Good morning, and welcome to the Dominion Energy and Dominion Energy Midstream Partners First Quarter 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 as to the procedure to follow if you'd like to ask a question. I would like to now turn the call over to Tom Hamlin, Vice President of Investor Relations and Financial Planning for the Safe Harbor statement.
Good morning, and welcome to the Q1 2018 earnings conference call for Dominion Energy and Dominion Energy Midstream Partners. During this call, we will refer to certain schedules included in this morning's earnings releases and pages from our earnings release kit. Schedules in the earnings release kit are intended to answer the more detailed questions pertaining to operating statistics and accounting. Investor Relations will be available after the call for any clarification of these schedules. If you've not done so, I encourage you to visit our Investor Relations page on our website to register for e mail alerts and view our Q1 earnings documents.
Our website addresses are dominionenergy.comanddominionenergymidstream.com. In addition to the earnings release kit, we have included a slide presentation on our website that will follow this morning's discussion. And now for the usual cautionary language. The earnings releases and other matters that will be discussed on the call today 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 ks 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.
Also on this call, 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 that we are able to calculate and report are contained in the earnings release kit and Dominion Energy Midstream Partners' press release. Joining us on the call this morning are our CEO, Tom Farrell our CFO, Mark Migetrick and other members of our management team. Mark will discuss our earnings results, financing plans and Dominion Energy's earnings guidance. Tom will review our operating and regulatory activities and review the progress we have made on our growth plans.
I will now turn the call over to Mark McKetrick.
Good morning. Dominion Energy reported operating earnings of $1.14 per share for the Q1 of 2018, which was at the top of our guidance range. Positive factors for the quarter relative to our guidance include higher margins from our merchant generation business, form out transactions, growth in our electric transmission and gas distribution businesses, lower operating expenses and more benefit from tax reform than anticipated. The principal negative factor for the quarter relative to guidance was about a 1 month delay in the in service date for Cove Point. GAAP earnings were $0.77 per share for the quarter.
The principal differences between GAAP and operating earnings were a $215,000,000 pretax charge for future rate credits to our electric customers in Virginia pursuant to recently enacted legislation and a market loss of $43,000,000 pretax on our nuclear decommissioning trust. A reconciliation of operating earnings to reported earnings can be found on Schedule 2 of the earnings release kit. Moving to results by business segment. Our Power Delivery Group produced EBITDA of $423,000,000 in
the first quarter, which was
in the upper half of its guidance range. Lower than expected operating expenses and better results from our electric transmission business drove the positive results. EBITDA for our Power Generation Group was $748,000,000 in the first quarter, which exceeded the top end of its guidance range. Higher margins at our merchant generation business, reflecting colder weather and excellent unit availability, was the principal positive factor. The group also had lower than expected operating and maintenance expenses.
Our Gas Infrastructure Group produced EBITDA of $612,000,000 in the 1st quarter, which was in the lower half of its guidance range. As mentioned earlier, Cove Point exports in service date was about 1 month later than was expected at the time we issued guidance and therefore made no contribution to earnings in the Q1 it was a primary factor in the underperformance. Partially offsetting the impact were the execution of 2 format agreements as well as strong results from our gas distribution operations. Overall, we are pleased with the very strong results from our operating groups. Dominion Energy Midstream Partners produced adjusted EBITDA of $79,500,000 for the Q1 of 2018 compared to $75,400,000 produced in the Q1 of 2017.
Distributable cash flow was $52,100,000 which was 18% above last year's Q1. During the Q1, we secured a $500,000,000 revolving credit facility for Dominion Midstream to replace their prior credit line with the parent company. On April 20, Dominion Energy Midstream's Board of Directors declared a distribution of $0.334 per common unit payable on May 15. This distribution represents a 5% increase over last quarter's payment. Our coverage ratio remains strong at 1.23x.
On March 15, FERC made an unexpected announcement that reversed their long held policy with regard to rate making for natural gas pipelines owned by Master Limited Partnerships. The decision caused a sell off of MLPs, whereby $30,000,000,000 of market value was lost over the 10 trading days that followed the announcement. We and others have filed for expedited rehearing of this issue with FERC. We believe it will take years before FERC's policy change has any impact on Dominion Energy Midstream Partners' distributable cash flow and any change will be immaterial to earnings at Dominion Energy. We hope that the MLP market conditions will sufficiently improve to enable us to utilize DM to recycle capital investments in Cove Point and the Atlantic Coast Pipeline, both of which remain MLP eligible and are not directly impacted by FERC's actions.
As long as this issue at FERC is unresolved and pipeline MLPs continue to trade at such depressed levels, we do not believe we can access the capital markets for new equity at DM on reasonable terms. Therefore, absent a material improvement in the MLP Capital Markets and Dominion Energy Midstream's market price, we will not be making the previously planned dropdown of a portion of our investment in Cove Point this year. Furthermore, we plan to restructure the incentive distribution rights at DM prior to our returning to the market for new equity. In the meantime, we will continue to recommend 5% quarterly increases in distributions to the Board of Directors as long as our coverage remains above 1x, supported by strong, stable cash flows from the current assets in the partnership. Moving to treasury activities at Dominion Energy.
On our last call, we outlined a number of initiatives we have planned for 2018, which are in support of our balance sheet and credit profile. First, we issued $500,000,000 of new common equity through our aftermarket program in January. 2nd, we reduced our planned capital expenditures by $1,000,000,000 over the next 2 years. 3rd, we upsized Dominion's credit facilities to a total of $6,000,000,000 and added a $500,000,000 line of credit for Dominion Midstream. In light of the disruption in the capital markets for MLPs following FERC's policy changes, we have made a number of changes to our financing plans in order to achieve our financial objectives.
Recall, we were planning to use the MLP markets to upstream between $7,000,000,000 $8,000,000,000 of cash to the parent between 2016 and 2020. A comparison of that original plan and our alternative plan is shown on Slide 8. In the alternative plan, financing at the MLP is being replaced with debt financing at Cove Point. Both proposals are primarily secured by the same cash flows, which are stable 20 year payments from our Cove Point export customers. We expect to complete the debt financings this year.
Early this month, we entered into agreements to issue an incremental $1,500,000,000 of common stock later this year, bringing our total for the year to $2,000,000,000 With the exception of about $300,000,000 per year that we plan to issue under our normal DRIP program, this completes our planned marketed equity issuance through 2020. Finally, we have targeted some non core assets for potential sale, including our share of the Blue Racer joint venture. These actions will enable us to achieve our parent company level debt reduction targets 2 years earlier than planned, while still achieving our earnings growth targets. Now to earnings guidance at Dominion Energy. Operating earnings for the Q2 of 2018 are expected to be between $0.70 $0.80 per share compared to $0.67 per share earned in last year's Q2.
Positive factors for this year relative to the Q2 of 2017 are earnings from Cove Point, the absence of a refueling outage at Millstone, lower tax expense due to tax reform and a return to normal weather. Negative factors relative to last year are lower solar related investment tax credits, higher financing costs and a higher share count. Operating earnings guidance for 2018 is unchanged at $3.80 to $4.25 per share. The midpoint of our range is 10% above the middle of last year's guidance range. Given the strong results for the Q1, we now expect to produce results that are above the midpoint of our guidance range for the year.
Our earnings growth rate estimate also remains 6% to 8% from 2017 through 2020. So let me summarize my financial review. Operating earnings were $1.14 per share, landing at the top of our guidance range. These results were driven by strong performance in each of our businesses and a higher benefit than expected from tax reform. We are taking aggressive steps to respond to the depressed MLP financial markets in light of FERC's unexpected policy change.
2018 operating earnings are still expected to be at least 10% above the midpoint of our 2017 operating earnings guidance range, consistent with our previous guidance. Our 2017 to 2020 earnings growth rate remains 6% to 8% despite the changes made to our financing plans. Finally, with regard to our dividend growth rate, we reiterate our intention to increase our dividend 10% in 2018 2019. The growth rate in 2020 is expected to be between 6% 10% depending on the viability of the MLP market at that time. I will now turn the call over to Tom Farrell.
Good morning. Our employees record setting safety performance continued through the Q1 of 2018. An all time low OSHA recordable rate of 0.66 was reached in 2016. Then last year that record was exceeded by an additional 10% improvement to a new record low of 0.60. For the Q1 of this year, each of our business segments are meaningfully ahead of last year's record setting pace.
I'm very proud of our company wide commitment to industry leading safety performance. Our nuclear fleet continues to operate well. The net capacity factor of our 6 units for the Q1 was 98.5%. On March 31, Dominion Energy's nuclear fleet achieved a new company record operating for 5 38 days and counting without an unplanned automatic reactor shutdown. The previous record was 339 days set in 2012.
Weather normalized electric sales for the Q1 were up 1.7% over the Q1 of 2017, led by growth in sales to data centers and residential customers. During the quarter, 6 new data center campuses were connected, 3 more than last year's Q1. Over the last 12 months, we've added over 400 megawatts of demand across 16 data centers and expect to continue to see strong growth. Now for an update on our growth plans. The Cove Point liquefaction project was declared commercial on April 9.
Cove Point is the 1st export facility to operate on the East Coast of the United States and only the 2nd new LNG facility to be constructed nationwide. Construction began in October 2014 following more than 3 years of federal, state, local reviews and approvals. At a cost of $4,000,000,000 it is the largest construction project to date for Dominion Energy and is actually the largest project ever constructed in the State of Maryland. It has involved more than 10,000 craft workers with a payroll of more than $580,000,000 Liquefaction facility has nameplate capacity of 5,250,000 tons per annum of LNG equivalent to about 8,300,000 gallons per day. All of the export output from Cove Point is fully contracted for 20 years with a joint venture of Sumitomo Corporation and Tokyo Gas and an affiliate of Gale.
Cove Point will generate about $700,000,000 of annual EBITDA to Dominion Energy. Also during the Q1, the Charleston expansion project for Dominion Energy Carolina Gas was completed and placed into service. The $125,000,000 project included 60 miles of new natural gas pipeline and a new compressor station to deliver 80,000 dekatherms per day to customers in South Carolina. This is the largest expansion project investment in Carolina Gas' history and the 3rd growth project completed since 2015 when Dominion Energy began operations in South Carolina. On January 19, we began cutting trees along the pipeline route for the Atlantic Coast Pipeline and the related supply header project.
Despite the late start, we were able to complete tree felling on more than 200 miles of the 600 mile project, which is about 3 quarters of our planned miles this year. We've also begun to receive approvals to begin full construction in numerous areas, including several compressor stations and other facilities. Just this week, FERC granted our request to begin full construction on a section of pipeline in the supply header project. We have filed with FERC to request full pipeline construction to begin in West Virginia and plan to make a similar filing for North Carolina in the near future. Approval of our erosion and sediment plan by the Virginia DEQ, which we expect in the coming weeks, we will file for notice to proceed for mainline construction in Virginia as well.
The Atlantic Coast Pipeline and supply header projects are expected to be in service in the Q4 of next year. Construction of the 1588 Megawatt Greensville County combined cycle power station continues on time and on budget. As of March 31, the $1,300,000,000 project was 84% complete. All major equipment is set and flushing of the combustion turbines is nearly complete. The primary natural gas line and metering and regulation are complete and awaiting final commissioning.
Rainfall is on schedule to achieve first fire this quarter and is expected to achieve commercial operations late this year. We are pleased that Connecticut's procurement for clean energy including nuclear power continues to progress. On February 1, Connecticut regulators determined they will proceed with a solicitation for bids for new and existing carbon free resources, which includes Millstone Power Station to meet its public policy goals. Connecticut's RFP will be issued by May 1 and responses are expected to be due in September. Simultaneously, Millstone has the opportunity to participate in a proceeding determining that it is an at risk resource.
That designation would mean that Millstone's bid will be judged on price and non price attributes such as carbon reduction, fuel diversity, economic impacts, etcetera. Dominion plans to request at risk designation and looks forward to submitting a competitive bid that will help Connecticut meet its energy and environmental goals while also stabilizing Millstone's revenue. Finally, I want to make a few comments on our offer to merge with SCANA Corporation. As you know, on January 3, we announced our agreement where Dominion would exchange 0.669 shares of its common stock for each SCANA share. Included in the offer was a proposal for upfront payments and ongoing bill reductions, which would substantially reduce the cost to customers from the abandoned nuclear development project.
We have received clearance from the Federal Trade Commission and approval from the Georgia Public Service Commission. We expect the SCANA shareholder approval this summer and still needs approval from the state utility commissions in North Carolina and South Carolina. We have participated in legislative hearings to explain our proposal lawmakers who are considering temporary changes to the South Carolina Baseload Review Act. Recent polling indicates very strong support for our proposal within the state and a recent study by 1 of South Carolina's leading economists indicated that the state could see more than $18,700,000,000 in increased economic output as a result of our merger. We are optimistic that our proposal will be viewed favorably by regulators and we can complete the transaction later this year.
So to summarize, our businesses delivered record setting operating and safety performance through the Q1. Cove Point is in commercial operations. Construction of the Greensville County project is on time and on budget. We have begun full construction on portions of the Atlantic Coast Pipeline and Supply Header project and anticipate full construction throughout the entire project later this spring. We are on track to be in service late next year.
We are optimistic that we will complete our merger with SCANA later this year. And with our alternative financing plan, we expect to meet our earnings per share growth targets and credit objectives. Finally, we have reviewed our dividend growth assumptions with our Board and reconfirm our policy to increase the dividend 10% annually in 2018 2019. The growth rate in 2020 is expected to be between 6% 10% depending upon the viability of the MLP market at that time. With that, we will be happy to take your questions.
Thank
you. Our first question comes from Shahriar Pourreza with Guggenheim Partners.
Hey, good morning guys.
Good morning.
So just on the updated dividend language, it's good to see that you've maintained your support through 2019. The 2020 growth rate is somewhat of a wide band. Obviously, the bookends are stipulated by whether the MLP markets remain broken or not. So what sort of drives the dividend within the band? And more importantly, even at the bottom end at 6%, it's about $100,000,000 in cash flow savings.
So why even have this sort of change in language in the outer years, especially since you should be able to maintain it beyond 'nineteen?
Char, this is Mark. We can maintain it beyond 'nineteen, but we have to be confident that the MLP market is going to be open to us long term. And right now, as we said in our prepared remarks that we're not quite sure where that's going to be. So we wanted to put the range out in 2020 that would be kind of with and without the MLP market. If we cannot access MLP market for those cash flows, then it will drift into the lower end of that range.
If we can, it will be back at the high end of that range. Now why do we keep it at 10% for 2018 2019? Because we have plenty of cash flow into current assets that are in our MLP without any further drops to support an elevated dividend for the next 2 years. After that, as you say, it's about $100,000,000 It's not a big number to us, but we would be cautious that payout ratio, we would want to get higher if we can't access MLP equity on a long term basis.
Okay, got it. That's helpful. And then just lastly, you clearly highlight the firm ruling has no material impact in your earnings, but you have sort of an updated plan that includes keeping Cove Point at the de level, leverage at Cove Point, which should be more back levering opportunities than a DM, if some equity issuances, some asset sales. So there is some like sort of pushes and takes here. And you clearly you do have some very strong or incremental growth opportunities like Atlantic Coast Pipeline 2 or 3 Renewables.
So as you sort of think about your long term earnings CAGR, are you comfortable continuing sort of guide at your midpoint even beyond 2018? And what would actually drive you to the bottom end of this given what seems to be somewhat of a good runway?
Sure. I think we are comfortable guiding to the midpoint. We always put a range out, but we always as we get to question to say, we always target the midpoint. I think what could drive us to the bottom end, we're a weather sensitive company, and that could well take us to a lower end or the upper end, depending on where we are. But you raised a good point, which we haven't heard from investors yet.
And that is, we were going to utilize and may still utilize the MLP structure to optimize cash flows back to the parent. But if the market is not open and we do not do that, all of Cove Point's EBITDA that would have been in the MLP by the end of the decade will be at the parent. That's an incremental $350,000,000 So again, we have a lot of levers that we're going to evaluate. We feel very comfortable with the middle, and we'll work toward beating that as we look like we're able to do this year as well.
Terrific, guys. Congrats on the results today.
Thank you.
Thank you. Our next question comes from Greg Gordon with Evercore
ISI. Thanks. Good morning, guys.
Good morning, Greg.
Great quarter. I agree, really good performance. What do you think the reasonable timeframe of expectations is for getting to a point where you're you feel like you can come to a conclusion on whether you've achieved the right total cumulative outcomes in the asset sales? Are we looking at a process that takes 6 months a year? When do you think we should be expecting you us when should we be expecting you to come back to us with proceeds and next steps?
I think, Greg, by the end of the year, we'll have a real clear view on that. We may have a few things that we can clear up before that, but I would target Q4 for us to get some clarity around that. If you look at the bar chart, it's really not that big a number that we're targeting in asset sales. In terms of what's left to be done in the alternative financing plan, the majority of it is debt at the asset at Cove Point. And we expect to put debt at that asset between $2,500,000,000 $3,000,000,000 this year, probably toward the high end of that.
That would keep it strongly investment grade range. And that only leaves us $1,000,000,000 to maybe $1,500,000,000 on asset sales. So we think it's a very reasonable conservative number. And we have a number of assets we're evaluating. And the one we specifically have mentioned is Blue Racer.
Now we'll say, although we're screening a number of assets, if we don't believe we can get fair value in the market, we're not going to sell the assets. But based on what we have heard so far, there will be a lot of interest in the type of assets we have out there.
Great. So when I look at that bar chart, it's actually very helpful. Thank you. There's 2 things that you have to achieve to meet your credit targets. 1 is a certain percentage of HoldCo debt as a percentage of parent debt, which you clearly and quickly achieved through the Cove Point debt transaction.
And that's very elegant and simple. But then you're saying that to get your FFO to debt metric, you need just an incremental $1,500,000,000 of asset sale proceeds. So the $1,500,000,000 of equity that you did through the forward sale plus $500,000,000 you did at the beginning of the year plus the CapEx cuts you announced at the beginning of the year plus the 1.5 for asset sales, that total of financing activity you're saying gets you to an FFO to debt metric that achieves your credit goal from that perspective? Is that I know that was
a lot, but is that fair?
Yes. No, I think the only caveat I'd put on that is I wouldn't hang on $1,500,000,000 I would give you a range of $1,000,000,000 to $1,500,000,000 But yes, we want to we need to execute that over a period of time. It doesn't have to be done this year, but we need to execute it certainly in the period to meet our credit targets.
And then I know I'm jumping the gun here and time is definitively on your side in terms of trying to be deliberate in the way you think about DM. But if the MLP market were to not recover, is there a consolidation transaction that you could contemplate here because by my math, at least with the ML with DM at this valuation, that would not necessarily be a bad outcome for both shareholders?
Greg, this is Tom. We're going to just see how this plays itself out. There's a variety of options with DM. You mentioned one that would be an option and others are pursuing that. But we're in no rush.
We think what FERC did was unreasonable outcome. There's been a lot of pushback on them over that. We'll just see how it plays itself out. We have plenty of cash available at DM to meet our distribution goals, at least for now. And so we'll see we're going to give it time to play out, but and then we'll consider options as we go along.
Okay. Thank you guys very much. Have a good day.
Thank you.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research.
Yes. Hi, good morning. Excuse me. The kind of asset sale timing or co point by year end, is that actually getting outcomes of asset sales so we'll know the money is coming in? Or is that kind of what the plan is by then?
I think depending on what assets we decide to move ahead with, Steve, you would probably have some outcomes and you may have some that might spill over into early 2019.
Okay. And then what would it take to get the credit agencies to stabilize the rating or go off negative outlook, I guess? Do you need to complete that stuff or any sense of that?
Yes. I don't really want to speak for the agencies. But I will say this, Steve, that we've been very transparent with the agencies. We've met with them a number of times along the process. They know exactly what our plan is.
And I think in our opinion and again, you have your own, I'll just put, but as we look at other companies that have been impacted by tax reform on credit to the extent we have, we believe we have one of the most aggressive plans out there to address the shortfall on credit due to taxes. And in my opinion, what the agencies are looking at is execution on plans that have been announced and to work into the ranges that they put out there on various metrics. So, Moody's S&P, Fitch, they'll have their own comments, I'm sure, on that. But again, I think if you look at what we've done, what we've announced, it's probably the most aggressive plan in terms not only of speed, but in amount, whether it be equity or asset sales or CapEx reduction of any company out there.
Okay. And then one other clarification on the 6% to 8% growth rate. Is there now like a base case that you're using or you're kind of taking these different scenarios of asset sales, key DM, not DM, and you're saying that in all those scenarios, you're in the 6% to 8%. Does that make sense, the question?
Yes. And we have run multiple scenarios on it. We have assumptions on asset sales in terms of valuation, and that's why we wanted to put out this alternative plan bar chart to kind of give everybody the range that we're expecting in the area. We have built ourselves a lot of flexibility on the MLP by quickly addressing the financing needs to replace the $7,000,000,000 to $8,000,000,000 but we do have an alternative plan that includes an MLP that also gets us in the same range down the road. So again, I think we have a lot of options, but we're not going to wait for the MLP market to open up.
We're going to address that immediately and that's why we want to come out with the alternative plan and with a fair amount of detail around it.
Okay. Thank you.
Thank
you. Our next question comes from Jeremy Tonet with JPMorgan.
Good morning. Just wanted to turn to the DM strategy a bit more here. And with regards to kind of increasing the distribution until coverage kind of hit 1.0, can we kind of read into that that any eventual impact from the FERC you would think would not be very material in pressure coverage at that point? Or is it a matter of there's drop downs that you could offset any holes at that point? Just trying to see what we should be thinking about here.
Well, as we said in our prepared remarks, we're going to go ahead and recommend to the Board, of course, it's the Board's decision to go ahead and continue distribution increases at the 5% quarterly level as long as we have coverages above 1x. We do not anticipate right now dropping anything else into DM in 2018 with the current market conditions. And I think it will take FERC a bit of time to evaluate all the requests on rehearing. I don't want to put time frame on that, but that's we have made a decision to move ahead on alternate financing for this year. And so I think the earliest we might see a recovery in MLP market and the DM share price, where we might be open to drop something in at a fair valuation, would probably be next year.
I would say that it's not just a reversal or clarification of the FERC opinion, but DM's market price is going to have to reach a level that makes sense for the parent to go ahead and drop with the lower cost of capital, which has been the design of DM from day 1. And so our approach on this is to be patient, to pay the desperation as long as we can and hope that this market opens back up as some clarity comes out of FERC.
That's helpful. Thanks.
And then just one last one, if
I could. I was curious as far as it's a very difficult question, but if there's just no resolution from FERC, if things don't change, I guess, how long until you feel like you want to take effect some new strategy at DM? Any thoughts you can provide as far as timeline there?
Not at this time. We're just going to see what happens here for the next few months at least. I'm not going to put a timeframe on it.
That makes sense. Thank you very much.
Thank you.
Thank you. Our next question comes from Angie Storozynski with Degroir.
Thank you. Okay. So continuing on VM. So just so that I understand, so if you add debt to Cove Point, to project debt, how would it impact a potential ability of you to drop this asset into DM? I mean, is it simply that cash flows of the distributable cash flow from this asset would drop because you added debt that would be amortizing.
Is this the only issue that would be limiting your ability to drop it into the MLP assuming that the MLP market recovers?
Well, Angie, I'll give you a quick answer on that, and that is it won't limit our ability to drop it in. But Jim Chapman is here today, and let me have him go ahead and expand on the financing around Cove and how we would go ahead and drop that.
Hey, Angie, good morning. It's Jim. To try to clarify a little bit, I think from a traditional true project finance perspective, there's just very significant debt capacity to cove. And if we had a need for that kind of capacity, we could end up with a structure financing structure that might have limitations like you seem to be suggesting in
its terms.
But our need right now is much more modest as Mark mentioned $2,500,000,000 to $3,000,000,000 of code for the near term. And with that kind of debt quantum, we expect a great deal of flexibility in the terms of that financing when it comes to things like prepayability or transferability or amortization or not. So we just don't see the current financing plan being a constraint in any way on potential future drops into DM, lots of flexibility in our plan.
Okay. And my other question is, if you are so convinced that the EBITDA or cash flow detriment to these pipelines that the currently holds is not going to be material following the FERC actions in the future. Why not just swap these assets? Why not just take these assets into the and give the apportion of either cold coins or some other assets that doesn't have this issue. And once housed at the you would face a reduction in the rates only to your level of hesitation versus 0?
Andy, that's a good question. I guess what we want to really get clarified not only for D and DM is, by FERC, what was the intent of their policy change. It seems to be fairly broad brushed. And there is some incentive. If they don't change that you could have a gross up of 21% as a C Corp versus other assets that would be a pure MLP and that's something we obviously have looked at.
But our whole approach on this is going to be there's been a lot of interest and request to FERC to go ahead and provide clarity. We like to do that. We think that will springboard to market if they do that and are supportive of the MLP structure long term. And we're going to be patient and wait for that.
Okay. And my last question, the 6% to 8% CAGR, what is the starting point? And is the Connecticut uplift included in the midpoint of that range?
The starting point of that is the middle of the range of 2017 through 2020. Millstone, I think, as I said maybe a year or so ago or when we put that out there, that we used a market curve when we put the new range out at Millstone that did have some growth in it between 2017 2020. But currently it does not include any auction impacts or benefits that we might accrue in a Millstone auction.
Okay. Thank you. Thank you. Our next question comes from Michael Weinstein with Credit Suisse.
Hi, guys. Good morning. Good morning. How long do you
think the CAFD at DM will remain above the one time metric. And as you grow at 5% per quarter, is that going to be go is that are you saying that it will go through 2020 and at that point then you have to make a decision?
Michael, this is Mark Ono. It's not going to go through 2020. It could certainly go through several quarters with current performance. We are evaluating how to extend it longer through changes in maintenance CapEx timing, etcetera. But it's a much shorter window than that, that we will be able to support 5%.
But I think it's a window that gives FERC a reasonable time, to address the request in front of them and takes us through, as I say, at least several quarters, maybe longer.
Got you. And then also, I think you mentioned that the equity could be more of a range, right, between $1,000,000,000 $1,500,000,000 Is that driven primarily by the asset sale proceeds that you might get? Or is there some other factor?
Okay. That's not an equity comment. I'm sorry if I said that I misspoke. Our equity is done besides DRIP. What that reference was to cash value from asset sales between 1 and 1.5 that we would bring back and reduce debt with sometime throughout this year and into next year potentially.
Yes, I missed that. Okay. Thank you.
Thank you. Our next question comes from Praful Mehta with Citigroup.
Hi, guys.
Good morning.
Good morning. So I guess a question on DM, again going with the same theme, but just trying to understand from a flexibility financing to keep the flexibility around some of the options that Jim financing to keep the flexibility around some of the options that Jim brought up would cost a little bit in terms of the project financing cost. So firstly, wanted to understand what are the different elements that would cost DE right now to kind of keep the flexibility around DM? And if it is going to cost this much, is it worth keeping that flexibility? Or like an earlier question brought up, why not just buy back DM sooner?
Well, Praful, this is Mark. I mean, we see great value in financing flexibility of the MLP bringing cash back to the parent, always have. And I think shareholders of Maine Energy have started to appreciate that over the years. So we it's worth something to us to keep that moving. We also owe it to unitholders at the Midstream to stay with this structure as long as we can.
If there's a reasonable chance that the market will rebound and that we can place equity at a reasonable level here and at a reasonable DM price. Now the cost to D in terms of financing is going to be very minimal, we believe, because the cash flows are the same. You may well get better financing by putting it to asset within the C Corp initially before you were to let it travel. So we don't see that cost as being material at all and it just allows us incremental flexibility to wait on DM until we see what's going to happen there.
Got you. Fair enough. Just switching quickly to scanner, how do you see it playing out from here? Do you see concessions needed? You've kind of helped the strong line of we don't think concessions are needed and this is kind of our offer.
Do you see any change to that or do you see any room for flexibility around that at all? No.
No flexibility. We've made our offer, and they can it's going through the political process now. And that will political they adjourn next Friday or excuse me, 2 Fridays from now. They're finished there for the year. The political sphere that has been in so far, but it's also going through the regulatory sphere, lots of questions going back and forth with typical regulatory process.
We have a hearing scheduled in November. We'll have a result by December. So that's what we're going to proceed that way. We've made our offer.
Okay. That's pretty clear. Okay. And then finally, just on Millstone, it sounds like progress is pretty constructive in terms of the reports at least around Millstone. Any path forward you see, I guess, what's the timing to kind of get all that done and get financial benefits from Millstone?
Praful, Paul Koonce is here and he'll answer that for you.
Yes. Good morning. Thanks for the question. The schedule that has been laid out by Deep and Pure is that the RFPs will be issued in May. They will accept bids through September and concurrent with that, if you determine that you're an at risk resource, then you can then as Tom mentioned in his comments, you can pursue that designation, which we plan to do, which means that you can also include into your bid non price factors like 0 carbon, fuel diversity, grid reliability.
They have a report Deep Impura, they have a report that Leviton produced that showed what it would cost consumers if Millstone were to retire. So I think there is some recognition of the value of Millstone. So really that is all supposed to play out between now September with bids being approved by year end.
Great. Thanks so much guys.
Thank you. Our next question comes from Stephen Byrd with Morgan Stanley.
Good morning.
Hi, good morning.
Good morning, Steve.
Congratulations on Cove Point. Just actually following up on the last question on the Connecticut process. Could you remind us just on the at risk designation, what that process looks like in terms of information to be submitted and the criteria used to get that designation?
Sure. They have determined that it will be a confidential proceeding that made up of state agencies and Dominion. We have and have agreed to provide validated cost information. So it will really be between the applicant, in that case us, and the state agencies, DEEP and PURA. They have invited the consumer advocate to also participate in that proceeding.
But it will be a confidential proceeding and it will be their determination whether they conclude the asset is at risk. And once they conclude that, then the other non price factors will be taken into account.
That's helpful. And then just shifting to Virginia, just given legislation and just given the needs in the state, I'm curious just if you wouldn't mind giving me your thoughts in terms of the potential for further capital expenditures in the state, additional plans just as we think about growth in your core state of Virginia?
Well, we've now plans last fall about moving from our large projects to more programmatic programs. And I think the legislation that was enacted by the General Assembly this session supports that program. So I don't there's no real changes to that program. There are I think we said $3,500,000,000 a year on average in growth capital in Virginia through the next for at least a decade. We don't see any changes to that.
We think the legislation is supportive of it.
Understood. So in other words, just familiar with the plan that you had laid out, there's not an incremental capital over and above, whether it be for generation or any other sort of types of resource that could be additive in the near to medium term over and above the plan that you've already laid out?
It's possible, but we have more planning to go along as we see.
Okay. Very good. That's all I have. Thank you.
Thank you.
And your final question comes from Jonathan Arnold with Deutsche Bank.
Good morning, guys.
Good morning.
Could I ask just on the dividend comments about Dominion and the range on the growth rate? Do you have a specific payout ratio in mind you would want to be out in the longer term in sort of the with and without the capital raising scenarios?
Hey, Jonathan. As we laid out DM before, we were in the mid-80s or so with DM as we went forward. We're pretty comfortable with that. I think over the next couple of years, 2018, 2019, we'll be in the low to mid-80s. We're comfortable with that with cash flows coming out of a DM.
I don't think we want to get much higher than that. And over time, we'll probably bring that down to a more reasonable utility like level if we don't access the MLP market. We had said before that this dividend rate was premised on we would not burden our regulated entities with anything more than a 75% payout ratio, and anything incremental that would have come from non regulated assets or the MLP. And we still have that view. But again, I think advancement would tell you in the next couple of years that that payout will be in the low to mid-80s.
And depending what happens with MLP long term, we'll start to bring that down.
Great. And then just secondly, on the last call, you talked about the $1,000,000,000 that was coming out of sort of non growth CapEx in 2018 2019. Have you made progress on identifying specifically what that's going to be in the bag now? And can you give us some insight into what types of things there are there?
We're pretty much done identifying it and we've already started to execute a portion of it for 2018. Looks like it may be somewhat fifty-fifty, maybe forty-sixty between 2018 and 2019 as we've looked at it. It will come out of maintenance capital. It will come out of a reprioritization of capital and reduction in areas that don't provide near term earnings support for us. It will come out of what we call general capital, which are building funds, things like that.
So it's across the board. It's something that I think we're pretty comfortable with. Our facilities are in good shape and our service reliability is in very good shape. So I think we can have a short term pause in some of this maintenance capital and be fine for 2 years.
Okay, great. That's perfect. Thank you, Mark.
Thank you, Jonathan.
Thank you. This does conclude this morning's conference. You may disconnect your lines and enjoy the rest of your day.