Dominion Energy Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 12, 2025

Key Takeaways

  • 2024 operating earnings per share were $2.77, landing in the top half of guidance despite weather headwinds, and the company reaffirmed 2025 EPS guidance of $3.28–$3.52 with a 5%–7% growth outlook through 2029.
  • Dominion Energy raised its 2025–2029 capital investment forecast to $50 billion (up 16%), with approximately 60% eligible for cost recovery under rider mechanisms, reflecting robust infrastructure plans.
  • The Coastal Virginia Offshore Wind (CVOW) project is 50% complete and on schedule for 2026, though costs increased by $900 million (80% recoverable via riders) amid higher PJM network upgrade estimates, with Stonepeak covering half of nonrecoverable overruns.
  • Virginia’s data center pipeline expanded to roughly 40 GW (up 88% since July 2024), underscoring accelerating demand and driving long-term transmission and distribution investment opportunities.
  • The company achieved near-record employee safety performance in 2024 while maintaining residential rates below national and regional averages, highlighting its focus on reliability and affordability.
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Earnings Conference Call
Dominion Energy Q4 2024
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Operator

Welcome to the Dominion Energy Q4 2024 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, and Treasurer.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Good morning, and thank you for joining Dominion Energy's Q4 2024 earnings 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 report 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.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

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.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Joining today's call are Bob Blue, Chair, President and Chief Executive Officer, Steven Ridge, Executive Vice President and Chief Financial Officer, and Diane Leopold, Executive Vice President and Chief Operating Officer. I will now turn the call over to Bob.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Thanks, David. Good morning. Almost a year ago, we concluded the comprehensive business review and described five key tenets upon which the repositioned Dominion Energy would be premised: strategic simplicity, consistent long-term financial execution, balance sheet conservatism, dividend security, and the delivery of an exceptional customer experience that would enable us to advocate for and achieve balanced policy constructs and reasonable regulatory outcomes.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

You heard from me and directly from members of the board that we would collectively be accountable for the company's future performance. Finally, we committed to being 100% focused on successfully executing against our updated plan. Now, a year on, none of that has changed. Those commitments are as equally fundamental to our company today as they were 12 months ago. We know that to rebuild your trust, we must deliver consistently over the long run.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

While we're still relatively early in this new chapter of our company, we're off to a positive start. Looking back at 2024, we accomplished operating earnings per share in the top half of our guidance range despite weather headwinds, a remarkable storm restoration effort in South Carolina in the aftermath of Hurricane Helene, one of the region's most destructive storms ever.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Regulatory outcomes in South Carolina and North Carolina base rate cases, as well as a number of Virginia rider cases, demonstrate our ability to work cooperatively with regulators and stakeholders to deliver results that benefit both customers and shareholders, and significant de-risking of the Coastal Virginia Offshore Wind Project through both the continued on-time achievement of major milestones as well as the closing of a 50% non-controlling equity financing through which we've materially reduced project risk for our shareholders.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

I'll share more perspectives on CVOW a little later in our prepared remarks. We did all of this while achieving a near-record-setting employee safety performance and advancing our all-of-the-above strategy to reliably and affordably meet our customers' rapidly expanding energy demand, which includes the largest data center cluster in the world. Let me now turn it over to Steven to provide a financial update before I walk through additional updates on the execution of our plan.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Thank you, Bob, and thanks to everyone for joining today's call. As shown on slide five, full year 2024 operating earnings were $2.77 per share in the top half of our guidance range despite $0.03 of worse than normal weather. Full year 2024 GAAP earnings were $2.44 per share. Our Q4 operating earnings were $0.58 per share, which for this quarter represented normal weather in our utility service areas. Q4 GAAP earnings were $0.15 per share.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

As always, a summary of all drivers for earnings relative to the prior period is included in Schedule 4 of the earnings release kit, and a summary of all adjustments between operating and GAAP results are included in Schedule 2. Next, on earnings guidance, we've narrowed 2025 operating earnings per share guidance to $3.28-$3.52 per share, inclusive of RNG 45Z credit income, while preserving the original midpoint of $3.40.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

We provide a range to primarily account for variation from normal weather. We're reaffirming annual operating earnings growth guidance of 5%-7% through 2029 off the 2025 midpoint of $3.30, which excludes the impact of RNG 45Z credit income due to the legislative sunset of that credit at the end of 2027. As a reminder, we continue to expect to see variation within that range as a result of the Millstone refueling cadence, which requires a second planned outage once every third year.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

We're also reaffirming our previous guidance related to the dividend. We expect to maintain the current dividend level of $2.67 per share annually until such time as we achieve a utility industry-aligned payout ratio. Turning now to capital investment, we've updated our five-year capital forecast from 2025 through 2029 to $50 billion, an increase of 16% from our prior guidance.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

We're seeing the need for incremental investment across distribution, transmission, and generation to ensure reliability amid continuing growing demand in our service areas. Consistent with our increased focus on transparency, we've provided comprehensive and detailed disclosure in the appendix of today's material, so I'll just hit two takeaways here.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

First, approximately 80% of the capital increase is at Dominion Energy Virginia, driven by higher transmission, distribution, and nuclear subsequent license renewal spend, and second, 60% of the updated capital spend will be eligible for recovery subject to regulatory approval under rider mechanisms.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

This is an exciting update, and we're confident in our ability to execute for the benefit of our customers. Outside of today's forecast, we continue to see opportunities for additional investment across the value chain biased towards the end of the decade and beyond. We'll include those opportunities in future updates as warranted by their development status.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Before I discuss our financing plan update, I'll affirm our commitment to balance sheet conservatism, as demonstrated on slide seven. Through the five-year plan, we expect our parent leverage to be consistently below 30% and our FFO to debt to be approximately 15%. Finally, we target mid-BBB range credit ratings for our parent company and single-A range ratings for our regulated operating companies.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

No change there. Our long-standing focus on achieving and maintaining these ratings is important for our ability to continue to secure a low cost of capital for our customers. Now, turning to the financing plan on slide eight, we're providing a five-year look at sources and uses. Meaningful operating cash flows, combined with a balanced mix of external financings, satisfy our capital investment and dividend forecasts. Since the last update, we are modestly increasing external financing across debt, hybrid, and equity issuance.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Specifically on equity, you'll note on slide nine an increase in 2025. As of today, we've already sold $600 million through forward-settled sales under our existing ATM program, expect to issue $200 million throughout the year through DRIP programs, and expect to satisfy the balance of the approximately $300 million need through the ATM. Beyond 2025, there have been no changes to our common equity issuance guidance.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

We view this level of steady equity issuance under existing programs in the context of our sizable growth capital spending program as appropriate to keep our consolidated credit metrics within the guidelines for our strong credit ratings category. Before I hand it back to Bob, I'll note that we're pleased with our 2024 financial performance, but it's really all about how we execute going forward.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Since the March 1st meeting, we've seen tailwinds like increased regulated capital investment opportunities, and we've seen headwinds like higher interest rates. But what hasn't changed is our confidence in the plan, which has been built to be appropriately but also not unreasonably conservative. And with that, I'll turn it back to Bob.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Turning to safety performance and affordability on slide 10, we achieved near-record-setting safety performance in 2024 as measured by our employee OSHA injury recordable rate. On affordability, our rates continue to be lower than national and regional averages. We're intently focused on ensuring our service isn't just reliable, but that it remains appropriately affordable as well.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Next, on our Coastal Virginia Offshore Wind Project, we provided several updates last week, but I'd like to start with a few project highlights on slide 11. First, the project is 50% complete and on schedule for completion in 2026. Second, CVAL is supported by Virginia law and approved by the State Corporation Commission and federal agencies. Third, CVAL will provide much-needed new generation to support America's AI and cyber preeminence in the largest data center market in the world.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Additionally, the project represents the fastest and most economical way to deliver 2.6 gigawatts of supply to Virginia's grid. And finally, CVAL has created approximately 2,000 direct and indirect American jobs and generated $2 billion in American economic activity, in addition to having the robust bipartisan support of Virginia's state and federal elected leaders. In summary, this project is consistent with the goal of securing American energy dominance and is part of a comprehensive all-of-the-above energy strategy to affordably meet growing energy needs.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Next, on recent construction progress and milestones. In 2024, we completed a very successful first monopile installation season, and work has continued this winter on export cableway as well as transition pieces and, in the coming days, offshore substation installation. As shown on slide 12, we began installation of transition pieces on December 31st and have since completed installation of 20 in total.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

The first offshore substation jacket and topside were delivered to Portsmouth at the end of January and will begin installation later this month. The remaining two offshore substations are on track to be delivered this summer and installed in the fall after completion of monopile season in October. On materials and equipment, thus far, 130 monopiles have been loaded out, with 116 successfully delivered and 14 more in transit to Virginia presently. Approximately 75% of the project's monopiles are either installed or awaiting installation.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Our partner, EEW, continues to make strong progress, and we expect deliveries to continue steadily in the coming weeks. Out of the project's 176 transition pieces, all have been rolled. Of these, 152 have been successfully steel welded, and of these, 91 have been completed, representing over 50% of the total. We expect the final transition piece to be completed in October.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Additionally, the schedule for the manufacturing of our turbines remains on track. As a reminder, Siemens Gamesa, the project's wind turbine supplier, is manufacturing the same turbine model for CVAL as has been successfully fabricated, installed, and is now operating at the Moray West Offshore Wind Project. Eight towers have been completed with an additional 31 in progress. Blade fabrication is now underway, and we expect the cell production to begin next month.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Turning to regulatory, we made our quarterly offshore wind construction update filing on February 3rd, accompanied by a detailed explanation of the change in project costs from $9.8 billion to $10.7 billion. Let me share a few thoughts here. First, as you would expect, the cost increase is disappointing. We take great pride as an organization in delivering on time and on budget.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Since the original cost submission 40 months ago, we've spared no effort institutionally to maintain fidelity to our original estimate. Ultimately, despite having about $300 million budgeted for network upgrades, which was more than sufficient based on PJM's initial estimates, that estimate has proved too low.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

New electric generation resources constructed within PJM, regardless of their generation type, are assigned costs by PJM that are deemed necessary to effectively integrate these resources and ensure the reliability and stability of the electric grid. Higher network upgrade cost estimates by PJM reflect the significant increase in demand growth that requires incremental generation and transmission resources across the system.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

I think it warrants noting that the aggregate costs for other project inputs, including offshore scope, have remained in line with the original budget. Second, network upgrades do not impact project construction or timeline and represented the largest unfixed project cost by far.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We now have a much clearer, though not final, view of those costs. Further, we've refreshed contingency to represent 5% of remaining project costs. Third, cost sharing and risk sharing is working as intended to protect customers and shareholders. As a result of the cost sharing settlement approved by Virginia regulators, the project cost update is expected to increase residential customer bills by an average of $0.43 per month over the life of the project.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

And the updated LCOE continues to benchmark very favorably with new generation alternatives, including solar, battery, and gas fired generation. CVAL remains one of the most affordable sources of energy for our customers. Of the $900 million cost increase, 80%, or $700 million, is expected to be recovered via rider and added to rate base subject to regulatory approval.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

50% of the non-recoverable portion of the increase will be borne by Stonepeak rather than Dominion Energy shareholders. Finally, I know investors are very focused on the probability of future cost increases. I recognize the critical importance of executing against any guidance offered. The project is on time, and we're committed to delivering it in line with the now updated cost estimate.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We don't have perfect insight into the information that PJM will use to finalize costs by mid-year, but we've done a significant amount of analysis around the most recent estimate, which informs our updated cost estimate. I am confident in our updated estimate and believe that if there is a revision up or down with respect to PJM network upgrades come July, it would not be of a similar magnitude. Finally, a few updates on Charybdis, as shown on slide 16.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

The vessel is 96% complete, up from 93% as of our last earnings call, and sea trials are underway. What we're showing there is a picture of the 30,000-ton vessel fully jacked to its full height of almost 400 feet. We continue to expect Charybdis to complete sea trials in early 2025, consistent with our previous schedule, and be delivered to CVAL in the Q3. There's also no change to the vessel's cost of $715 million.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Turning now to data centers, we continue to see exciting developments here, so let me share a few updates. First, where things stand today. Virginia hosts the largest data center concentration in the world by far. Since we started tracking, we've connected approximately 450 data centers representing nearly nine gigawatts of capacity. Data center sales today represent about 26% of total sales for DEV.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Data centers are attracted to Virginia by connections to world-class fiber networks, Virginia's attractive business climate, availability of a trained workforce, and access to our affordable, reliable, and increasingly clean energy. In recent years, to address this demand, we've advanced electric transmission projects to bring both new and upgraded infrastructure to enable continued connection and expansion of data center customers in Eastern Loudoun County, Virginia.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

This work has included reconductoring lines, expanding substation infrastructure, as well as building a 500 kV transmission line that we expect to complete on schedule by the end of 2025. Further, just last week, the SEC approved another 500 kV line into Eastern Loudoun County that we expect to be in service by year-end 2027, and that will allow us to stay ahead of the region's rapidly growing electricity needs. Second, where do we go from here?

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

The PJM DOM zone is experiencing unprecedented load growth. This growth is accelerating in orders of magnitude driven by, one, the number of data centers requesting to be connected onto our system, two, the size of each facility, and three, the acceleration of each facility's ramp schedule to reach full capacity. For some context, as shown on slide 17, PJM recently updated its DOM zone forecast that now projects peak summer load growth of approximately 6.3% per year for the next 10 years.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

To put that into perspective, the resulting peak load projected for 2034 has increased from 26.1 gigawatts as of the 2022 PJM estimate to 41.5 gigawatts as of this year's estimate, an increase of nearly 60%. Last year, we implemented changes to our process on how we handle new delivery point requests on our system.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

This change will allow us to organize load requests into batches and serve them in the order they are received. Since we began communicating these changes, we've seen an increase in demand from customers. As shown on slide 18, we've updated our data center contracted capacity.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We now have approximately 40 gigawatts in various stages of contracting as of December 2024, which compares to around 21 gigawatts as of July 2024, an increase of 19 gigawatts or 88%. As a reminder, these contracts are broken into one, substation engineering letters of authorization, two, construction letters of authorization, and three, electrical service agreements. As customers move from one to three, the cost commitment and obligation by the customer increases.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We're currently studying over 26 gigawatts of data center demand within the substation engineering letters of authorization stage, which means a customer has requested the company to begin the necessary engineering for new infrastructure required to serve the customer. This compares to approximately 8 gigawatts as of July 2024 and represents a remarkable 245% increase.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We've analyzed the data several ways, and certainly, we believe some of this growth is attributable to the new batch system, which naturally incentivizes customers to get into the process early. But what's undeniable is that data center growth in Virginia is not slowing down. In fact, it's accelerating, and we're taking every step to meet this opportunity. There are also about 5 gigawatts of data center demand that have executed construction letters of authorization, which are contracts that enable construction of the required distribution and substation electric infrastructure to begin.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Should a customer in this stage elect to discontinue a project, they're obligated to reimburse the company for its investment to date. Finally, the nearly nine gigawatts included in electrical service agreements, or ESA, represent contracts for electric service between Dominion Energy and a customer. This has increased by nearly a gigawatt since July of 2024. Each contract is structured for an individual account.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

By signing an ESA, the customer is committing to consume a certain level of electricity annually, often with ramp schedules where the contracted usage grows over time. As Steven mentioned, this is all evidence of opportunities for additional investment across the value chain for many years to come. Turning to slide 19, let me highlight a couple of additional business updates. First, an update on our transmission business and the joint planning agreement with AEP and FirstEnergy.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

A package of our own and jointly proposed projects has been shortlisted by PJM in their open window process, which is ongoing, with final approvals expected this month. Dominion share of the joint planning agreement will lead to approximately $1 billion of incremental capital spend in the five-year plan. When combined with our other DEV transmission projects, this will result in annual transmission capital spend of greater than $2.8 billion beginning in 2027, above the $2.5 billion we'd previously forecasted. Next, in South Carolina, policymakers are in session and continue to evaluate potential energy legislation. We're appreciative of the significant time spent to date by the legislature on this important topic. As we've indicated in the past, we're committed to supporting South Carolina's growing economy.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

However, as we've testified, the regulatory framework for DESC creates regulatory lag that makes it practically impossible to earn our allowed return, especially as compared to neighboring southeastern regulated jurisdictions, including Virginia. Finally, on Millstone. The facility provides over 90% of Connecticut's carbon-free electricity, and 55% of its output is under a fixed-price contract through late 2029. The remaining output continues to be significantly de-risked by our hedging program, which we've updated in the appendix of today's materials.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

During 2024, Millstone performed well and achieved a capacity factor of 92%, aligning with our expectations of exemplary performance and reflecting our unwavering commitment to safety and best-in-class operations. As many of you are aware, there's been recent legislative activity in New England and in Massachusetts specifically aimed at authorizing future additional procurements of nuclear power, and we've continued to engage with multiple parties there to find the best value for Millstone.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

In addition to state-sponsored procurement, we continue to evaluate the prospect of supporting incremental data center activity as well. We feel strongly that any data center option needs to be pursued in a collaborative fashion with stakeholders in Connecticut. At this point, we don't have a timeline for potential announcements. We remain focused and will continue to provide updates as things develop. With that, let me summarize our remarks on slide 20. We achieved near-record-setting safety performance this year.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We reaffirmed our long-term operating earnings per share growth rate, credit, and dividend guidance for March 1, and narrowed our 2025 operating earnings guidance range. CVAL remains on schedule with robust cost sharing that protects customers and shareholders. In collaboration with our policymakers, regulators, and stakeholders, we continue to make the necessary investments to provide the reliable, affordable, and increasingly clean energy that powers our customers every day.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

And we're 100% focused on execution. We know we must continue to deliver, and we will. With that, we're ready to take your questions.

Operator

At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone now. If at any time you would like to remove yourself from the question queue, please press star two. Again, to ask a question at this time, please press star one now. We'll take our first question from Shar Pourreza of Guggenheim Partners.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Hey, guys. Good morning.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Morning, Shar.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Morning, Bob. Bob, just on CVAL, just, I guess, in light of the updates earlier this month, maybe can you just elaborate on the remaining variability in the projects If there were delays in supplier component deliveries, how flexible the schedule, how would the standby cost be recovered, would suppliers pay, and any new color on how you're thinking about incremental wind projects in light of your experience on CVAL one to date and the prospects for policy and tariff headwinds from DC? Thanks.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Yeah, Shar, you got a lot in there on one question. So let me see if I can work my way through the various pieces, and I'll ask Diane to talk a little bit about sort of where we are on the project and de-risking. So we're in a very good position with this project, and we feel very confident about the estimates that we just gave, understanding there's more data to come from PJM on network upgrades. But we've done a lot of work with the best data that we can.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

So far, the data that we've used seems to be consistent with what PJM's looking at, and we think it puts us in a pretty good position. Let me talk a little bit about tariffs because you mentioned that, and then I'll turn it over to Diane to just talk about overall sort of de-risking on the project. It's really too early to say how potential tariffs might affect this project. I can tell you that remaining spend outside of the United States is about $2.5 billion, a majority of that from Europe, only a portion of that for components that would include steel or aluminum. With respect to potential steel and aluminum tariffs in particular, generally, these types of tariffs are not intended to apply to most finished products. We would consider the CVOW components to be finished products.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

That said, we don't have the annexes to accompany the executive order. We can't know what, if any, of our remaining spend would be potentially subject to tariffs. These are finished products that include some steel, some other materials, so it's not as simple as just taking a contract value and applying a percentage. For example, the cells have thousands of components in them. Blades, as most people know, don't have steel or aluminum in them. If the steel and aluminum tariffs end up taking effect, it won't be before March 12, so we should get some better insight before then. The past may not be a predictor of the future, but if these tariffs follow the form of those imposed in 2018, they largely wouldn't apply to CVAL at all.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Then finally, and Diane will talk sort of about how we're doing on de-risking the project, but it's worth remembering we have $200 million of contingency within the current project budget of $10.7 billion-$11.3 billion. 50% of costs are recoverable from customers, and costs are shared 50/50 with Stonepeak. Diane, you want to talk a little bit about sort of where we are in the development?

Diane Leopold
Diane Leopold
EVP and CFO at Dominion Energy

Sure. Good morning, Shar. When I think about the risk, first, I kind of look at where we are. All of our permits are in hand. All of the materials have been purchased. We have fixed-price contracts for all the major equipment. Fabrication is going very well. All the deliveries of that fabricated equipment is right on time, and the installation activities have been moving forward on track.

Diane Leopold
Diane Leopold
EVP and CFO at Dominion Energy

So when I kind of look at the performance of the suppliers, as we're progressing, now that we're 50% complete, risks are naturally continuing to decrease. Just take as an example DEME with the vessel and installation logistics. As we saw in the first piling season, we kind of got better and better and got to 25 monopiles a month kind of as a run rate. As we've seen this winter, the transition piece installation and the cable installation is just going right on track.

Diane Leopold
Diane Leopold
EVP and CFO at Dominion Energy

When I look at what costs are still unfixed, we've talked about the final estimate that we're feeling good about on PJM. There's fuel for all the vessels, and there's project management. We need to complete fabrication that's going very well. We need normal weather. And so we're feeling really comfortable about where we are and where the suppliers have been performing.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Shar, I'll jump back in. You also mentioned future projects. I don't think it'll come as a surprise to you that we are very focused on this project and bringing it in consistent with the schedule and budget that we've been talking about. We've got a couple of other leases. We have no capital in the plan associated with those leases, and we'll just sort of see where things go in the future. But our focus is on this project. Did we get all the pieces and parts you had in there, Shar, or is there anything we missed?

Shar Pourreza
Senior Managing Director at Guggenheim Partners

No, that was fantastic. I'll actually leave it at that with my 20-part question. I appreciate it, guys. Thanks.

Operator

Thank you. We'll take our next question from Nicholas Campanella of Barclays.

Nicholas Campanella
Nicholas Campanella
Senior Equity Research Analyst at Barclays

Hey, thanks for taking my questions. Good morning. Hi, Lauren. So the updated gigawatts on the data center side is just a really large number, and I'm just kind of curious. I just want to first confirm this is incremental to what PJM has kind of put out here in the beginning of the year. And then secondly, just how do you kind of think about the timeline to kind of wrap some of that into the plan in the current decade? And is there a sensitivity we should be thinking about for every gigawatt of new data center hookup? Is there an amount of CapEx, whether it's transmission or generation, that would be required for that? Thanks.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Yeah, Nick, on sort of is that in PJM? No, those gigawatts that are in the substation engineering phase, those are not in the PJM forecast. There is no sort of rule of thumb on any particular amount of gigawatts and sort of the capital plan and so forth. I think it's just important for everyone to understand that the data center demand in Virginia, in northern Virginia, and in Loudoun County continues to be very significant.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

You see that in the numbers there. Just to give you a sense, I know there are some folks who may have some misunderstanding about Loudoun in particular, about how much more capacity is available there. If you just look at the transmission projects that we're working on, including the two 500 kV lines that we mentioned in our prepared remarks, that's an additional 6 gigawatts of capacity in Eastern Loudoun alone.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

So there's room in Eastern Loudoun on the system, and the data centers continue to expand as well sort of outward from Loudoun County, particularly into neighboring counties coming down Interstate 95. There's also data center expansion happening in the Richmond metro area pretty substantially. So that demand just keeps coming. We're very focused on making sure we can serve it, and we want to do that in a way that's consistent with our mission of reliable, affordable, increasingly clean energy.

Nicholas Campanella
Nicholas Campanella
Senior Equity Research Analyst at Barclays

Hey, I appreciate that. And then just kind of expanding on your comments from Millstone and the prospects for any type of incremental large customer for that remaining non-fixed portion, there seems to be a lot of focus on additionality if it comes with colocation in any form.

Nicholas Campanella
Nicholas Campanella
Senior Equity Research Analyst at Barclays

Just maybe you can kind of comment on whether that's something that you think you would need to move forward with a contract opportunity there, or what's the next kind of catalyst we should be kind of watching for to know that this is potentially going in the right direction? Thanks.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Can't give you a catalyst for what you should be looking for. As we've said, there's not a timeline on this. From the potential large user customers we've talked to, additionality is not essential. They certainly talk about it, but that's not a gating item. So we're going to keep talking to potential data center colocator customers, to the states of Massachusetts and Connecticut, others in New England.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

And we're going to continue to stick with what we said pretty clearly is we need to make sure we're taking into account the interests of stakeholders in Connecticut as we think about this very valuable asset.

Nicholas Campanella
Nicholas Campanella
Senior Equity Research Analyst at Barclays

Great. Thanks a lot.

Operator

We'll take our next question from Jeremy Tonet of J.P. Morgan.

Jeremy Tonet
Jeremy Tonet
Utilities and Midstream Equity Research Analyst, Managing Director at J.P. Morgan

Hi, good morning. Hey, Jeremy. Hey. I just wanted to dive into the Virginia data center opportunity a little bit more and quite the step up as you outlined there. Just wondering if you could touch a bit more on reactions from stakeholders and really just thinking about this load driving incremental build pressure and thoughts about, I guess, build headroom in general here.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Yeah, great question, Jeremy. Policymakers in Virginia are very focused on data center build-out because they see the economic benefits of it. You can see it in localities where there already is a substantial amount of data center load. The tax bills, property tax bills in, say, Loudoun County are substantially lower than they would have to be without the tax revenue that's coming in from data centers.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

That part of the economy and making Virginia a tech hub is really important to stakeholders in Virginia, particularly to Governor Youngkin. He talks about that quite a bit. There is an interest in continuing to see data center expansion. As there are more megawatt-hours sold to data centers, then that spreads the total costs out over a larger group of customers and can actually help with customer bill headroom. I know there's often a discussion about sort of our data centers paying their fair share or are other customer classes subsidizing data centers.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

These kinds of debates about one customer class subsidizing another customer class have been going on since the beginning of utility regulation. There are ways always to address that in Virginia, particularly with biennial reviews, so I suspect that in the biennial that we'll file in March, that this issue will be considered by the commission, and I'm confident that they'll make a decision that ensures we can continue data center growth in Virginia in a way that works for all customers of Virginia. This is just good for the economy of Virginia, and it's important to keep it going.

Jeremy Tonet
Jeremy Tonet
Utilities and Midstream Equity Research Analyst, Managing Director at J.P. Morgan

Got it. That's helpful there, and want to continue with the biennial if we could? Just wondering on overall engagement with stakeholders there? And besides affordability, as you outlined there, any key issues to hash out here? Just trying to think about how we should be thinking about Virginia regulatory sausage-making at this point.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We're going to focus on just filing a pretty straightforward rate case in Virginia. As I expect many people know, in the last biennial, there was sort of a prescribed ROE. That is not the case in this one. We've got a couple of new judges on the SCC, relatively new. A little less than a year they've been on the bench. When we think about our positioning in a rate case, we start with our reliability and our affordability.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

They're both incredibly strong in Virginia. We are well recognized among stakeholders as being a very reliable provider of electricity. Our rates, as we mentioned in our prepared remarks, continue to be below regional and national averages. We're in a strong position. The sort of general environment going into the case, I think, is very constructive, and we'll have a result by the end of November, but there's nothing particularly exotic in this upcoming biennial.

Jeremy Tonet
Jeremy Tonet
Utilities and Midstream Equity Research Analyst, Managing Director at J.P. Morgan

Got it. Makes sense. Thank you for that.

Operator

We'll take our next question from David Arcaro of Morgan Stanley.

David Arcaro
David Arcaro
Executive Director and Equity Research at Morgan Stanley

Hey, thanks. Good morning.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Morning, David.

David Arcaro
David Arcaro
Executive Director and Equity Research at Morgan Stanley

Let me see. I had a question on the offshore wind side of things. Earlier this year, the executive order around offshore wind and the secretary of the interior reviewing existing projects. I was just wondering your interpretation and viewpoints on what that could mean for existing leases like CVOW.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Yeah, we don't think there's going to be impact to CVOW from the executive order. If you think about it, it's got all the permits it needs, including all of its federal permits. It's consistent with some very important energy objectives that the administration has articulated. It's an important part of an all-of-the-above strategy to deliver more power to a growing economy in Virginia. It's certainly the fastest and most economical way to deliver 2.6 gigawatts to the grid.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Stopping it would be the most inflationary action that could be taken with respect to energy in Virginia. It's homegrown. It helps promote American energy dominance. It's needed to power that growing data center market we've been talking about. Critical to continuing U.S. superiority in AI and technology. It's creating American jobs 2,000 at last count. It's specifically authorized by Virginia law.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

It has robust bipartisan support of leaders in Virginia. Worth noting that in his confirmation hearing, Secretary Burgum said projects that make sense and are already in law will continue, and CVOW definitely fits that bill.

David Arcaro
David Arcaro
Executive Director and Equity Research at Morgan Stanley

Okay, excellent. I appreciate that commentary. Then I was also curious on the data center side of things, just to dig in a little bit more. Obviously, your pipeline has grown a huge amount over the last six months. And then when we look at the PJM forecasts for the 2034 forecast, they've only gone up a little bit. Do those numbers have to rise from here, or are there constraints in actually connecting all of these data centers, or something else that's making you think that not all of these are actually going to crystallize and come to your system?

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Well, I think if you look at what we're planning for, what we've got capital for, we're highly confident that the data centers are going to show up in our system. I mean, if you think about it, we've been serving data center customers longer than anybody else.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

We understand better than other companies, I believe, the way they build, the way they ramp up, and we understand extremely well sort of a confidence level in their arrival, so the new batch system may have had some effect on the number of customers who have sort of jumped into that substation engineering letters of authorization group. But the bottom line is there is a lot of growth coming in data centers in Virginia, and we're building the infrastructure in order to serve them.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

David, I just add back on slide 17 where you see that PJM forecast 2034 summer peak of 41.5. We would suggest that the increase we've seen in our queue is not fully reflected in that PJM update, that it's a little bit backward-looking. And to Bob's point, and to your question, will all of the amount that we're seeing in that first phase ultimately convert? We don't know for sure. Many of them do in the past.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

And as we've moved further down the column, we've seen increasing conversion rates up to 100% from the second to the third bucket. So again, I think it's a sign, a bullish sign. Will all of it ultimately convert? We don't know. We think a lot of it will. And that, to us, is a bullish sign of the ability to continue to invest across the value chain in support of those customers in a low-risk regulated environment.

David Arcaro
David Arcaro
Executive Director and Equity Research at Morgan Stanley

Got it. Okay, great. Yeah, thanks very much. Appreciate it.

David Arcaro
David Arcaro
Executive Director and Equity Research at Morgan Stanley

Thank you. We'll move next to Anthony Crowdell of Mizuho.

Anthony Crowdell
Anthony Crowdell
Managing Director at Mizuho

Hey, good morning. Just super quick, one question following David's. When I look at the column on page 18, is there just a rule of thumb of how long it takes a project to transition from one category to the next as it works itself down the chain?

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Well, we gave some updated guidance to our customers, as you recall we've talked about, which was moving from a serial to more of a cluster or a batch approach. And when we did that, we gave indications that from the time you sort of started the process to the potential time where you're signing the ESA and taking delivery of power, that that period would be extended by somewhere between 12 and 36 months, which puts us at speed to market of between four to seven years. 26 gigawatts, that's all in very different phases and probably timelines.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Don't have specific guidance for you as to how to translate the 26 into the CLOA box or the ESA box. But again, from sort of the very beginning of the process typically to the very end of the process, think of four to seven years. With this much demand, could that probably possibly pressure that? It's all going to sort of depend on where the specific project wants to be sited and where we have existing delivery points. So don't have real specific guidance for you or anything, I apologize. But it's all pretty bespoke depending on where the need is.

Anthony Crowdell
Anthony Crowdell
Managing Director at Mizuho

No, that's perfect. And thanks so much for the update. I appreciate it. Thank you.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

You bet. Thanks.

Operator

Our next question is from David Paz of Wolfe.

David Paz
David Paz
SVP and Equity Research Analyst at Wolfe Research

Hey, good morning.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Hey, good morning.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

Good morning, David.

David Paz
David Paz
SVP and Equity Research Analyst at Wolfe Research

Yeah, thanks for the time. Just quickly on your assumption for earned returns in your outlook. Are you projecting any lag over the period? Maybe how much lag? And if you can break it down by Virginia and South Carolina, that'd be great.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Yeah, David, we haven't given that sort of specific level of guidance as we go into periodic rate cases and we engage with stakeholders. But I think what we've said in the past has been that at DEV in particular, where we've got a fairly significant amount of the investment in riders, which generally earn at their allowed, we see pretty good ability to achieve allowed returns.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

In 2023, our annual information filing, if you adjust for a handful of items, weather, some amortization of fossil retirements that we needed to take, we were hitting on the base side of the business at pretty close to our allowed and expect that to sort of continue. And then in South Carolina, I think what we've indicated in testimony is that under the existing rate case process, that by the time new rates go into effect, given its backward-looking nature, we could be anywhere between 80 and 90 basis points as under-earning immediately when rates go into effect.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

And we've quantified, I think, 100 to 200 basis points on average of under-earning during a rate case cycle. And as Bob mentioned in his prepared remarks, we've made that a point of focus in our discussions with stakeholders in South Carolina and our excitement about supporting the needs for growth in the state, but also a discussion about the ability for us to earn a return that's closer to our allowed. So obviously, there's work being done on that now.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

We have tried to be appropriately conservative in our assumptions in the plan as it relates to both where the allows are set as well as where the earned are set. We certainly have assumed that we have the ability to do somewhat better than what we've done in the past through some mechanism, whether it's legislation or the potential for more frequent rate cases in South Carolina. But I'd rather not get into sort of a specific assumption we've made.

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

I think we've tried to be reasonably conservative, but appropriately so.

David Paz
David Paz
SVP and Equity Research Analyst at Wolfe Research

Okay. No, that makes sense. And just maybe quickly, the $4-plus billion of new CapEx, does any of that include any incremental spend on your interest in V.C. Summer two or three?

David McFarland
David McFarland
VP of Investor Relations and Treasurer at Dominion Energy

No. No, it doesn't. We've indicated that we're not participating or interested in that project. And I think you meant. I think you referred to $7 billion total capital increase, but yeah, none of that's related to V.C. Summer.

David Paz
David Paz
SVP and Equity Research Analyst at Wolfe Research

Okay. Thank you.

Operator

This concludes our question and answer session. So I'll turn it back to Bob Blue for closing remarks.

Bob Blue
Bob Blue
Chair, President and CEO at Dominion Energy

Thanks, everyone, for taking the time to join the call today. Enjoy the rest of your day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • David McFarland
      David McFarland
      VP of Investor Relations and Treasurer
    • Diane Leopold
      Diane Leopold
      EVP and CFO
    • Bob Blue
      Bob Blue
      Chair, President and CEO
Analysts
    • David Arcaro
      Executive Director and Equity Research at Morgan Stanley
    • Shar Pourreza
      Senior Managing Director at Guggenheim Partners
    • David Paz
      SVP and Equity Research Analyst at Wolfe Research
    • Anthony Crowdell
      Managing Director at Mizuho
    • Jeremy Tonet
      Utilities and Midstream Equity Research Analyst, Managing Director at J.P. Morgan
    • Nicholas Campanella
      Senior Equity Research Analyst at Barclays
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