Robert M. Blue
Chair, President and Chief Executive Officer at Dominion Energy
Thank you, David. Good morning, everyone. I'll begin my remarks by highlighting our safety performance. As shown on Slide 3, our OSHA injury recordable rate for the first nine months of the year was 0.43 a significant improvement relative to already strong historical performance. I commend my colleagues for their consistent focus on employee safety, which is our first core value.
Moving now to the business review. It's been a year since we announced the review. These last 12 months have been a challenging environment for utility investors generally and even more so for Dominion Energy shareholders. As stewards of investor capital, we take that very seriously. That said, my conviction around the decision to launch and execute the review has not wavered. It is the right course of action for Dominion Energy, and we are seeing it through to its successful completion with urgency and with care.
Let me take a step back and share some of the most common themes I heard from our investors in the months leading up to the announcement of the review. Dissatisfaction with our track record of inconsistent earnings growth, and an earnings mix, which too often had what some investors considered to be lower quality earnings.
Questions about the complexity and durability of the Virginia regulatory model and concerns around the balance sheet, which included never fully addressing the impact of the failure of our master limited partnership financing model, as well as leaning on our balance sheet to remedy short-term earnings pressures at the potential cost of longer-term credit quality both of which contributed to our living below our downgrade thresholds even in a low interest rate environment, all of which led to inquiries around whether a new approach was needed to deliver results that were consistent with shareholder expectations.
Since announcing the review, I've had the opportunity to engage directly with many of our shareholders. While opinions around the exact path and desired outcome of the review have varied, the common direction I receive and with which I strongly agree is that the review must comprehensively and finally address the foundational concerns that have eroded investor confidence over the last several years. This can't be a series of partial solutions that lead key elements and risks unaddressed. That's how we've approached this top to bottom review. And we've strived to leave no stone unturned in our effort to deliver a result that will provide a durable, transparent, credible and achievable strategic and financial profile that puts Dominion Energy on a path to compelling long-term value for shareholders, customers, and employees.
We've taken several meaningful steps over the last 12 months in furtherance of our objectives and are rapidly nearing a conclusion to this comprehensive review. With that context, let me recap our progress before turning to what's left to conclude the review. Again, we're moving with urgency, but also with great care, and our guiding priorities and commitments are unchanged.
As shown on Slide 4, we supported bipartisan legislation in Virginia that puts our largest utility on solid and durable footing, which will enable our delivery of the reliable, affordable and increasingly clean energy that powers our customers every day for decades to come, while also playing a vital role in supporting Virginia job creation, tax revenue and economic growth. This legislation supports our compelling value proposition to customers. If you're a residential customer in Virginia, you pay approximately 16% less per kilowatt hour for your electricity than the average U.S. utility customer, and your power is on 99.99% of the time outside of a major storm event.
Furthermore, we're taking an all-of-the-above approach to ensure a highly reliable grid, while we work to decarbonize and meet unprecedented demand growth. We're making billions of dollars of investment and low to zero carbon generation resources, as well as transmission and distribution infrastructure that will work together to maintain critical grid reliability.
And for investors, we compete for your capital in support of our customers by enhancing timeliness of recovery for prudently incurred investment by the preservation of riders and the establishment of regular base rate case reviews. Meanwhile, we will be positioned to deliver constructive regulatory outcomes that appropriately balance customer needs with investor demands for strong capital structure and a competitive return on equity against an industry-leading demand growth backdrop.
Two, we've been and continue to be 100% committed to our current dividend. Earnings growth, combined with a period of low to no dividend growth will restore our payout ratio to a peer appropriate range over time.
Three, we indicated that we are eliminating future operating earnings from sources that investors have told us they consider to be of low quality. That includes the upfront recognition of unregulated solar investment tax credits and certain gains from asset sales.
Four, on the strategic front, we announced and closed on the sale of our remaining interest in Cove Point. We applied the $3.3 billion of after-tax proceeds to reducing debt. This was a significantly credit-accretive transaction done with a high-quality counterparty after a robust competitive process.
Five, we announced the sale of our gas utilities to Enbridge, one of North America's largest energy infrastructure companies. We ran broad and competitive processes for each of the individual utilities, and we are delighted to have found a partner that not only shares our ideals around safety, reliability, customer service, employee treatment and community investment, but that was also the most competitive option on value across each of the three utilities.
We intend to apply 100% of the estimated after-tax proceeds of nearly $9 billion to reducing parent-level debt, which based on current rates, will result in the reduction of around $500 million of pretax interest expense annually. Like Cove, these are significantly credit accretive transactions. By way of update, all state regulatory HSR and the initial CFIUS filings have now been submitted and the HSR waiting period expired on November the 1st.
We're pleased though not surprised with the positive reception the Enbridge team has gotten from employees, regulators and policymakers. Further, Enbridge has already taken steps to materially prefund the acquisition. We expect a staggered close for each of the LDCs with all three transactions closing in 2024.
Moving to Slide 5. On O&M, we've continued to focus on and identify incremental cost savings, particularly in the area of corporate overhead. We are, have been and will continue to be one of the most efficient and most reliable electric utility companies in the country.
Finally, on governance. The Board and direct response to investor feedback modified my compensation structure for 2023 to align my economic incentives more closely with the financial interests of our shareholders. As a result, 100% of my 2023 long-term incentive compensation is now performance-based, 70% is premised solely on three-year relative total shareholder return with the 65th percentile relative performance required to achieve a 100% payout, which is well above the medium threshold of industry peers.
Staying with the topic of governance and consistent with corporate best practice, we've maintained a regular cadence of Board refreshment. Earlier today, we announced that Mike Szymanczyk and Ron Jibson will not stand for reelection next year. I want to thank Mike, whose departure is a result of our age-based mandatory retirement policy and Ron for their faithful and dedicated service to our Company over the last several years.
And I welcome Paul Dabbar and Vanessa Sutherland to the Board effective December 1. Their biographical information was included in today's press release. But suffice to say they are both uniquely qualified to continue the strong legacy of governance that Mike and Ron are leaving behind. As part of our ongoing Board refreshment process, we've now added six new directors since 2019, bringing the average tenure of our 11 directors to six years.
The Board will continue to work to ensure our shareholders' interests are properly represented via robust governance. Each of these steps serve a valuable purpose in achieving the guiding principles of the review. They enhance the durability of our Virginia regulatory model. They address concerns around earnings quality. They strengthened the balance sheet. They emphasize our commitment to good governance, including a disciplined approach to O&M expense. However, our work isn't complete. Our offshore wind project is a significant focus of our investors. The project, which is fully regulated, is on time and on budget. Let me just repeat that. Our project is progressing in alignment with our unchanged cost estimate and our unchanged in-service target date.
Earlier this year, in recognition of the potential value for customers and shareholders, we supported legislation that allows us to petition the Virginia State Corporation Commission to take a controlling equity financing partner in the project, a non-controlling equity financing partner in the project. As part of the business review, we're in advanced stages of a process to transact with a partner with a focus on pro rata sharing of project costs. The process has driven considerable interest from attractive and high-quality potential counterparties. Their interest is driven by the attractive characteristics of our project, including our priority position in the offshore wind supply chain, our successful track record of on-time permitting with the strong support of federal agencies.
The bipartisan and public support of Virginia political business and community leadership, a differentiated legislative and regulatory construct that is delivering on behalf of our customers and significant derisking, which I'll highlight further later in my prepared remarks, driven by both the advanced stage of development, as well as a high percentage of fixed costs.
Combined with the prospect of deploying a significant amount of capital into a high-quality, long-term regulated investment, it's no surprise to me that the process has generated strong interest. We will conclude the business review when we've made a final decision on an offshore wind project partner. That's the final strategic step outstanding in the business review and it's in the long-term best interest of our customers and shareholders that we make the right, not just the expedient decision.
A properly structured partnership with the optimal counterparty is an attractive option, but only if the terms of a potential transaction makes sense for our customers and shareholders. We expect a decision by year-end or in early 2024.
As we near the review's conclusion, I'm more optimistic than I have ever been about the future of our Company. We've always owned great assets and operated at best-in-class levels with an industry-leading workforce of dedicated employees, who are devoted to our fundamental mission, to provide reliable, affordable and increasingly clean energy that powers our customers every day. I'm confident that upon concluding the review, we will have a solid long-term financial foundation that matches the remarkable quality of our assets and people.
Let me also be clear, we recognize that we must consistently execute against the financial targets we provided at the conclusion of the review. As is always the case, I am accountable for and my entire leadership team has embraced our commitment to consistently deliver high-quality earnings growth that meets that plan. We'll continue to announce updates, as events warrant.
Upon completion of the review, we expect to host an investor meeting to discuss the Company's repositioned strategic and financial outlook. Steven will share some additional thoughts on investor communication in his prepared remarks.
Let me now touch on a handful of key business updates, starting with the offshore wind project. As I mentioned, the project is proceeding on time and on budget, consistent with the timelines and estimates previously provided. We continue to achieve significant milestones.
On Materials and Equipment, as shown on Slide 7, last week, we celebrated the arrival of the first eight monopiles from our supplier, EEW at the Portsmouth Marine Terminal with the Virginia Governor, Lieutenant Governor, Attorney General, General assembly leaders from both parties, representatives from Virginia's congressional delegation, leaders from the Bureau of Ocean Energy Management and other local military, civic, educational, environmental, labor and community partners. We're fortunate to have the remarkable support of these national, state and local leaders. The offloading of these monopiles onto the newly upgraded port facilities went exceptionally smoothly. The next transport ship for monopiles is expected to be loaded at the factory later this month and delivered to the port in December. Also, worth noting that turbine blades and the cells remain on track with a fixed production schedule and mature existing manufacturing facilities.
Turning to Slide 8. We continue to expect the project to be completed by the end of 2026. On permitting, the final environmental impact statement was issued on September 29th, and the record of decision was signed on October 30th, which allows us to begin onshore construction. In fact, we began construction mobilization this week. On regulatory, as a reminder, our 2022 rider filing for the project was approved in July, representing $271 million of annual revenue. Earlier this week, we made our 2023 rider filing, representing $486 million of annual revenue. We expect the final order by August of 2024.
On project management, there are over 100 personnel dedicated to this project and growing. Many of our offshore wind project leaders and personnel have also managed our most complex construction projects including thousands of megawatts of large gas-fired generation, the Cove Point liquefaction facility and the offshore wind test turbines.
While each of those projects presented unique complexities and risks, they all required sophisticated management of contracts, vendor relationship, scheduling, engineering, procurement, construction and oversight. Skills, expertise and lessons learned, which are now being applied to full effect to the offshore wind project. In addition, we also have numerous offshore wind industry experts from around the globe supporting the team.
On principal suppliers and vendors, as you might expect, Diane, Mark Mitchell, who's our Senior Vice President of Project Construction and I interact frequently, including regular in-person meetings with the CEOs and leadership teams of each of our primary vendors. We perform regular site visits during which we inspect the manufacturing facilities and interact with boots on the ground project managers and members of the workforce. We maintain near constant dialogue with our key project partners at a variety of levels. Based on this ongoing monitoring and diligence, we fully expect that our vendors without exception, will continue their support of the project's timely completion.
On the performance of our test turbines, our two adjacent test turbines have delivered an average net capacity factor over the last three years of approximately 46%, with a 97% availability factor. The high reliability and strong operating performance of our test turbines provide further confidence in the capacity factor of the larger commercial project.
Turning to costs on Slide 9. I draw your attention to the key metrics we've included in the slide, much of which is by way, a reminder. First, we updated the project's expected LCOE in our filing earlier this week to approximately $77 per megawatt hour, as compared to our previous range of $80 to $90. The decrease reflects updated and refined estimates around production tax credit, cost of capital and rec values. We've provided sensitivities to show how the average lifetime cost to our customers is impacted by capital costs, capacity factor and interest rates. We remain well below the legislative prudency cap on this metric.
Next, the project total cost remains $9.8 billion. Project to date, we've invested approximately $2.3 billion, which we expect to grow to around $3 billion by year-end. I'm pleased to update that our current project costs, excluding contingency, have improved to 92% fixed. The remaining cost to be fixed include finalizing the construction for the above-ground onshore electrical work. Certain commodities consisting mainly of the fuel, which will be used for transportation and installation and other project oversight costs.
Our current contingency estimate, which is included in the $9.8 billion budget, has increased modestly relative to our initial filing position despite being at a much more advanced phase of project completion and having fixed a significant portion of costs. At $370 million, the current contingency as a percentage of total budgeted costs and in the context of this stage of completion, benchmarks competitively when compared to other large infrastructure projects we've studied. With 92% of project costs now fixed, our current contingency is about half of our remaining unfixed costs. We've been very clear with our team and with our vendors that delivery of an on-budget project is the expectation.
Moving to Slide 10. A couple of final points here on Charybdis, our Jones Act compliant installation vessel being constructed in Brownsville, Texas, by Seatrium, formerly known as Keppel. The vessel is currently 77% complete. We continue to expect it to be delivered late 2024 or early 2025, which is later than we originally planned, but still supportive of our construction timeline. I personally visited the site earlier this week, met with management and reviewed progress.
A few highlights. Seatrium has extensive relevant experience in constructing vessels similar to Charybdis. The project is considered strategically important to their management team, and they are committed to timely completion of the project. They've dedicated some of their most experienced management and supervision from Singapore to support the efforts in response to project delays. Labor, which was an initial constraint has increased from 800 to over 1,000 and is continuing to be augmented. Recent construction milestones including a major milestone of first leg installation in late August are being met, and the vessel is on track for engine start up later this year.
All major subcomponents are on-site and awaiting installation. Supply chain is not a cause of concern. On costs, there's been no change to the underlying construction cost estimate for Dominion Energy. Last quarter's $75 million increase in total project costs to $650 million, including financing costs, is largely attributable to higher financing costs related to higher rates and a longer construction timeline, with the remainder being attributable to small increases to some ancillary costs, such as crude training and capital spares. In summary, there is no change to the vessel's expected availability to support the current CVOW construction schedule, including its availability to support any third-party charter agreements in 2025. We've provided supplemental information related to our offshore wind project that can be found in materials included on our Investor Relations website.
Transitioning now to the Virginia Biennial review, which is currently in the testimony phase. As a reminder, DEV submitted its biennial filing on July 3rd, initiating a review of base rates, which represents about a third [Phonetic] of DEV's total rate base. Virginia Rider investments like offshore wind, solar, battery storage, nuclear life extension and electric transmission, which are outside the scope of the proceeding represent the vast majority of the growth at DEV. We look forward to engaging with parties to the case and would expect a final order by March 3rd of next year.
Turning to other notable DEV updates. We made our fourth clean energy rider submission in October. The filing included new solar projects and represented nearly $900 million of utility-owned solar and rider eligible investment. We expect to receive an order from the SEC in the second quarter of 2024.
On data centers, we continue to advance a series of infrastructure upgrade projects that will enable incremental increases in power for data center customers in Eastern Loudoun County. Four projects have been completed ahead of schedule. An additional project is currently under construction and on schedule to be completed by the end of 2023. We continue to develop a new 500 kv transmission line with an expected in-service date of late 2025.
Given the unprecedented growth in areas served by our electric transmission, we continue to see an acceleration of and long-term increase in electric transmission investment opportunity throughout our service area. As part of PJM's transmission planning process, we submitted numerous new projects that we believe are needed to ensure the electric grid in Virginia is reliable, resilient and able to adapt to increasing energy demand while also transitioning to cleaner energy resources. PJM recently advanced the majority of these projects for further evaluation. We've also included updates on our latest grid transformation filing as well as our fuel securitization proceeding.
Turning to Dominion Energy South Carolina. In addition to delivering safe and reliable energy DESC's electric rates for residential customers are 8% below the national average. This represents an improvement of 21% relative to the national average since the time of the merger announcement, when rates were 13% higher than the national average. We're meeting the expanding energy needs resulting from robust economic development and population growth in South Carolina.
On the regulatory front, we reached a settlement in our natural gas general rate case, which the Public Service Commission unanimously approved on September 20. The settlement will result in a $9 million increase with new rates effective in October. Since the merger, we now achieved rate settlements in both electric and gas base rate cases which is a testament to the company's improved regulatory and stakeholder relationships in the state.
With that, I'll turn the call over to Steven.
