Good day, everyone, and welcome to the Dominion Energy Fourth Quarter 2022 Earnings Conference Call. At this time, each of your lines 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 would like to ask a question. I would now like to turn the call over to David McFarland, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining today’s call. Earnings materials, including today’s prepared remarks, 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 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; Steven Ridge, Senior 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. During 2022, we delivered earnings and dividend growth in line with our guidance, provided safe, reliable and affordable energy while demonstrating careful environmental stewardship, served our customers and invested in our communities, and made meaningful progress on our regulated investment programs focused on decarbonization and resiliency. I’ll begin by highlighting our annual safety performance. As shown on slide 3, our employee OSHA injury recordable rate continues to compare favorably with the Company’s long-term historical results as well as national industry and regional electric utility averages. However, our ultimate goal has been and continues to be that none of our colleagues get hurt ever. Next, on reliability, which our customers consistently indicate is their highest priority. In the past year, customers in our electric service areas in Virginia, South Carolina and North Carolina had power 99.9% of the time, excluding major storms. And it’s worth noting that Virginia reached record summer peak demand in August and all-time peak demand in December. As they do time and time again, our colleagues rose to the challenge and kept our system delivering without major or extended interruption during these demanding load conditions. The scale of our team and resiliency of our system were never more evident than during the December winter storm, when we also did not experience any major or extended service disruptions. Finally, affordability: Our rates continue to be lower than national and regional averages. As we discuss later, we’re very focused on ensuring that our customers are not priced out of the significant long-term benefits that will result from our decarbonization and resiliency investment programs. On that same theme, 2022 was a significant year in terms of advancing our regulated decarbonization and resiliency strategy. In Virginia, the State Corporation Commission approved several rider-eligible investment…

Thank you, Bob, and good morning, everyone. Our fourth quarter 2022 operating earnings, as shown on slide 7, were $1.06 per share, which for this quarter represented normal weather in our utility service areas. These results were at the midpoint of our quarterly guidance range. Positive factors as compared to last year were weather, normal course regulated growth, the absence of the Millstone planned outage, absence of last year’s COVID deferred O&M and tax timing. Other factors as compared to last year were interest expense and share dilution. Full year 2022 operating earnings per share were $4.11 per share, slightly above the midpoint of our guidance range for the year. 2022 GAAP results were $1.09 per share. Here, I’d highlight one adjustment, which is described in Schedule 2 of the earnings release kit. In connection with the business review, management has reviewed the unregulated solar portfolio that reports to our contracted assets segment. These approximately 30 solar facilities, representing around 1,000 megawatts operate primarily under long-term power purchase agreements with third parties. Consistent with prior commentary, the Company no longer intends to invest in unregulated solar projects for purposes of generating investment tax credits or ITCs. As a result, the Company impaired the portfolio in the fourth quarter and recognized a noncash charge of $1.5 billion. Moving now to guidance on slide 8. Given the pending business review, we are not providing full year 2023 earnings guidance nor are we refreshing our long-term capital investment plans at this time. For the first quarter 2023, we expect operating earnings to be between $0.97 and $1.12 per share. Last year’s first quarter operating earnings were $1.18 and included $0.01 of benefit from weather. Positive year-over-year changes include growth in regulated investment, higher sales and higher Millstone margins. Negative changes include higher interest…

Let me turn to other business updates and the execution of our growth program. As I’ve discussed in previous earnings calls, the strength of our Virginia service area economy supports our robust capital investment programs at DEV. Two recent announcements have confirmed Virginia’s economic strength. First, PJM recently published its annual forecast of demand growth. The Dominion Zone continues to be the highest growth rate among all zones within PJM, covering 13 states in the District of Columbia. PJM projects the 10-year summer peak load to grow at a 5% annual rate. This growth, primarily driven by data center loads, which have been increasing at an unprecedented rate, will require significant new capital investment. Second, last month, Amazon announced its plans to invest $35 billion by 2040 to establish multiple data center campuses across Virginia. These new campuses will combine expandable capacity to position Amazon for long-term growth in Virginia and create an estimated 1,000 jobs. Data centers currently represent about 20% of our total sales in Virginia and have provided strong sales growth to date, a trend supported by these two announcements we certainly expect to continue. Our work continues to advance projects to bring both new and upgraded infrastructure to enable the continued connection and expansion of data center customers. For example, we filed for a new 500 kV transmission line with the SCC with an expected in-service date of late 2025. The submission included around $700 million of capital investment. Turning to offshore wind on slide 12. In December, the SCC approved the cost sharing settlement agreement developed in collaboration with key stakeholders, including the Office of the Attorney General and other parties. We’re very pleased to be extending our track record of constructive regulatory outcomes. As it relates to the project execution, it’s very much on…

[Operator Instructions] Our first question comes from Shahriar Pourreza with Guggenheim Partners.

So just starting, Bob, with the business review priorities you kind of discussed in the prepared remarks and you kind of laid out on slide 5, specifically kind of on the dividend comment. Could we maybe try to parse through the awards here a little more closely? I mean, obviously, we understand that you guys are holding the dividend at the current level for obvious reasons and that’s obviously consistent with your support for the dividend. But I guess, what is the language around quote unquote potentially over time mean as we think about the payout ratio bounds in the near term. I guess, what do you mean by potentially? Could this mean a faster or slower trajectory to get to the 60% range? I mean, we’ve received a lot of inbounds on these three words. So, any sort of visibility you could provide would probably be a reprieve.

Yes, sure. Shahriar, I appreciate that. As we said in our prepared remarks, slightly more detailed than on the slide. Our current payout ratio of 65%, to the extent that that were to go up, our expectation and plan would be to return to 65% without cutting the dividend. That’s consistent with what we said when we announced the review. We’re doing a business review right now. So, I can’t answer exactly what the payout ratio might end up. But if it is above 65%, our expectation is to get it back to 65%, without cutting the dividend.

Got it. Okay. I guess, we’ll wait for additional color there. And then, Bob, you took large impairment on the solar projects. I understand the test was triggered by the decision to not stay on the investment ITC recognition hamster wheel. But what part of the impairment test did you actually fail?

Shahriar, hey, it’s Steve. I can take that. So just to be specific, this has to do with our contracted assets solar portfolio. And there were really two primary purposes for the development of the portfolio. The first was to develop expertise in developing solar so we could employ that expertise credibly across our regulated footprint, which is what we’re doing right now. So, in effect, that task has been completed. The second was to generate investment tax credits. We believe given the attractiveness of our decarbonization and resiliency capital investment opportunity, the capital we’ve used in the past to generate those ITCs can be employed elsewhere to greater long-term shareholder benefit. So, the first sort of gating decision was, are we going to continue to invest in that portfolio for purposes of generating ITC? And the answer we’ve said is no. That led to a subsequent impairment test, where we looked at the carrying value or book value and we compared it to a series of discounted and non-discounted cash flows consistent with accounting guidance and ultimately determined that the fair market value was lower than the carrying value, and that led to the impairment.

Okay. Got it. Got it. That’s helpful. And then just really quick lastly for me. Just from a legislative process standpoint, I guess, how should we think about the likelihood of slippage into a reconvened session? I mean, put differently, if you had firm clarity on March 27th, could we see the schedule accelerate? Thanks.

Shahriar, it’s Bob. It’s way too early to predict what the timing of the Virginia General Assembly and any action on any particular bill, including ones that relate to us, may be. As we laid out in our prepared remarks, the general assembly is scheduled to adjourn on the 25th of February. And then the Governor -- bills go to the Governor at that point, or earlier once they’ve passed. And bills that arrive on the Governor’s desk with fewer than 7 days left in the legislative session, the Governor has 30 days to act on those bills. If he chooses to propose an amendment or veto a bill, then the general assembly, as you noted, comes back for a one-day reconvened session, and then they address those gubernatorial actions. So, I can’t give you any more clarity because we don’t know what the time frame on the general assembly may be. Once we do know something, that will allow us to address our own schedule.

Our next question comes from Steve Fleishman with Wolfe Research.

So just first on the credit comment. Could you -- you say you’re kind of both targeting high-BBB, but then also seem to imply kind of targeting above current thresholds, which I think your ratings are mid-BBB at the parent. So, could you just clarify, are you targeting the mid-BBB and above that? Are you targeting high-BBB because that’s a big difference?

Yes. Hey Steve, this is Steve. I’ll take that one. So, on an issuer rating, we’re actually high-BBB at two of the three rating agencies. At Moody we’re BBB. Our objective is to maintain those targeted rating categories, and the downgrade thresholds, at least at Moody’s associated with that is 14% on the down and 17% on the up. As we mentioned in the call script, we intend to meet and exceed that downgrade threshold even in times of temporary pressures from cost like fuel costs and regulatory adjustments. And that has been one of the drivers of our underperformance historically relative to our downgrade threshold. So, we’re still targeting high-BBB. It’s where we are on two of the three agencies from an issuer rating perspective. And the appropriate downgrade threshold, at least from the Moody’s perspective, is 14%.

Okay. So, for the senior unsecured rating, which we typically use, that would be mid-BBB?

Depending on the specific methodology -- but, yes.

Okay. So you’re basically targeting the ratings you’re currently at, not a higher rate in your current...

That’s right.

Okay. And then just on the payout comment, just to maybe clarify that a little better, which I know at this point in the process is purposely probably -- purposely vague. Is it fair to say you’re saying that in the likely outcome your payout ratio will be above the 65% for a period of time, and then you’ll obviously get back and target to that?

Yes. Steve, it’s -- I apologize for not giving you a specific answer. But what we’re saying is, to the extent that the payout ratio changes as a result of the review that if they’re -- an obvious point, if our EPS changes as a result of the review and the dividend remains constant as we have said it will, that changes the payout ratio. And what we’re indicating is if there is a change in the payout ratio, we’re going to get back to it, but without reducing the dividend. That’s the point that we’re attempting to make here.

Okay. But that’s more still kind of hypothetical or theoretical for now, it’s not the likely outcome…

Correct. We’re in a business review. And as we have indicated in prior calls and this call as well, we don’t yet know what the outcome of that business review will be. So yes, it’s hypothetical as a good way of describing it.

And then just lastly, the time line, the over time, is there any like time line for the over time?

Again, we can’t set that until we’re finished with the review. So not yet.

Our next question comes from Jeremy Tonet with JPMorgan.

I just want to pivot a little bit, if I could, towards Millstone here, interesting backdrop here. Just wondering if you could provide us updated thoughts, what’s the status of state regional discussions around Millstone, how you’re thinking about locking in more of this market upside to the asset?

Yes. Thanks, Jeremy. As we’ve talked about before, we believe Millstone is a great asset, and we believe the policymakers in New England are recognizing increasingly its value for them to meet reliability and any chance to meet the kinds of decarbonization targets that they may have. Our focus is thinking about ways that we can ensure the long-term viability of Millstone. And we’re happy to have conversations with policymakers about opportunities to do that. As we noted in our opening comments, the existing Millstone contract has been very good for customers in Connecticut in recent months and over the last year. We see the possibility of being able to take action with policymakers to give us the certainty we would need in order to extend the life of Millstone and have that valuable resource for New England for some time to come. We don’t have as yet a specific approach to that. But we’re certainly interested in engaging with policymakers on that.

Got it. That’s helpful. And then kind of switching gears and realize I’m at risk of putting the horse ahead of the cart here. But as it relates to potential asset sales, was just wondering, does the solar impairment kind of a tip that you might look to sell this asset as part of the business review. And I guess, we’re at with news out of Black Hills this morning with regards to their thoughts on LDC sales. And so I was just wondering if you had any thoughts on what could potentially be or what could be prioritized in the sale process if you chose to do that?

Jeremy, I would say that as part of the review, we’re looking at each and every one of our assets and Consistent with the priorities and principles that we’ve laid out on today’s call and supplement to what we provided on the third quarter call. That’s what will inform our ultimate steps as it relates to the business review to the extent that there is changes to business mix, which is, again, something we’re evaluating as part of review, but no decisions have been made. So, we’ll look at everything dispassionately to position the Company to provide the greatest long-term value to shareholders.

Got it. That’s helpful. And just a real quick last one, if I could. If you might be able to kind of parse more finally what we might expect on 2Q business review update versus the 3Q Investor Day? Is the 2Q update really just an outcome of the Virginia legislation or potentially more updates on other elements of the plan?

Let me do it from the reverse perspective, which is the Investor Day, we intend to provide a comprehensive business and financial update. It will effectively be at the conclusion of the review process. The spring update, which is going to coincide with timing around the Virginia legislative session, will give us an opportunity to comment on what, if any, changes occurred during the session that would impact Virginia, what our perspective is on that, and how that informs the appropriate next steps of the business review.

Our next question comes from Durgesh Chopra with Evercore ISI.

Just, Steve, I think this may be in your wheelhouse. I just wanted some clarification on the impairment. And then how does it impact your base earnings? So, I know like that could impact your future earnings if you decide not to invest, I guess, that’s what you’re suggesting. But when I look at the Q1 ‘23 to Q1 2022 bridge on slide 8, there is a down arrow because of solar ITC. So, I’m just -- is there -- does the impairment impact your ongoing base business earnings?

No. So, the impairment doesn’t change the revenue we generate under those existing PPAs. The impairment does have a slight impact on the depreciable life, because -- or the depreciation rather than the depreciable life, because the carrying value is now lower than previously assumed. The bridge is something different. The bridge, when we refer to that ITC, solar ITC, it’s effectively the lack of solar ITCs, consistent with the comments we’ve made on this call and previously with regard to pivoting that capital allocation elsewhere in our business. So, it’s effectively simply saying that a year ago, we would have had some solar ITC in earnings this quarter this year, we do not have that. So, the impairment is a different. It doesn’t have any impact on that bridge.

Got it. So basically, Q1 ‘23 over Q1 ‘22 is really lack of new solar ITCs, right?

That’s right. It’s about $0.04.

Thanks. And then just one quick bookkeeping question. The Q2 time line that you mentioned for the business review update, is that the Q1 call, or like are you going to do another meeting or 8-K? Just any thoughts around that?

It will depend a little bit on the timing, Durgesh. We do typically have our first quarter call in early May. It may coincide, it may not. That won’t keep us from sort of advancing the discussion around the business review when we have the information necessary to actually have that discussion.

Our next question comes from Ross Fowler with UBS.

Just a couple of things to clean a couple of things up, and I apologize, the call cut out, if this is already answered. But the cap -- the go-forward CapEx that you had had associated with sort of that competitive solar adjustment. Can you sort of scale that for us and sort of the cash that you wouldn’t be spending into that going forward?

Yes. Ross, that’s on the order of about $800 million.

Okay. And then, sort of a bigger picture question following on to Jeremy’s question, and I appreciate the fact that you’re in a strategic review at the moment. But just maybe even anecdotally, Bob, as you look at this, you -- I think Steve made some comments around the need for significant balance sheet repair, if we’re going to get above that 14% -- meaningfully above that 14% FFO to debt ratio. I think dividend [ph] cut is clearly off the table, given your comments, but could you maybe prioritize other options, even just anecdotally in your mind at this point as to how you sort of get back to that level?

Yes. The best priority I could give you is that our objective, as we have already described is to strengthen the balance sheet, with the goal of using the most efficient sources of capital without -- with the ability to minimize external equity needs. Beyond that, Ross, we’re doing a review of every line of business. And once we’re finished with that, we’ll be able to outline the ways that we will go about addressing the balance sheet.

Okay. I appreciate that, Bob. And then 2023 guidance, I think your comments were that you’re just -- you’re not going to provide it sort of for the full year given the strategic review. So, is that just should we expect sort of quarterly guidance going forward as we walk through the year? And can we kind of use Q1 guidance where we’re at as sort of a starting point status quo guidepost, and then make our own assumptions around where the strategic review lands to sort of get ourselves to a 2023 or 2024 number, or how should we think about that going forward?

Ross, I anticipate we’ll be providing quarterly guidance as we go through the year. With regard to using our first quarter guidance as a guide, I would just say there’s a couple of things. On our third quarter call, we provided a pathway to our 6.5% growth in 2023, much of that’s not changed. There’s a couple of changes that you’ll -- that have impacted the first quarter. One is we walk through as much as $0.30 of solar ITCs. We’ve obviously made a comment about that. And it’s the lack of -- the run rate as well as the lack of the incremental is reflected in the first quarter. The other major change -- really the only other big change besides a little bit of tax timing in the first quarter that we wouldn’t -- we’d expect to balance out through the remainder of the year is interest rates, which effectively in the guide we gave on the third quarter call, suggested that interest rates up 2% to 3%. That was a $0.13 to $0.19 hurt or about $0.15 at the midpoint. Those rates have now gone about 4%, which takes that sort of 15-ish midpoint to more like $0.30. So the combination of the lack of solar plus the incremental headwind with interest rate is what informs the first quarter. I would note that over time, we expect that interest rate headwind to ameliorate as I think most people do, unsure exactly what the timing of that will be. But that should be somewhat temporary.

Thank you. That will conclude our question-and-answer session. I’ll turn the call back over to management for any additional or closing remarks.

Thanks very much. We appreciate it, and we’ll talk to you at our next call.

Thank you. This does conclude this morning’s conference call. You may disconnect your lines, and have a great day.