Dominion Energy Inc (D) — Q4 2019 Earnings Call Transcript

Good morning and welcome. 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 projections, forecasts, 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 are able to calculate are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review the earnings conference call materials, including the earnings release kit. The Investor Relations team will be available after today's call to answer any questions. Joining today's call are; Tom Farrell, Chairman, President and Chief Executive Officer; Jim Chapman, Executive Vice President, Chief Financial Officer and Treasurer; as well as other members of the executive management team. I'll now turn the call over to Jim.

Thank you, Steven, and good morning. We have a lot to cover today, reflecting the exciting progress on our investment program, financial targets, and ESG efforts, including a new enterprise-wide net zero emissions initiative. Over the past few years, Dominion Energy has evolved into a larger, more regulated, and predictable company, demonstrated by our ability to consistently deliver financial performance aligned with our guidance. I'm happy to report that the fourth quarter of 2019 marked the 16th consecutive quarter of operating earnings per share meeting or exceeding the midpoint of our guidance range when adjusted for normal weather. Quarterly operating earnings were $1.18 per share, which included a minor benefit from better-than-normal weather. Even without weather adjustments, this remains the 16th consecutive quarter of results that align with our guidance. For the full year of 2019, operating earnings was $4.24, surpassing the midpoint of our annual guidance range of $4.15 to $4.30 per share. After accounting for about $0.02 related to normal weather, the annual operating earnings also matched the midpoint of our guidance, representing a 5.5% increase over 2018's weather-normalized operating EPS. GAAP earnings for the quarter and the year stood at $1.32 and $1.73 per share, respectively. It's important to note that our full year reported results were significantly affected in the first two quarters by charges related to the SCANA merger, including a major customer refund approved by the South Carolina Public Service Commission. When adjusted for these merger and integration costs, our trailing three-year aggregate GAAP earnings exceed our total operating earnings for the same period. A summary of the adjustments between operating and reported results can be found in the appendix, with a detailed reconciliation available in the earnings release kit. Now, moving on to slide 4, our operating earnings guidance ranges typically assume normal weather variations, which can influence results towards the high or low ends of these ranges. We are initiating our 2020 operating earnings guidance within a range of $4.25 to $4.60 per share. The midpoint of this range indicates a 5% increase over our weather-normalized 2019 results, aligning with our guidance from the Investor Day last March. Key drivers for 2020, compared to 2019, include increased earnings from regulated investment growth across our electric and gas businesses, reduced interest expense due to lower average debt levels and a favorable interest rate environment, the full-year impact of the Millstone Zero Carbon Contract, and decreased depreciation costs linked to an expected extension of the useful life for our regulated nuclear plants in Virginia. Negative factors include higher minority interest expenses due to the equity recapitalization of Cove Point, share dilution, lower capacity prices in New England, and a double outage year at Millstone. It’s worth noting that the double outage occurs every third year, and will be a positive driver in 2021. We are also introducing first quarter consolidated operating earnings guidance of $1.05 to $1.25 per share and reaffirming our post-2020 guidance of more than 5% annual operating EPS growth, along with a dividend growth rate of 2.5% per annum, subject to customary board approval. We have successfully transformed how we manage and report our businesses, as shown on slide five, to better reflect the larger and more regulated nature of our operations. We believe these realigned segments will simplify our modeling and analysis. Slide six outlines our annual operating income guidance at the new segment level. I want to highlight a few key points. First, with the exception of contracted generation, each of our segments demonstrates strong operating earnings growth trends, largely due to regulated investments and general cost control. The earnings trend in contracted generation has been negatively affected by the sale of Manchester and Fairless at the end of 2018, as well as the double outage year at Millstone in 2020, but this will reverse in 2021. Second, we've revised the CAGR for the gas distribution segment to exclude the addition of PSNC in 2019, illustrating its strong core growth rate absent merger impact. Third, we have not shown the CAGR for Dominion Energy South Carolina from 2018 to 2020 because the merger with SCANA did not conclude until 2019. Growth in 2020 is mainly driven by merger cost savings, which we expect to benefit our customers in South Carolina during our upcoming electric rate case. This growth is advantageous for both our customers and shareholders. Lastly, these segment-level operating income CAGRs do not include equity issuance at the parent level during the specified period, including shares issued in exchange for SCANA stock early last year, which slightly impacts the consolidated EPS growth rate. On slide seven, we display the expected 2020 operating EPS contribution by segment, emphasizing two key investment themes. First, the strategic direction of our company has resulted in approximately 95% of our operating earnings coming from regulated and regulated-like operations. Second, about 70% of our operating earnings are derived from state-regulated utility operations in five attractive states: Virginia, North Carolina, South Carolina, Ohio, and Utah. Moving forward, we will provide this segment-level operating guidance on an annual basis. We have also simplified or added to our existing disclosures regarding weather impacts, customer growth, rate base estimates, Millstone hedging, fixed income among other topics, and we hope you find these changes, detailed in our earnings release kit and the appendix of today’s presentation, helpful. Turning to slide eight. We’ve summarized our current capital structure, featuring distinct financing entities linked to our Dominion Energy Virginia, Dominion Energy South Carolina, and gas transmission and storage operating segments. These financing entities will continue to file 10-Ks and 10-Qs as SEC registrants. For the gas distribution and Contracted Generation segments, we show the total existing financing balances across individual operating companies, primarily financed in the private market due to their smaller size. Regarding credit, we consistently manage our balance sheet with a target credit rating range rather than focusing solely on specific credit metrics. Cash coverage metrics like FFO or CFO pre-working capital to debt only have a small influence within the overall rating methodologies used by our credit rating agencies. Nevertheless, slide nine illustrates the significant improvement in cash coverage metrics we've achieved over the past four years and we anticipate continued gradual improvements in the upcoming years. Additional details on this metric for 2019 are available in the appendix. In relation to our retirement plan assets, strong performance alongside an earnings-neutral fourth quarter contribution offset a year-on-year drop in discount rates, resulting in a roughly 7 percentage point increase in the overall funded balance of these plans. This brings me to our 2020 CapEx and financing plan. Slide 10 outlines our 2020 capital investment plan, which is slightly higher overall than our previous forecast due to a few positive revisions and timing differences. Slide 11 gives an overview of our 2020 external financing plan. Notably, our common equity plans for the year include only about $300 million from our DRIP program. Previously, we had forecasted $300 million to $500 million of ATM issuance in 2020 but later decided to use proceeds from the Cove Point equity recapitalization to minimize or eliminate that issuance. In 2020, we plan to issue up to $1.8 billion of privately placed fixed income securities at Dominion East Ohio, currently only intercompany levered due to the Dominion Energy Gas Holdings reorganization completed last November. We expect this issuance around mid-year and will apply the proceeds to retire existing debt. This annual financing plan does not include any opportunistic refinancing activities that may arise, like the restructuring of capital at Dominion Energy South Carolina through a series of bond repurchases in 2019. In the fourth quarter, we capitalized on favorable financing conditions to replace existing debt with an equity credit preferred security, priced at a record low. We will keep an eye out for similar opportunities to strengthen our balance sheet in a manner that supports earnings. Now, regarding the Atlantic Coast pipeline, which Tom will discuss further shortly. Since we announced the last significant increase in total capital costs for ACP about a year ago, discussions have been ongoing among project owners and anchor shipper customers to equitably share those increases within the contract tariff. These discussions have been productive, and we anticipate formalizing an agreement soon. The major project customers have indicated their willingness to accept higher project rates given the strategic importance of ACP as an alternative pipeline option for the region. These are 20-year take-or-pay agreements with regulated utility customers with no commodity exposure. The progress in customer negotiations enables us to offer guidance on the project's economic contribution post-commercial service. As indicated on slide 12, we expect a contribution of between $0.20 and $0.25 per share in 2022, which includes Supply Header and assumes a full year of commercial in-service. This estimate also incorporates the transition from AFUDC to contract-based cash earnings potential, which we expect to grow as we expand the project through compression and laterals. There is no change to our expected contribution this year, which remains in the mid to high teen cents per share. In related news, we are announcing today that we have agreed to acquire certain gas transmission and storage assets from Southern Company, pending HSR regulatory approval. First, we will acquire Pivotal LNG, which liquefies and delivers LNG fuel for transportation throughout the Southeast U.S., mainly from a new LNG production site in Jacksonville, Florida. Tom will explain how this asset, in conjunction with Cove Point, enhances our LNG strategy, including maritime transportation. The second asset being acquired is Southern Company's 5% stake in the Atlantic Coast pipeline, which upon closing will increase our project ownership to 53% Dominion Energy and 47% Duke Energy. The governance arrangements will continue to ensure recognition of the project company on an unconsolidated equity method basis in our financial statements, maintaining Southern Company’s status as one of the anchor customers for the project through its Virginia natural gas local distribution company. The immediate financial impact of acquiring these assets is positive but small, and the increased ACP ownership will be reflected in the earnings contribution estimates I previously provided. The total cash consideration for these acquisitions is approximately $175 million. Turning our attention to Santee Cooper, our interest is limited to a management proposal arrangement aimed at enhancing operational efficiency from our nearly co-located utility footprint. While the potential financial impact of any such arrangement may not be a significant near-term driver for Dominion, we are willing to participate if selected by the Department of Administration and the South Carolina General Assembly, especially if such collaboration can yield cost savings for our customers and Santee Cooper's customers in the state. We will provide updates as this process proceeds to the next stage. Lastly, I would like to briefly comment on the recent third quarter developments concerning the PJM capacity market structure, commonly known as MOPR-Ex. We will continuously assess this situation as it moves toward resolution. In the interim, we do not perceive this as a substantial financial risk for our company given the balanced supply and demand at Dominion Energy Virginia. Furthermore, if it serves our customers’ best interests, we have the option to make a fixed resource requirement or FRR election, necessitating notification to PJM as well as the Virginia State Corporation Commission and the North Carolina Utilities Commission. In conclusion, I want to reiterate the key investment themes I mentioned during our last quarterly call. Our operations are heavily regulated, with around 95% of our operating earnings stemming from regulated and regulated-like operations. Approximately 70% of our earnings originate from utility operations in five appealing states. Another 25% of our earnings come from FERC-regulated transmission and storage operations, primarily serving utility customers under long-term capacity contracts. During 2019, we achieved about a 6% growth in our regulated rate base and maintain an expectation of a five-year rate base CAGR of roughly 7%, consistent with our forecast at Investor Day. We are executing our previously announced $26 billion growth capital plan over five years to enhance, strengthen, and make our services more sustainable for customers. Ultimately, this customer-focused strategy also benefits our shareholders, as evidenced by our consistent track record of meeting and affirming our financial guidance, including the 16th consecutive quarter of meeting or exceeding our guidance midpoint. I will now hand the call over to Tom.

Thank you, Jim, and good morning. First, a reminder that safety is our first core value. On slide 14, we have recast our historic safety results to incorporate our mergers with Questar and SCANA. As you can see, the overall trend reflects a continuous focus on employee health and welfare. Pro forma for past mergers, our company-wide OSHA recordable incident rate decreased in 2019 for an 11th time over the last 13 years. Turning now to our consistent national leadership as it relates to environmental, social and governance matters. Over the course of the last year, we have intensified our efforts to reduce emissions of all types. As shown on slide 15, we have already reduced carbon emissions by around 50% since 2005, which is nearly twice as much as the most recently reported industry average. We have followed a similar path for methane emissions, which have fallen by around 25% since 2010, a significant reduction driven by industry-leading efforts. Further as shown on the next slide, we have reduced coal-fired generation's contribution to company-wide electricity production by 80% from 52% in 2005 to 12% in 2019. And we estimate that coal-fired generation today accounts for less than 8% of our total regulated investment base. Turning to slide 17. I'm pleased to announce a new commitment to achieve net zero emissions by 2050. The goal includes both carbon dioxide and methane emissions and covers all of our businesses including electricity generation and gas infrastructure. This represents a significant expansion from the company's previous greenhouse gas emission reduction goals, which included a commitment to cut methane emissions from our natural gas operations by 50%, between 2010 and 2030, and carbon emissions from our power generating facilities by 80%, between 2005 and 2050. Reducing emissions as fast as possible and achieving net zero emissions company-wide requires immediate and direct action. That is why the company continues to make meaningful steps, to extend licenses for its zero carbon nuclear generation fleet. Promote customer energy efficiency programs. Invest heavily in wind and solar power. Reduce the amount of coal-fired generation on our system. Enhance gas infrastructure leak detection. Systematically replace legacy gas distribution lines. And harvest agricultural methane emissions, to be repurposed as renewable natural gas. All of these initiatives are included in our capital investment plan guidance, through 2023. And will extend well beyond that. Over the long-term, achieving these goals will require supportive legislative and regulatory policies and broader investments across the economy. This includes support for the testing and deployment of technologies such as large-scale energy storage and carbon capture, which though still early stage, have the potential to reduce greenhouse gas emissions significantly, when deployed in conjunction with carbon-free generation. And we will never lose sight of our fundamental responsibility to customers, provision of safe, reliable and affordable energy. We have issued a press release this morning that addresses the topic in additional detail. And you should expect to hear more about our plans, including an upcoming climate and corporate social responsibility reports. Though certain approaches will undoubtedly evolve over the coming decades to reflect the most up-to-date assumptions, our commitment to net zero emissions will not change. I'm pleased to report that our work on reducing emissions and enhancing our ESG disclosures was recognized with a leadership rating by CDP, an influential non-profit that monitors and measures environmental impact. These ratings put Dominion Energy in the upper echelon of not just U.S. utility companies, but all companies of all industries globally. In addition, Just Capital, an organization that promotes corporate responsibility, in partnership with Forbes, has ranked Dominion among America's top 100 corporate citizens. It is of course nice to receive accolades like these, but we are not declaring victory. In addition to minimizing our own operational environmental footprint, in line with the carbon and methane goals I just described, we are also embracing the notion of Beyond Dominion Energy, as it relates to our ability to transform the emissions profiles of our customers and energy end users, as shown on slide 19, in the transportation sector which accounts for 29% of U.S. greenhouse gas emissions. We are leading the way in the development of the largest electric school bus program in the nation. We are enhancing the resiliency and flexibility of our electric grid, to enable the more rapid deployment of electric vehicle charging infrastructure, as enabled in Virginia by the Grid Transformation and Security Act. And we are developing infrastructure that will make liquefied natural gas, compressed renewable natural gas and potentially hydrogen fuels more available and more affordable for use in transportation applications, including maritime shipping vessels. In the agricultural sector, which accounts for 9% of U.S. greenhouse gas emissions, we are partnering with the nation's largest hog and dairy producers to capture methane from farm operations. These partnerships have already committed $700 million of shared investment to capture methane emissions and use RNG to serve homes, businesses and vehicle fleets. These are large and ambitious, multi-decade plans that are consistent with the spirit of Dominion Energy and its nearly 20,000 employees. Many of these efforts are well underway, including our solar, offshore wind, nuclear re-licensing and energy efficiency programs. Others are in more nascent stages, including our electric school bus, RNG and marine, LNG programs. Over the coming months and years, you should expect to hear more on these strategies, as we work diligently to reduce the emissions profiles of our company and our customers. I will address several of these now. Turning to slide 20, late last year, we announced plans to install over 2.6 gigawatts of wind generation capacity approximately 27 miles off the coast of Virginia, a major milestone for a project we began developing in 2013. Since that announcement, we have achieved several additional milestones, including selecting Siemens Gamesa as our preferred turbine supplier and entering into an agreement with three prominent trade unions to support the onshore electric interconnection work. We will begin ocean survey work in April, which will help to support the submission of the construction and operations plan at the end of this year. We expect to commence construction in 2024 upon timely completion of the BOEM permitting process with full in-service by the end of 2026. We will continue to work to refine the preliminary capital cost estimate of approximately $8 billion, the vast majority of which will occur in the 2024 to 2026 time frame, as major components are fabricated and installed. Cost reductions as well as any tax benefits that we achieve will accrue directly to the benefit of our customers. Dominion Energy Virginia will be the sole equity owner of this regulated asset. We will seek recovery via Orion from the Virginia State Corporation Commission. While the existing GTSA provides a strong framework for regulated cost recovery for offshore wind investments, legislation which was supported by the governor's office in recent legislative committee meetings is working its way through the current Virginia General Assembly session, that if enacted would provide additional regulatory clarity. Our related 12-megawatt pilot project will begin turbine installation in May and is expected to achieve commercial operation in late summer of this year. The lessons learned on this project will be invaluable to the successful completion of our full-scale deployment. The pilot is the first and only offshore wind project in Federal Waters to have completed the BOM permitting process, which included a cumulative impact analysis. We expect to leverage the right-of-way and other work already performed under the pilot project to facilitate routing the export cable to shore and connecting it to the onshore electric transmission system. Also in Virginia, our weather-normalized sales increased 1.4% year-over-year, driven primarily by increased data center and residential demand. We connected nearly 34,000 new accounts, about 10% more than last year including 26 data centers, which set another annual record. Earlier this year, PJM revised upwards their peak load assumptions for our service territory to reflect among other things continued strong data center growth. PJM Dom Zone summer peak load growth is now expected to be 1.2% per year over the next 10 years and 1% annually over the next 15. These rates are double the PJM system-wide growth rates and rank our zone as one of the fastest-growing regions among the 13 states that comprise PJM. Turning to Slide 21. Last month, the State Corporation Commission approved our U.S. forward solar CPCN application, the second such approval in the last 12 months. We expect subsequent rider approval in April. Overall, we have now achieved 57% of our commitment to Virginians to have 3,000 megawatts of solar in development or in operation by the end of 2021. To date, and inclusive of around $800 million of spending in 2019 alone, Dominion Energy's enterprise-wide total solar investment now stands at approximately $4 billion with an additional nearly $3 billion expected through 2023. We anticipate continued solar investment for years to come which is why we expect to improve our current ranking of fourth among the largest utility owners of solar in the country. Phase 2 of our grid modernization program is before the commission. Representing around $500 million of CapEx, the request includes deployment of automated metering, a new customer information platform and investments in grid resiliency and telecommunications that are essential to delivering the products and services that our customers desire and which provides for a system more capable of withstanding climate-related risks. We are optimistic that we will receive approval next month. Our other investment programs, shown on slide 22, such as electric transmission, nuclear relicensing, distribution undergrounding, pump storage, renewable-enabling quick-start generation and rural broadband are tracking in line with our expectations. Virginia General Assembly has been in session for about five weeks and is scheduled to conclude in less than a month. There are two proposals currently pending, that I believe warrant highlighting. One is related to offshore wind, which I previously addressed. The other relates to our nation-leading initiative to replace diesel with electric school buses. We have already selected a vendor and worked with local school districts in our service territory to allocate an initial delivery of 50 school buses by year-end. Pending legislation calls for replacing an additional 1,500 buses by 2025, representing an estimated Dominion capital investment of approximately $400 million, which will be eligible for cost recovery subject to commission approval. Ultimately, we would place all 13,000 diesel school buses in our Virginia service territory. Not only will this effort dramatically improve the air quality for our students and their communities, it will provide valuable, real-world experience with vehicle-to-grid battery technology as the first 1,500 buses, while idle, represent up to 60 megawatts of effective battery storage. We are monitoring other active pieces of legislation, all of which we expect to represent a reasonable and balanced approach to statewide energy policy priorities. Turning now to South Carolina on slide 23. We are pleased with the work done by our team members to provide for a smooth integration, while maintaining their historically excellent levels of reliability and customer service. Around midyear, we plan to file an electric rate case as stipulated in the merger agreement. Our most recent earned return was around 7.5% and our current authorized return is 10.25%. The most significant driver of the under earnings is related to normal, course safety, customer growth and reliability utility investment over the last eight years. This is not currently captured in rates. We believe the case will conclude by year-end, with an outcome that appropriately balances the interest of customers and shareholders. Turning to Gas Distribution. Recently, we have begun to hear of investor concern that at least in some states, municipal level ordinances could limit overall demand growth for natural gas utility service. While that may be true elsewhere, we simply do not see any evidence of slowing customer or investment growth in the states in which we operate gas utilities, Utah, Idaho, Wyoming, Ohio, West Virginia, North Carolina and South Carolina. Compounded annual customer growth across this segment was 1.5% over the last three years and as high as 2.6% and in Utah and North Carolina, with no signs of abating anytime soon. For many of our customers, the alternative to natural gas for home heating is fuel oil or even wood, which have significantly higher carbon signatures. And in certain communities within reach of our system, a lack of energy infrastructure is constraining growth and impacting everyday quality of life. Further, we are an industry leader in minimizing the emissions footprint of natural gas utility operations, including through promoting energy efficiency, utilizing innovative technologies and increasing access for our customers to renewable natural gas. We also continue to invest hundreds of millions of dollars every year in modernizing our distribution infrastructure, which improves safety, reduces emissions and is recoverable in the form of riders or trackers that will continue over the course of at least the next decade. Regulators continue to approve new investments like our on-system peaking storage facility in Utah that will improve system reliability for decades to come. Our gas distribution segment is focused on being part of the solution to a sustainable future. Finally, let me now discuss our gas transmission and storage business. First, RNG. We are the largest agricultural waste-to-energy investor in the United States with investments of $700 million across our partnerships over the next 10 years. These investments will grow as the offtake market matures. Through these efforts, we capture otherwise fugitive methane from livestock and convert it to pipeline-quality natural gas for use in homes, businesses and vehicle fleets. Every captured unit of methane is the equivalent of eliminating 25 units of carbon dioxide. Dominion is uniquely positioned to lead the industry in this effort, given the geography of our assets. At Investor Day last year, we identified marine LNG as one of the many innovative ideas we were working to advance. By way of background crews and cargo vessels primarily consume diesel or fuel oil each of which is a major contributor of greenhouse gas and other emissions. The maritime industry is taking steps encouraged by recent global regulation to reduce its emissions footprint, which is expected to result in a material shift to LNG. This expected growth in LNG as a fuel source allows Dominion an attractive opportunity to provide natural gas liquefaction and LNG distribution services to a growing list of maritime customers. As Jim mentioned, we are acquiring an interest in existing Florida-based operation that currently services marine vessels with an onshore liquefier coupled with marine fuel delivery infrastructure. Customer contracts in this business are typically long-term, take-or-pay with no commodity exposure. This initial acquisition will support a broader marine LNG strategy that would include Cove Point where we're partnering with an existing export customer to redirect a portion of their liquefied natural gas inventory to provide LNG to constrained markets along the East Coast and to provide fuel for marine vessels under 0 commodity risk take-or-pay contracts. Importantly, this arrangement does not and will not alter the existing 20-year take-or-pay export contract revenues or terms. While modest initially this market has the potential to support the significant decarbonization of the country's marine industry in addition to radically reducing pollution at our nation's ports. Overall inclusive of the acquisition from Southern Company, we expect to deploy approximately $200 million on this strategy over the next 5 years. This is an innovative element of our long-term Beyond Dominion Energy effort to help our customers new and old meet their emissions reduction targets. Turning now to an update on activities related to the Atlantic Coast pipeline as shown on Slide 24. Two weeks from yesterday, the Supreme Court will hear oral arguments related to the Appalachian Trail crossing aspect of our U.S. Forest Service permit. We remain optimistic that the court will issue an order reversing the 4th Circuit in the May or June timeframe. We continue to work with the U.S. Fish and Wildlife service on a reissued biological opinion and are pleased that FERC reinitiated formal consultation yesterday. We applaud the service for taking the time to consider thoroughly the feedback provided by the court during the prior judicial proceedings and we believe an updated biological opinion will be issued during the first half of this year. Upon receipt of the updated biological opinion, we intend to notify FERC and anticipate thereafter, the recommencement of construction across major portions of the pipeline. We're also pleased with the progress related to projects' Nationwide 12 permit which was issued by and subsequently voluntarily remanded to the U.S. Army Corps of Engineers. Last month The Corps adopted repromulgated regulations that would allow for ACP to seek reissuance of the permit. As it relates to the Buckingham County compressor station air permit which was vacated late last year, I repeat my message from our last earnings call. We can deliver a very material amount of contracted volumes to customers on our existing schedule even if permit resolution delays the in-service date of the project's third compression station. We are working on a number of solutions which we expect will resolve the issue during the second half of this year. We believe that the options we are evaluating will satisfy the court's concerns. We started on process not the substance of the permit itself. Based on our expectation of the biological opinion being reissued during the first half of the year, we are confirming our project timeline, the calls for construction completion by the end of next year and commissioning to be completed shortly thereafter. Project costs of approximately $8 billion are in line with the high end of the judicial option range, we provided about a year ago. This estimate incorporates the various potential approaches to permitting issues and construction plans and timing including as relates to the Buckingham compressor station which are being contemplated in the customer discussions that Jim described. Also as noted, we have agreed to acquire the 5% ownership in the project from Southern Company further underscoring our confidence in the successful completion of the project. With that, I will summarize today's call as follows. Our first value is safety and we achieved another year of record safety performance. We introduced a net zero emissions by 2050 target that accounts for carbon and methane emissions across both, electric and gas operations. We achieved weather-normalized operating earnings that exceeded the midpoint of our guidance range for the 16th consecutive quarter. We further improved our credit metrics and successfully completed the restructuring of our operating segments. We introduced 2020 earnings guidance that represents a 5% year-over-year increase consistent with previous messaging. We confirmed our earnings per share growth expectations of 5-plus percent post-2020 and we are making significant progress across our capital investment programs to the benefit of our customers. We will now be happy to answer your questions.

Hey good morning guys.

Good morning.

Thanks for the additional disclosures on the ACP slides. With the AFUDC rate versus returns once gas is flowing, can you just elaborate if you're expecting any sort of step down there in your assumptions? I guess what returns are you kind of assuming in your $0.20 to $0.25 per share contribution once the pipes are in service post these contract negotiations? And curious, if these negotiations built-in any potential further cost increases?

Sure. Good morning, it's Jim. Thanks for that. Yes, there has been as we said in our prepared remarks quite the substantial discussions with the anchor customers, the anchor shippers. And those discussions don't really revolve around ROE. It revolves around a rate. So, what the guidance we've given is, is for the first full year of operation at that rate. And that will of course imply an ROE, which folks can do the math on, but it's reflective of the expected rate for the anchor shippers. Now, when you do calculate that ROE that's implied by that math, you'll get to a number that is reflective of the first full year of operation only, meaning over time, as that project expands through laterals or compression or whatever, that's not reflected in that year one ROE, but that will all flow from the input, which is the agreed upon customer rate and cost.

Got it. Can you provide an update on laterals and compression, Jim? What are your intentions regarding that at this point?

No. What we can say is that we are optimistic that there will be expansions over time. Sorry, this is Diane Leopold. But we're right now focused on getting the base project in.

Okay, got it guys. This was terrific. Thanks so much.

Thanks Shar.

Thank you.

Thanks. Good morning.

Good morning.

Tom, you've covered a lot and made significant progress, so congratulations. Did you mention whether you expect any substantial legislative activity in Virginia this year? If so, what should we be monitoring?

Thank you, Greg. We highlighted two key points: the legislation that would facilitate the conversion of up to 1,500 diesel school buses to electric by 2025, along with bills currently progressing in both the House and Senate. Today marks Crossover Day in Virginia, which is the deadline for each House to finish its own bills. The House must complete its House bills before they transfer to the Senate, where they can no longer work on House bills after tonight. The same applies to the Senate. There are proposals regarding electric school buses in both houses, as well as bills aimed at providing additional regulatory clarity for our 2.6 gigawatt offshore wind farm. In addition, there's been a significant amount of legislative activity. While some bills are no longer viable, others remain in play, and we are closely monitoring them as they progress through the legislative process. At this stage, it's too early to provide further comments on these matters.

Great. What outcome do you expect from the legislation regarding offshore wind if it passes, and what kind of regulatory framework would that involve?

The bills are pending and they speak for themselves. They contain language that increases regulatory clarity.

Okay. Thank you, all. I will go take a read. Appreciate it. Take care.

Thank you.

Thanks, Greg.

Hi, guys.

Good morning.

Good morning. Hey. What impact of the FERC MOPR have on Virginia the offshore wind projects? And what is your, I guess, your decision process at MEPCO versus an FRR on tariffs?

Michael, it's Jim. Let me start by saying that we don't anticipate the proposed MOPR will have any significant financial impact on Dominion. Our capacity and load in Virginia is fairly balanced, so there is no immediate impact. If we do see that changes with MOPR and PJM rules might prevent us from receiving capacity payments on new generation, we could easily choose the FRR option for the benefit of our customers in Virginia. This option is straightforward and already available to another utility in the Virginia regulatory framework, so we don't expect MOPR or FRR to affect our business significantly either way.

Okay. So for now I mean I guess later on you might make that election if it does impact the ability to bid into the auction for the offshore wind correct?

Correct.

One other question. The $8 billion for ACP is a little higher I guess you're at the high end of the range now. What are some of the factors that are pushing that up towards the high end of the range? Is it the Buckingham issue or something else?

Hi. This is Diane Leopold, again. So we run a lot of scenarios incorporating where we are with permitting issues and based on the timing of that, construction scenarios certainly including Buckingham compressor station options. And all of those have been taken into account in the customer negotiations that are factoring into revised rates. But really that's what took us to the $8 billion which is in line or just above the high-end of that judicial option range.

Okay. Got it. Thank you very much.

Thank you.

Thank you.