Dominion Resources (D)
Q1 2011 Earnings Call
April 28, 2011 10:00 am ET
Mark McGettrick - Chief Financial Officer and Executive Vice President
Thomas Hamlin -
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Anthony Crowdell - Jefferies & Company, Inc.
Paul Patterson - Glenrock Associates
Rudolph Tolentino - Morgan Stanley
Unknown Analyst -
Neil Mehta - Goldman Sachs Group Inc.
Good morning, and welcome to Dominion's First 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 Tom Hamlin, Vice President of Investor Relations for Safe Harbor statement.
Thank you. Good morning, and welcome to Dominion's first quarter 2011 earnings conference call.
During this call, we will refer to certain schedules, including in this morning's earnings release 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 have not done so, I encourage you to visit our website, register for email alerts and view our first quarter 2011 earnings document. 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 this call, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Those measures include our first quarter operating earnings and our operating earnings guidance for the second quarter and full year 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.
Joining us on the call this morning are our CEO, Tom Farrell; our CFO, Mark McGettrick; and other members of our management team. Mark will begin with a discussion of the earnings results for the first quarter, as well as our guidance for the second quarter. He will also discuss our financing activity and provide an update on our hedge positions. Tom will discuss our operating and regulatory activities, and we will then take your questions.
I will now turn the call over to Mark McGettrick.
Good morning, everyone. Thank you for joining us. Dominion had a very strong first quarter. Operating earnings were $0.93 per share, which was in the upper half of our guidance range of $0.85 to $0.95 per share. All of our businesses performed very well.
GAAP earnings were $0.82 per share for the first quarter. The principal differences between GAAP and operating earnings for the quarter was a write-off of the remaining book value of our State Line Power Station and the impact of our decision to remove the financial results of our Kewaunee Nuclear power station from operating earnings based on our plans to sell the unit. This is the same treatment we used when selling Peoples Gas last year. Tom Farrel will discuss the strategic rationale for selling Kewaunee in a few minutes.
Regarding State Line, remember that last year, we wrote down the value of this asset after the 1-hour SO2 rules were finalized by the EPA, shortening its expected life to the end of 2017, because we would not be installing control equipment at the site.
In light of the recently proposed Air Toxics Rule by the EPA, we have elected not to bid the capacity of State Line into the upcoming PJM Capacity Auction for the 2014 to 2015 planning period. This decision triggered an impairment test for State Line and as a result, we have written off the remaining book value of the plant. Under current market conditions, we will be retiring the plant no later than the middle of 2014. 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, EBIT for the first quarter was $290 million, exceeding the top of our guidance range. While the regulated business results were in line with guidance, Dominion Retail produced better-than-expected results due to higher gross margins and an increase in customers.
EBIT for Dominion Energy was $291 million, near the midpoint of our guidance range. Results from gas transmission, gas distribution and producer services were all in line with our expectations.
Dominion Generation produced EBIT of $535 million for the first quarter, exceeding the high end of our guidance range. As expected, earnings from our Merchant Generation business were down from last year, but came in at the top of our guidance range due to stronger-than-expected market prices.