Dominion Resources, Inc. (D)

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Dominion Resources (D)

Q2 2011 Earnings Call

July 28, 2011 10:00 am ET

Executives

Mark McGettrick - Chief Financial Officer and Executive Vice President

Paul Koonce - Executive Vice President and Chief Executive Officer of Dominion Virginia Power

Thomas Hamlin -

Gary Sypolt - Executive Vice President and Chief Executive Officer of Dominion Energy

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

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Dan Eggers - Crédit Suisse AG

Nathan Judge - Atlantic Equities

Paul Fremont - Jefferies & Company, Inc.

Paul Ridzon - KeyBanc Capital Markets Inc.

Paul Patterson - Glenrock Associates

Jonathan Arnold - Deutsche Bank AG

Greg Gordon - ISI Group Inc.

Steven Fleishman - BofA Merrill Lynch

Presentation

Operator

Good morning, and welcome to Dominion's Second 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.

Thomas Hamlin

Good morning, and welcome to Dominion's Second Quarter 2011 Earnings Conference Call. During this call, we will refer to certain schedules included 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've not done so, I encourage you to visit our website, register for email alerts and view our second quarter 2011 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 this call, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Those measures include our second quarter operating earnings and our operating earnings guidance for the third 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 second quarter, as well as our guidance for the third quarter. We will also discuss our financing activities 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.

Mark McGettrick

Good morning, everyone, and thank you for joining us. Dominion had a very strong second quarter. Operating earnings were $0.59 per share, which were in the top of our earnings guidance range of $0.50 to $0.60 per share. Weather, which boosted earnings for the second quarter of last year by $0.06 per share, added only $0.01 compared to normal. Despite the normal weather, both of our electric business segments delivered earnings at or above the top of the respective guidance ranges. Other factors impacting the results for the quarter relative to guidance were lower interest cost and higher income taxes.

GAAP earnings were $0.58 per share for the second quarter. The principal differences between GAAP and operating earnings for the quarter were the benefit of a resolution of a lawsuit with the Department of Energy over spent nuclear fuel, offset by severance charges related to the previously announced closing of the Salem and State Line merchant generation plants. 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 second quarter was $227 million, near the high end of our guidance range. Higher transmission revenues and a higher contribution from Dominion Retail were principal factors in this strong performance.

EBIT for Dominion Energy was $184 million, just above the midpoint of our guidance range. A strong contribution from Producer Services offset lower results from our distribution companies.

Dominion Generation produced EBIT of $372 million for the second quarter, exceeding the high end of our guidance range. Higher ancillary service revenues and higher-than-expected merchant generation margins were the principal favorable earnings drivers. Overall, we are very pleased with all of our operating segment results.

Moving to cash flow and treasury activities. On our last call, we outlined our financing plans for the remainder of the year, including debt issuances of $1.2 billion to $1.5 billion. To take advantage of the current interest rate environment, we have hedged treasury rates for $600 million of the debt need for 2011 and have taken a further step of locking in treasury rates related to over half of our 2012 needs.

Read the rest of this transcript for free on seekingalpha.com