 per share. Positive factors as compared to last year are expected to be normal course regulated rider growth and sales growth. Other factors as compared to last year are expected to be interest expense, tax timing and share dilution. We are affirming our existing full year and long-term operating earnings and dividend guidance as well. No changes here from prior guidance. Through the first half of this year, weather normal operating EPS of $1.93 is tracking in line with our expectations. We'll provide…

[Operator Instructions] And we'll take our first question from Shahriar Pourreza from Guggenheim Partners.

So Bob, just maybe starting with offshore wind and the performance guarantee. I know it's -- obviously, it's a tough position to be in here. It's a lot of risk you're going to be taking on, and that could be kind of long term in nature. I know you guys talked about paths to resolve. But what if you don't resolve, right? So one, we know it's a lot of growth for you. But could you decide to walk away from this project as order going to be a no go? And two, I know you laid out some thoughts in the script on next steps. Is there a bid-ask here that would make some sort of a standard palatable? Could you negotiate this, or any performance guarantees or a no go?

Yes, Shar. First of all, I'm shocked that you didn't ask about Millstone that breaks through.

Yes. That was my follow-up question.

Okay. Fair enough. All right. Fair enough. Good. I'm glad you're remaining consistent. But let me address the questions that you asked. It's premature to be talking about that, Shar. We just got this order Friday afternoon. As we said in our prepared remarks, there's very little detail in that order. And as it is drafted, as we look at it, it is inconsistent with the utility risk profile expected by our investors. But it's a great project and it has a lot of stakeholder support. There are options for us to seek reconsideration and options for us to work with stakeholders so that we can get the clarity that we need for this to meet our expectations of what utility investors are looking for. So we're confident that we're going to be able to get that clarity as we work with stakeholders. But we're just 72 hours after the order so there's not a lot more beyond that, that I can tell you this morning.

Bob, any -- I guess, any sense on just the timing and when we can get some more clarity or resolution on this?

Yes. That will depend obviously on stakeholders and on the commission. So, we'll work through that, I would hope. And over the coming weeks is the kind of time line that we would be looking for, for something like this.

Okay. Got it. Got it. And then -- just maybe just switching gears quickly to Washington. Obviously, the IRA passed the Senate. It seems to be a lot of puts and takes for utilities. And how are you, I guess, thinking about the potential impacts of the 15% AMT on cash flows and rate base growth weighted against maybe the enlargement and extension of some of those tax credits? And just remind us on the AMT recovery methods in the States. And should we assume some lag?

Shar, it's Jim. Let me recap our view on the act, the Inflation Reduction Act, still a moving target, of course. Really good that it passed the Senate. We'll see what other amendments pop up, if any, as it goes to the House this week. But here's where we are on broad strokes. So really high level, pretty good, really positive from a decarbonization incentive perspective, really positive for a utility customer cost perspective, so good. When it comes to all of the impacts to Dominion's financial plan, you touched on a little bit of it, the devil's in the details. It's going to take a long time before all the treasury regs are worked out. I mean it's not even law yet. But right now, based on what we know, we don't really see a major impact to our plan. Now customer beneficial incentive is good, and that could have some knock-on effects that are positive. But we don't see it as being an impact. And let me talk about a little bit the parts, ITC and PTC, the extension, the increases, again, all good. Good for us, good in the sense that it's direct customer bill benefit. We assume that we're going to continue to do what we've already been doing, recognizing those benefits in the customer bill over time. And it's different for different assets. So, nuclear PTC, a big topic of discussion, of course. We view that as positive as well for us, for the nuclear industry, for customers. I think there, it's going to take some real time before the regulations are worked out, to determine how exactly nuclear units within a vertically regulated utility, like most of ours, how they're treated when it comes to earned revenue per megawatt hour. Because there's a phase…

Our next question comes from Jeremy Tonet from JPMorgan.

Maybe I'll pick up with Millstone a little bit here. And there were some reports that Massachusetts might have interest in nuclear power. And just wondering, any thoughts that you could share there? And I guess, does things change with the PPC for Millstone? Just any thoughts on this as it relates to regular -- regulated and non-regulated nuclear in Massachusetts potential interest in Millstone?

Well, as we've been saying for a while, Jeremy, we think Millstone is critical to the New England region achieving its zero carbon goals. And our view on that has only grown. Our confidence on that has only grown in recent months. The Connecticut General Assembly passed a law allowing for additional nuclear as long as it's at the site of an existing nuclear plant. Obviously, that would be Millstone. So we think there's an increasing recognition of the value of Millstone. And we're happy to work with stakeholders throughout the region on ensuring that Millstone is there to help them meet their clean energy goals. But beyond that, sort of specific to the recent developments in Massachusetts, not a lot to offer, we just think it's a great long-term asset, incredibly valuable to the region.

Got it. That's helpful. And just as it relates to the issues around the data centers with regards to congestion there. Could you provide any more color on what the accelerated T&D investments might look there? And could you provide us a perspective on potential dollar amounts here and what size of the plan this represents? Just trying to see if there's any more detail possible that you could provide on this side?

Jeremy, it's Jim. Full detail to come on our full roll forward of our five-year plan, and you'll see changes there, an acceleration of transmission spend. One data point that's out there, last week, there was a filing with PGM for one required transmission investment, one of several to come to make sure we're meeting demand there. And that was $500 million to $600 million. But that's not the total. More will be defined in our planning, and we'll discuss that on our fourth quarter call when we do our full roll forward of our capital plan, including all the transmission spend in Virginia.

Next question comes from Ross Fowler from UBS.

Ross, can you hear us? We're not hearing you. We'll try again. Operator, shall we go to the next in the queue?

Can you hear me?

There we go.

So just a couple of questions. So Jim, you talked about how it's up to $7 a megawatt hour savings in terms of the PTCs, should the House pass this as written, against that $80 to $90 megawatt hour cost for offshore wind or LCOE. That would also lower the cost cap at 125 because it's a 1.4x multiple. I just want to make sure that I'm clear on that.

Yes, Ross. Actually, that it does not affect the cost cap. The multiple in the statute is off of a CT, what the LCOE of a CT from the EIA report of 2019, I think it was. So that change, while incredibly valuable to our customers, does not change the cost cap figure.

Got you. Got you. So it gives you more headroom to that cap. All right. And then in the original settlement for offshore winds, there certainly wasn't a performance guarantee. But there was this concept of lower capacity factor of about 37%. And then you'd report to the commission if it was ever lower than that on a three-year rolling average. And then the commission would determine whether that was a deficiency related to basically unreasonable actions by you versus sort of weather and everything else. So it seems like there's space between that and what was very unclearly written in the order as a reconsideration here to make sure we're not necessarily punishing you for the weather and things you can't control. Is that fair? Is that kind of where you see and where we could be headed here?

Yes. I mean, you accurately described the performance provision and the stipulation. And yes, so there's space in between. And as we mentioned, we intend to work with stakeholders. Obviously, just got the order less than 72 hours ago, but that space in between, I think, is precisely where we would be looking to try to find common ground.

And our next question comes from Julien Dumoulin-Smith from Bank of America.

If I can, just following up a little bit from Jeremy here, the timing of that CapEx related to PJM, if I can. Can you elaborate a little bit on it, as well as maybe how this might tie into some of the reform that we're seeing with PJM? Obviously, that impacts more from the renewable side. But again, obviously, load interconnect matters as well here as it goes. Can you talk a little bit about that from a PJM perspective? Obviously, you submitted these things to PJM. And then if I can go on -- the second question is the same. It's all related. You identified a series of numbers here related to load sensitivity to data centers. And if I get it right, you're talking about 12% number, and broadly speaking, it kind of backs into about a 2% in change total load growth from the data center side going into next year. And if you look at the sensitivities, it's perhaps $0.02 to $0.03 on earnings. Just want to make sure. You try to call it out very specifically. I want to make sure we're looking at that math correctly here on the year-on-year as well?

Good morning, Julien, this is Diane Leopold. I'll at least start and then maybe hand it off to Jim on some of the latter parts of your question. So, related to timing on the data centers. So these were all transmission projects that we had planned long term anyway. We'd seen some of these constraints. We were already designing it. So accelerating it is really moving the capital in our plan up roughly two years so to have the first set of projects in by 2026, the latter part of 2025. So that transmission spend that was maybe more focused '25, '26 and '27 would move into capital that would be '23, '24 and '25. And likewise, the next set of projects, and that's what's going to be filed in the next -- in the coming weeks. The next tranche of relieving the transmission constraint, also moving up in time, but instead of being online by 2026, is 2028. So, you can just kind of move that on out.

Julien, on your sales question, let me give you a couple of comments there. So look, first, you need to differentiate between demand and sales. Some of Bob's comments that we set out is on demand, increases in demand for data centers and in this potentially affected area. So, we don't get paid on demand, of course, typically, not fully utilized. It takes a long time for data centers to ramp up, et cetera. But we get paid on sales. And for this customer class, like other high-usage customers, there's a lower margin. So what drops to the bottom line isn't necessarily the same as a sales number. It's still helpful. Meaning, the increased sales helps offset increases to the typical customer bill across the system, but it is lower margin based on its high usage. So impacts to the bottom line from these issues just described could be a little bit years out after this ramp period of plateauing, slower growth slightly in data center sales, offset by what Diane just mentioned, increases in the needed transmission spend, which is, of course, not lower margin it's formula rate and rider. So it's hard to take a -- in summary, a straight line from changes in demand down to the bottom line for EPS sensitivities.

Yes, understood. That's why I asked. Excellent. And then just to clarify the last comment. You did a bunch of math, super quick. With respect to the ability, some of the changes over the weekend here on the tax adjustments that you can do for the adjusted GAAP, just to clarify, you can deduct items against AMC with respect to bonus depreciation here, as you described. I think you said that. I just want to make it crystal clear.

Okay. Not bonus depreciation, but the tax depreciation makers. Whatever Is your tax books for -- including for utility spend translates over as an adjustment in this GAAP -- adjusted GAAP pretax income calculation for AMT purposes.

Our next question comes from Durgesh Chopra from Evercore ISI.

Jim, just a finer point on Julien's question. Just to be clear on the -- utilities aren't eligible for bonus depreciation, correct? I mean the related assets?

Correct. From the last round of tax reform, that's correct.

Right. So this is just -- when we talk about accelerated depreciation, this is just your normal makers type setup?

Exactly right, Durgesh.

Okay. And just, Bob, quickly following up on the sort of the performance guarantee provision. I understand there's a lot of moving pieces. How does this impact the sort of the schedule of the project and your planned activities in the second half of the year and next year?

We wouldn't expect it to have any effect on the schedule. We're -- again, we'll work quickly -- as quickly as we can with stakeholders. But this, as you know, is a guarantee that affects the -- applies to the operation, not the construction of the facility. So, it won't have an effect on the schedule.

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