Dominion Resources, Inc. (D)

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Dominion Resources (D)

Q3 2010 Earnings Call

October 29, 2010 10:00 am ET

Executives

Mark McGettrick - Chief Financial Officer and Executive Vice President

G. Scott Hetzer - Sr. VP, Treasurer of DRI and VP

Thomas Farrell - Executive Chairman, Chief Executive Officer, President, Chairman of Virginia Electric & Power Company, Chief Executive Officer of Dominion Energy and Chief Executive Officer of Virginia Electric

Gregory Snyder -

Analysts

Dan Eggers - Crédit Suisse AG

Michael Lapides - Goldman Sachs Group Inc.

Paul Ridzon - KeyBanc Capital Markets Inc.

Hugh Wynne - Bernstein Research

Presentation

Operator

Good morning, and welcome to Dominion's Third Quarter Earnings Conference Call. On the call today, we have Tom Farrell, CEO, and other members of senior management. [Operator Instructions] I would now like to turn the conference over to Greg Snyder, Director of Investor Relations for Safe Harbor Statement.

Gregory Snyder

Good morning, and welcome to Dominion's Third Quarter Earnings Conference Call. During this call, we will refer to certain schedules included in this morning's earnings release and pages from our third quarter 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 website, register for email alerts and view our third quarter 2010 earnings documents. Our website address is www.dom.com/investors. In addition to the earnings release kit, we have included a slide presentation on our website that will guide this morning's discussions.

And now for the usual cautionary language.

The earnings release 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 report on Form 10-K and our quarterly report 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 the call, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Those measures include our third quarter operating earnings and our operating earnings guidance for the fourth quarter and full year 2010 and 2011, as well as operating earnings before interest and tax, commonly referred to as EBIT. Reconciliation of such measures to the most directly comparable GAAP financial measures we are able to calculate and report are contained in our earnings release kit.

I will now turn the call over to our Chief Financial Officer, Mark McGettrick.

Mark McGettrick

Thank you, Greg, and good morning, everyone. Joining me on the call this morning is our CEO, Tom Farrell, and other members of our management team. On today's call, I will discuss the earnings results for the third quarter, our outlook for the fourth quarter, full year 2010 and full year 2011. Tom will briefly update you on regulatory proceedings and operational activities. We will then take your questions.

Dominion had a very strong third quarter. Our operating earnings were $1.03 per share, which was near the top of our earnings guidance range of $0.99 to $1.04 per share. As we referenced on last quarter's call, our third quarter guidance already reflected the above-normal weather for July, but warmer-than-normal weather for August and September added $0.04 per share relative to our guidance range. The impact from weather was partially offset by major storm expense and reliability investments in Virginia.

When comparing our results to the third quarter of 2009, our operating earnings were $0.04 per share higher. Higher revenues from rate adjustment clauses, favorable weather in our electric service territory and higher PJM ancillary service revenues were offset by reduced merchant generation margins, higher storm damage expenses and the absence of earnings from our Appalachian E&P business.

GAAP earnings were $0.98 per share for the third quarter. The principal difference between GAAP and operating earnings is an adjustment to the interim tax provisions in accordance with FIN 18. A summary and a reconciliation of GAAP to operating earnings can be found on Schedules 2 and 3 of the earnings release kit.

Now moving to results by operating segment. At Dominion Virginia Power, third quarter EBIT was $217 million, which was slightly below the $224 million to $244 million range included in our guidance. Favorable weather was offset by higher storm and restoration costs in our distribution operations.

EBIT for Dominion Energy in the third quarter was $165 million, which was well above the third quarter guidance range. The strong results were primarily driven by lower fuel costs in the Gas Transmission business and better-than-expected supply aggregation activities at producer services. Third quarter EBIT from Dominion Generation was $826 million, which was in the upper half of the third quarter guidance range of $761 million to $850 million. Favorable weather and higher PJM ancillary services revenue helped offset lower merchant generation margins. Overall, we are very pleased with all of our operating segment results.

We have prepared a number of supplemental schedules that can be found on our website following the conclusion of our earnings call. These supplemental schedules show EBIT for the legal entity, Virginia Power, which includes utility generation, electric transmission and distribution operations, as well as quarterly EBIT for our regulated gas businesses, merchant generation and Dominion Retail.

Moving to cash flow and Treasury activities. At our May 7 Investor Meeting, we outlined our plans for the proceeds from the sale of our Appalachian E&P business, including approximately $900 million for share repurchases. We completed our share buyback for 2010 in August. And in total, approximately 21.4 million shares were repurchased at an average cost of $42.09 per share. Our cash position continues to be very strong this year. And as a result, we have almost no outstanding commercial paper, and our overall amount of floating rate debt remains well below our targeted levels.

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