After scuttling the Atlantic Coast Pipeline and selling off natural gas transmission and storage assets, Dominion Energy Inc. is ready to get the word out about its strategic repositioning.
With a narrowed focus on state-regulated utility operations, which are expected to account for 85-90% of Dominion’s operating earnings going forward, the Richmond, VA-based company has set a goal of becoming an industry leader in clean energy with “best-in-class long-term earnings and dividend per share growth,” said outgoing CEO Tom Farrell.
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“We are preparing our company to be at the vanguard of the energy transition that is accelerating across our country,” said Farrell, who is to become executive chairman in October. “We are investing billions of dollars in a transition that will make zero- and low-emitting resources accountable for around 95% of our company-wide electric generation by the end of 2035.”
Dominion plans to grow its renewable energy capacity on average by more than 15% per year for the next 15 years. It recently met its 3,000 MW target for renewable generation in Virginia, a year and a half ahead of schedule. It also is the third-largest owner of solar capacity among U.S. utilities and has a pilot offshore wind project that is expected to start generating in the third quarter.
The company is equally focused on emissions reductions in its gas distribution business, said Farrell, with “extensive leak detection and repair efforts and modified operational procedures designed to capture gas that used to be vented during maintenance.”
Dominion is finding innovative ways to help customers improve their sustainability as well, said the CEO. “We are at the forefront of the intersection of agricultural emission reductions and offering natural gas customers a green option that is actually carbon negative, meaning that it takes more greenhouse gases out of the atmosphere that it creates when it is used by the customer.”
To get the message out about its streamlined, “low-risk” business profile, Dominion is increasing its outreach using virtual tools to interact with existing and prospective shareholders throughout the world, including in places where environmental, social and governance factors are playing an increasingly prominent role and investment decisions, according to CFO Jim Chapman.
“It’s our responsibility to get the reposition story into the market,” Chapman said.
Worse-than-normal weather negatively impacted demand in Dominion’s utility service territories during the second quarter, though management believes that April could represent the bottom, with “gradual improvements” seen this summer. Chapman noted that July demand is tracking only 1% off weather-normal historic averages.
Although most of the Covid-19-related impacts across Dominion’s electric utility operations largely have been offset by corporate initiatives, “the future remains difficult to predict,” he said.
“We remain focused on extending our track record of delivering financial results that meet or exceed our public commitments. We feel that our businesses are well positioned with regard to Covid-related demand impacts, but we are monitoring that situation carefully.”
Looking forward, Dominion is seeking to issue shares under the dividend reinvestment program, resulting in a total of about $160 million in new shares under the program in 2020, which is about half its previous, pre-Covid-19 estimate. The company expects to return to historic norms of around $300 million of new shares per year starting in 2021 and continues to target year-end completion of the $3 billion share repurchase announced in July.
Eye On The Future
Farrell took the time to draw attention to Dominion’s year-to-date results, which put the company on track to make 2020 the safest year of operation in its more than 100-year history.
“Our safety performance matters to thousands of families and communities, which is why it matters so much to us. The ability to impact lives on a broader scale is also why when we see an issue that deeply impacts our employees, customers and communities, we get involved.”
The CEO said recent social unrest has led management to question what more it can do to assist in the cause of social justice and racial equality. In June, Dominion committed $5 million to social justice and community rebuilding efforts that support nonprofit organizations advocating for social justice and equality. Funds also would be designated to help minority owned small businesses recover from recent disruptions to their businesses.
“We are investing in recovery and reconciliation, and then the vital work of overcoming years of debilitating actions, attitudes and abuses of authority that have traumatized our country,” said Farrell.
Dominion pledged an additional $35 million to support 11 historically black colleges and universities, representing 35,000 students across Virginia, Ohio, North and South Carolina, as well as the scholarship fund focused on African American and underrepresented Motorsport minority students across all its service territories. “These institutions have been foundational in the struggle to improve the lives of African-Americans, and in the fight for social justice. We are pleased and humbled to build on our company’s nearly 40-year history of supporting historically black colleges and universities,” Farrell said.
Co-COO Bob Blue is set to take the helm on Oct. 1, leading the Dominion team that has been assembled over the past 15 years to “ensure continuity of our strategy, public policy corporate values and operational excellence,” said Farrell, who turned 65 in December. “This change is a step in carrying out that call.”
Dominion recorded a net loss of $1.2 billion (minus $1.41/share) during the second quarter, which compares with a net income of $54 million (5 cents) in the year-ago period. Operating earnings in 2Q2020 were $706 million (82 cents), up from year-ago earnings of $619 million (77 cents) and did not include impairment-related charges associated with ACP and Supply Header projects, as well as net gains from nuclear decommissioning trust funds.
Dominion currently has nearly $7 billion in available liquidity, and management reiterated full year operating earnings guidance of $3.37-3.63/share.
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