Dominion Resources, Inc. (D)

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Dominion Resources (D)

Q3 2011 Earnings Call

October 28, 2011 10:00 am ET

Executives

Thomas F. 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

David A. Christian - Executive Vice President and Chief Executive Officer of Dominion Generation

G. Scott Hetzer - Senior Vice President of Tax and Treasurer

Mark F. McGettrick - Chief Financial Officer and Executive Vice President

Thomas Hamlin -

Analysts

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Dan Eggers - Crédit Suisse AG, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Greg Gordon - ISI Group Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Leslie Rich - Columbia Management

Anthony C. Crowdell - Jefferies & Company, Inc., Research Division

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 call over to Tom Hamlin, Vice President of Investor Relations, for Safe Harbor statement.

Thomas Hamlin

Good morning, and welcome to Dominion's Third 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 have not done so, I encourage you to visit our website, register for email alerts and view our third 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 discussion.

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 third quarter operating earnings and our operating earnings guidance for the fourth 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 were 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 third quarter, as well as our guidance for the fourth quarter. Tom will discuss our operating and regulatory activities, as well as our plans for the dividend. We will then take your questions.

I will now turn the call over to Mark McGettrick.

Mark F. McGettrick

Good morning, everyone, and thank you for joining us.

Dominion had a strong third quarter. Operating earnings were $0.95 per share, which were at the midpoint of our earnings guidance range of $0.90 to $1 per share. Weather helped the quarter's earnings by about $0.06 per share, but some of this benefit was offset by lower revenues due to the loss of electric service caused by hurricane Irene. Restoration cost associated with this hurricane totaled $133 million, and the non-capitalized portions have been excluded from operating earnings.

The last storm for which we took a nonoperating charge to our electric business was hurricane Isabel in 2003.

GAAP earnings were $0.69 per share for the third quarter. About half the difference between GAAP and operating earnings for the quarter was due to the charges related to hurricane Irene. Other factors included a write-down of the value of our CAIR-related emission allowances and the incremental inspection expenses at North Anna due to the August 23 earthquake. A summary and reconciliation of GAAP to operating earnings can be found on Schedules 2 and 3 of the earnings release kit.

Now moving to the results by operating segment. At Dominion Virginia Power, EBIT for the third quarter was $263 million, near the top of our guidance range of $230 million to $270 million. Favorable weather, management of our normal distribution O&M expenses and the execution of our transmission growth plan supported this strong performance.

Like other retailers who operate in Texas, our Dominion Retail business was challenged as a result of the extreme heat in July and August. Because we are gauged exclusively in residential and small commercial retail segments, and because of our hedging practices, we are not exposed to wholesale trading losses. However, at times, it was necessary to purchase power at peak prices. Nevertheless, Dominion Retail is still on track to deliver results within the guidance range we disclosed at the beginning of the year.

EBIT for Dominion Energy was $168 million, near the top of its guidance range of $145 million to $170 million. Lower fuel costs at Dominion Transmission and lower-than-planned O&M expenses were positive factors.

Dominion Generation produced EBIT of $696 million for the third quarter, which was in the upper half of our guidance range of $650 million to $710 million. Favorable weather and lower-than-planned O&M expenses were partially offset by an unplanned outage at Millstone Unit 2.

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