In late 2022, Dominion Energy (D) announced a “top-to-bottom” strategic review. Management’s objective: To tackle three headwinds that were rapidly approaching hurricane force. The results of its efforts are now bearing fruit, writes Roger Conrad, editor of Conrad’s Utility Investor.

Most important was ensuring the cost of its Coastal Virginia Offshore Wind (CVOW) project wouldn’t balloon as it has for other now-cancelled US projects. Second, the utility had to reach an accommodation with a restive Republican majority in the state legislature that was determined to roll back Democrats’ signature renewable energy law it was already complying with. And third, management had to cut parent-level and floating-rate debt with interest rates soaring.

Investors have consistently assumed the worst outcome from the review, and the stock price halved before hitting bottom in early October. But it’s now increasingly clear results will be considerably more benign than expected, if not outright bullish.

The company took an expected earnings hit from the utility regulation compromise reached with Virginia lawmakers. But the deal also ensures the path of investment, with the company reaching a favorable settlement in its first rate review under the Republicans’ net law. And the state voted for divided government and therefore regulatory stability in November.

Dominion has now locked in 92% of CVOW construction costs, while cutting the cost of the project to $77 per megawatt hour from previous guidance of $80 to $90. And in the coming weeks, management is expected to announce a financial partner in the project on favorable terms.

Proceeds from a successful CVOW partial ownership sale – combined with $3.5 billion realized from the now-closed sale of the Cove Point LNG export facility and $14 billion for divesting natural gas distribution utilities to Enbridge (ENB) – will boost earnings by 50 cents per share from annual interest savings alone. That’s enough to leave Dominion’s dividend intact, with a long-term growth rate of at least 4% to 6%.

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