道明尼資源 (D) 2002 Q3 法說會逐字稿

Good morning.

My name is Lou Ann (ph) and I'll be your conference facilitator today.

At this time, I would like to welcome everyone to the Dominion's third quarter 2002 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

If you'd like to withdraw your question, press the pound key.

Thank you.

I'd now turn the call over to Mr. Tom Chewning, CFO.

Thank you.

Good morning and thanks for joining us for our third quarter 2002 earnings conference call.

The earnings release and other matters that may be discussed on the call today contain forward-looking statements and estimates that are subject to various risks and uncertainty.

Please refer to the SEC filings including our most recent annual reports on Form 10-K and quarterly reports on Form 10-Q for discussion of factors that may cause results to differ from management's projections, forecasts, estimates and expectations.

Joining me on the call this morning is Steve Rogers, Vice President and Controller and Tom Wohlfarth, Director of Investor Relations.

I'll begin by reviewing some highlights for the quarter and then I'll discuss the financial outlook for the fourth quarter and full year 2003 and Steve Rogers will review the third quarter results in every detail.

After Steve is finished, we will take your questions.

Before we get started, I need to say it in reference to yesterday's announced sales equity, please be advised that this call is not and nothing in this call should be construed as and also to sell security or solicitation of an offer to buy security.

Dominion posted strong earnings of a dollar and 54 cents per share in the third quarter of 2002 representing a 12 percent increase over earnings per share of a dollar and 37 cents for the third quarter of 2001.

There were no special items in either third quarter, this year or last.

Through the third quarter of 2002, year-to-date earnings per share were up 13 percent over the comparable period in 2001 as Dominion earned 3 dollars and 71 cents per share this year compared to 3 dollars and 29 cents per share in operating earnings last year.

Last year's year-to-date operating results excluded a 10 cent per share loss on the sale of effects of mortgage and a 55 cent per share loss related to the buy out of long-term purchase power contract.

There have been no special items recorded this year.

On a year-to-date basis, Weather versus normal has impacted earnings favorably by about 7 cents per share, essentially offsetting the timing impact of the corporate hedge, which has hurt earnings of about 8 cents per share year-to-date.

The company also has produced strong operating cash flows and has seen the balance sheet strengthen as well.

Net cash flow from operations increased 21 percent to about 990 million in the third quarter this year compared to about 820 million in the third quarter last year.

With net cash flow from operations of nearly 1.8 billion through the third quarter of this year, the company is positioned to exceed last year's record cash flow of 2.4 billion.

The fully adjusted debt-to-capitalization ratio has adjusted to include all balance sheet debts and to give equity treatment to mandatory convertible securities, improved from 60.4 percent at the end of the second quarter to 59.7 percent at the end of the third quarter.

Other highlights for the quarter include the California acquisition, which we completed, making Dominion the owner and operator of the largest LNG facility on the East Coast. 37,977 net new gas and electric franchise customers were added to the system since the third quarter of 2001 raising the total franchise customer base to over 3.8 million monthly sales paying regular customers.

And we added a 184 billion cubic feet equivalent to proven gas and oil reserves in the third quarter of 2002.

Representing a 161 percent reserve replacement ratio.

Total oil and gas reserves stand at 5.7 trillion cubic feet making Dominion one of America's most reserve rich energy company.

Now I'd like to take a few minutes to review the outlook for the fourth quarter of this year and the full year 2003.

We are lowering our full year 2002 earnings outlook to a range of 4 dollars and 80 cents to 4 dollars and 90 cents per share from previous guidance of 4 dollars and 90 to 4 dollars and 95 cents a share.

The primary driver is additional dilution from an earlier than previously planned issuance of new equity at a lower than expected price.

Our previous plans called for issuing new equity in early 2003.

The issuance of new equity now instead of in 2003 will dilute earnings more this year and next, although it is awful tasting medicine, we think the cure is worth it.

Our revised guidance for the fourth quarter of 2002, a dollar 9 to a dollar 19 per share.

This compared to earnings of 89 cents per share in the fourth quarter last year.

Drivers of year-over-year fourth quarter earnings are as follows; higher oil and gas production should add about 20 million to earnings, normal weather would add about 50 million this year compared to last, as last year's fourth quarter was very mild.

We expect a modest year-over-year improvement in earnings at the Clearinghouse of about 5 to 10 million dollars compared to last year.

In the fourth quarter of 2001, the Clearinghouse had a small loss due to mild weather condition.

The elimination of goodwill expenses will add about 25 million dollars.

Franchise growth should add about 10 million dollars and average share count should be about 305 million shares for the fourth quarter of this year, compared to 261 million shares on average for the fourth quarter of 2001.

This includes the effect of today's stock offering.

We are revising our 2003 outlook to a range of 4 dollars and 60 cents to 4 dollars and 80 cents per share, compared to 4 dollars and 80 to 4 dollars and 90 cents per share for 2002.

Drivers of year-over-year earnings were as follows; higher oil and gas production in prices should add about 60 to 75 million in earnings, as we expect about a 15 cents per NCSE increase in average realized prices and a 10 percent growth in production from this year's expected level 450 BCFE.

We reduced our production growth target for 2003 primarily due to 3-month delay in the schedule start date at Devil's Tower.

Franchise growth should about 40 million dollars to earnings.

The California acquisition is expected to add about 5 to 10 million dollars to earnings.

Millstone is expected to add significantly to earnings in 2003 compared to 2002.

This year has been a tough year for Millstone relatively speaking, as the station underwent two outages, one of which was extended and with [Inaudible] market prices were severely depressed in the first quarter of 2002.

With just one schedule outage in 2003 and a modest improvement in pricing, Millstone contribution to earnings in 2003 is expected to increase by about 40 million dollars.

And lastly other main impacts including interest expenses, and Six Sigma efficiency savings are expected to contribute about 20 to 40 million dollars to earnings.

On the negative side 9/11, 2003 with reduced earnings relative to 2002 by about 20 million dollars.

The length of nuclear outages at our Virginia units have resulted to more stringent [Inaudible] inspection requirements will impact earnings by about 15 to 25 million.

The cost of joining [Inaudible] estimated to be about 10 million dollars.

Exploration of section 29-tax credit will lower earnings by about 35 million dollars and higher pension expense is expected to, is estimated to impact earnings negatively by 30 to 40 million dollars.

Our expenses results in changing market conditions which affects the rate of return and discount rate assumption, [Inaudible] determine alternate pension liability and the amount of expense recorded in the financial statement.

We expect to adjust these assumptions in 2003 and we'll mark as that over the remaining of the fourth quarter as we determine the impact on next year's earnings.

Finally, dilution from higher share account will also impact earnings per share.

We expect average share count to be about 310 million shares in 2003 compared to about 283 million in 2002.

One thing that we need to note is that after further analysis, we note all of our estimates even significant earnings impact from the current change related to asset return of obligation on the FAS 143.

Now I'd like to turn the call over to our Controller Steve Rogers to go through the third quarter in a little more detail.

Thanks Tom.

I will start by discussing the Dominion Energy segment.

Dominion Energy manages the company's electric generation, natural gas pipeline and storage business and the Dominion Energy Clearinghouse.

Dominion Energy posted earnings of 98 cents per share in the third quarter of 2002 compared to a dollar 15 per share in the third quarter of 2001.

Sales volume from customer growth in our Virginia and North Carolina electric franchise service areas provided an increase of 3 cents per share.

Higher than normal temperatures in the electric franchise service areas increased earnings by 41 cents per share.

There were 32 percent more cooling degree days during the third quarter of 2002 as compared to 2001.

Third quarter 2002 results at the Dominion Energy Clearinghouse were 15 cents per share below third quarter 2001 results.

This can be attributed to the following factors: First, we have lower electricity margins related to reduced market prices in PJM synergy and less available generation from our system assets, due to higher demand load requirements resulting from the higher than normal temperatures in the company's franchise service area and also due to lower market-to-market earnings.

The above factors are partially offset by higher gas margins due to increased deal flow.

Higher nuclear outage cost at our Mill Stone power station reduced third quarter earnings by 7 cents per share as compared to 2001.

An increase in other taxes of 2 cents per share resulted from higher state franchise taxes reduced quarter-over-quarter earnings.

Lower state income tax expense resulting from the recognition of a state tax benefit improved earnings 2 cents per share.

A variety of other factors combined to result in 7 cents per share reduction to quarter-over-quarter earnings.

And finally share dilution reduced earnings 12 cents per share in the third quarter of 2002 versus 2001.

Moving on to Dominion Delivery.

Dominion Delivery is the company's electric and gas distribution, electric transmission, and customer service business.

Dominion Delivery posted earnings of 40 cents per share in the third quarter of 2002 as compared with 27 cents per share in the third quarter of 2001.

Customer growth principally in the electric franchise area added one cent per share to earnings.

Higher than normal temperatures in the electric franchise service areas boosted earnings by 10 cents per share.

There were 32 percent more cooling degree days during the third quarter of 2002 as compared to 2001.

Weather negatively impacted the gas franchise service areas reducing earnings by one cent per share quarter-over-quarter.

They were 74 percent fewer heating degree days during the third quarter of 2002 as compared to 2001.

Lower O and M expenses improved earnings 2 cents per share as compared to the third quarter of 2001.

Lower state income tax expense resulting from the recognition of a state tax benefit improved earnings 2 cents per share.

And other items ,including share dilution, combined to reduce earnings in the third quarter of 2002 by one cent per share.

Dominion Exploration and Production is the company's gas and oil, exploration, and production businesses.

Dominion Exploration and Production earnings were 32 cents per share in the third quarter of 2002 compared to 31 cents per share in the third quarter of 2001.

A 50 percent increase in equivalent gas and oil productions principally as a result of the Louis-Dreyfus acquisition improved earnings by 24 cents per share.

Lower average realized gas and oil prices reduced earnings 20 cents per share.

Average equivalent realized prices were 3 dollars and 46 cents per MCFE in the third quarter of 2002 as compared to 4 dollars and 19 cents per MCFE in the third quarter of 2001.

And other factors including share dilution reduced earnings by 3 cents per share.

The corporate cost center consists primarily of interest expense on corporate level debt and certain unallocated general and administrated corporate costs.

It also includes Dominion Capital's results reflecting the performance of its remaining assets.

The corporate and other segment yielded an improvement of 20 cents per share to a net expense of 16 cents per share in the third quarter of 2002 as compared to a net expense of 36 cents per share in the third quarter of 2001.

The elimination of goodwill amortization expense resulting from the implementation of new accounting rules improved earnings 9 cents per share.

Lower state income tax expense resulting from the recognition of a state tax benefit improved earnings 7 cents per share.

Dominion Capital improved 5 cents per share in the third quarter of 2002 as compared to the third quarter of last year.

And other factors including share dilution reduced earnings 1 cent per share.

That concludes our earnings reconciliation.

We will now open the call for your questions.

At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from Jay Dobson of Deutsche Bank.

Hi Tom, how are you?

Fine Jay, doing very well.

Could you help me understand the state tax benefit, it's a pretty big number here and just wondering, you know, why we shouldn't consider this low, more non-recurring, at least as we look out to the drivers of those three and things that will be, a sort of way and against us?

Okay, I have Steve Rogers to handle that.

Hi Jay, how are you?

The tax benefits that we recognized are related to the Virginia State income taxes and there were events in the third quarter that led to the recognition on our income statements and they were basically reversing some valuation.

Along with this we had a number (ph) related to benefits that were arising as a result of change in our tax structure and there will be continuing events that will cause future benefits to arise as we continue to generate levels of taxable income going forward.

So, it's something that, as the events occurred in the third quarter, we recorded what we could now and then as we generate future taxable income, there will be more benefits that come through, basically just coming through our effective tax rate.

And also as is the effective tax rate is going to be up 35 percent this year, which is a reasonable level.

But it is not a one-time shift and it is really a change in the tax structure.

Is that reversing an impact of earlier this year or some prior period?

It's something that over some prior periods we could have taken the benefit if certain events had been in place, but they weren't until the end of August.

It could have been spread more throughout the year.

Yes, it could have been spread more throughout the year, that is correct.

Okay.

And then my second and last question, just on the nuclear outage costs, I am assuming not all of that seven cents is related to Reactor Vessel Head issues.

I am just wondering how much of that, if any is?

I believe there is no change.

And Tom could you answer that?

Yeah.

The primary reason is Jay, comparing year-over-year, we did not, we only had one outage at Millstone last year, the refueling outage at unit three occurred immediately prior to our closing, the purchase closing on Millstone.

So, that's why you have that extra outage costs in there primarily.

Let me speak on this one, last cost on Millstone issue when you bring it up, could you remind us the contractual sale terms, I think Tom, you indicated this is one of the drivers for next year, higher prices at Millstone, is that contractual?

No, we have two aspects there.

We have contracted from Capadium (ph) , also we have a requirements contract with United eliminating an under requirement (ph) contract, the real tune may or may not be priced with what or whether is and what they are taking.

So, when there is good utility weather they take more with that contract or conversely it is poor utility rather than more than developed to the stock market.

So, we were [Inaudible] period, where this year in the first quarter, we had very mild weather in NewEngland and that take under the requirement contracts was low and at the same time, we had low gas prices which led to [inaudible] prices.

Great, thanks a lot.

Our next question comes from Rosalyn Armstrong of SAC Capital.

Yes, hi.

A couple of questions.

First of all on clearing house.

What was the third quarter net income or gross margin, whichever number you want to provide us with and then what is your target for 2002?

Right now I have Tom Wohlfarth who will give you those numbers.

The third quarter was 2.5 million and what was the second question?

Is that net income?

That is net income.

Okay and then what is your target for clearing house for 2002?

For 2003, it's about 55 to 60 million.

For 2003, it's 55 to 60 million and is that basically because you haven't included it in the variance, is that basically flat year-over-year?

It's flat.

Yes, as we had stated in the earlier announcement, we expect Dominion Energy to be flat next year versus this year.

Okay and what's, where are you year-to-date then this year?

Year-to-date is 42.1 million and we expect about 5 to 10 million in earnings this fourth quarter.

So that will put us right around the 50 to 55 range for this year.

Okay and then for 2003, you identified an other category a variance of 20 to 40 million and you highlighted particularly interest in Six Sigma, what else might be captured there?

The reason I ask is, previously you identified interest as being a negative variance of 15 million and Six Sigma being a positive variance of 25, which only gets us to 10 out of the two and you are talking about 20 to 40.

So, what else might be included in that number?

We are making a bold assumption that we would sell a billion dollars worth of equity this week.

Okay.

And if you take a look at reducing interest expense, which we have done explains interest going up or a rate differential that is coming down because of the volume reduction.

Okay, so you are actually looking at interest being a benefit to earnings overall in 2003.

Right because we would have lower outstanding debt and we would have less CAPEX to the finance, etc from where we have modeled.

Okay and then along the same line, Millstone, you identified a 40 million dollar variance year-over-year and previously that was 15.

So what accounts for that increased benefit at Millstone in 2003?

The 15 million was really more of a pro forma number not taking into account the struggle that they have had this year.

Millstone, really this year did not perform up to pro forma and that was largely driven by an equal prices very low in the first quarter.

So on the unhedged portion of Millstone, we lost some earnings there that you really would not expect to recur.

Gas prices were very low and equally (ph) were driven by gas, the power prices were very low there.

And then the other thing is they have, they did have an extended outage, they had two outages, one of which was extended and we not only lost, there was not only O&M expense associated with that but we also lost revenue.

So there are two pieces to that and then the other, the third thing at Millstone that is an ongoing thing is continued synergies.

So, we picked up a little bit there as well.

Rosalyn, I might have Tom Wohlfarth discuss the recent outage and its timing.

Thank you Tom.

We did just complete an outage on Millstone unit three and that outage was completed in just over 30 days.

The lowest, previous outage time at Millstone three under it's prior runner was 54 days.

So, obviously tremendous improvement there.

We are going to, as we spend more time there, Millstone is becoming more and more efficient particularly in the outages.

Okay thank you.

Thank you.

Next question comes from Tom Hamlin of Wachovia Securities.

Yes good morning.

Good morning Tom.

One of the variances you mentioned for 2003 is the expiration of section 29 tax credits.

Should let's say congress get it together on an energy bill and that passed, that together on an energy build in that past with that, could we look for that to immediately become a beneficial for you or would there be some lag in that?

Well Tom, I believe it.

It dependents on what they do, there are two tax credit issues.

One is the expiration of existing and the other one is the implementation of a new drilling window for new group, newer drill wells.

If they keep and do not expire the existing credit, if we think and talk about 30 million dollars immediately.

To inform on other hand by past the suspected new well, it will probably take us about three years to get to that 30 million for about 10 million a year in terms of drilling pay and obviously we would like both.

Mr. Farrell, who happens to be with us today.

He has been working on the hill a lot and you made no comment.

Tom I think today is a big day.

I was to extend the deadline and others are, we should know something about whether or not there is going to be an energy bill.

And if there is energy bill, we feel pretty comfortable with that section 29 we know will be in there, but you know, you could flip a coin to find out whether we are going to have an energy bill.

Tell about a follow up, is there any indication from the rating agencies that this is going to make them happy.

And that we won't have to worry about them in new for a while?

Well, look at this way, where there would be a lot of happy [Inaudible] reported that [Laughter] .

And even I want to pick the way you have chosen in ongoing process.

But we feel very very comfortable that we are in great dialogue with the rating agencies who are proactive on that.

We told them about mortgage that we will issue for this kind of equity in midyear of 2003.

And I said we in terms of a pleasant surprise versus others in our industry were promising something this June and haven't issued yet.

Obviously, we continue to look at capital expenditures and later you may look at terms it's not just that one day situation is, take a look at by [Inaudible] 18 to 24 months and we are very -- we have a very very positive discussions with them about, regarding our company and also we trying to take of the question of credit developing.

So we are very optimistic.

Thanks a lot.

Your next question comes from Terry Shue (ph) of JP Morgan.

Yeah, hi.

As a reminder, perhaps you can refresh us with information on what happened with retail access going forward.

I was reading just on Virginia legislation and such retail market, am I right, opens up next year and the polar contract extends through 2007.

So, can you in a general sense talk about potential risk on the retail side as to where is the wholesale market, is there any way to quantify in what way are you exposed to the wholesale pricing levels in your market?

I'll let Tom Farrell answer that one.

Just in general terms, just general commodity price exposure you have your oil and gas operation, which in a way is the hedge and then you have the electric price exposure maybe broadly speaking is there any one we, any way we can gauge the sensitivity?

Well, we got about 90 percent of oil and gas as this year, 75 percent next year, 50 percent hedge to 2004.

We had that 90 percent of our gas hedged on prices this year and next and about 85 percent in 2004.

Frankly, the variability on power, excuse me, you asked specifically also a question on exposure in Virginia service during...

Right.

And I thought Tom Farrell should answer that.

Okay.

I didn't catch all the numbers on the hedging, could I just bother you to repeat it once more on oil and gas and then on power?

90 percent on oil and gas 2002.

Right

75 percent oil and gas 2003.

Okay.

50 percent oil and gas 2004.

Okay and then power?

90 percent power 2002.

Okay.

90 percent power 2003.

Okay.

85 percent power 2004.

Okay and just includes all of your generation?

Yes ma'am.

Tom?

Yes, on the Virginia side, Terry actually competition opened in Virginia on January 1st 2002 being phased in over the balance of 2002, so that there will be full access January 2003.

Okay.

Already opened up with the completion done by 1/1/03 right?

That's correct.

Okay.

Dispatch (ph) should allow it for to be completed by the end of 2003 but the Commission in Virginia asked it to be occur all in one year, so that's what happening.

Okay and what's the new experience if you could just generally comment?

Sure, there has been some switching of customers primarily to sort of green power type offers, primarily in the Washington DC suburbs, but as we mentioned on the finance what exposure there is financially just to remind everyone in Virginia.

There is a wires charge or a standard cost recovery charge depend upon how you want to call it.

Where, we have to be reimbursed for any loss of customer base, the differential between our unbundled generation late in our frozen rate cap and the prevailing PJM 7x24x365 price.

And that extends through 2007 right?

July 1st of 2007.

Okay.

Terry, I will give you a summation, when you take our tariff income and our hedged income on gas and oil and merchant power, our earnings in 2002 would have about a 10 percent exposure and in 2003 and 2004 about 15 percent.

Okay, it is just very hard to measure because there are all these different pieces?

I am already trying to measure it for you and the range is between 10 and 15 percent that we have at risk on stock prices.

Okay.

And obviously in a market prime (ph) often we can hedge more, we tried to even reduce it further.

What is that unbundled generation rate that is embedded in the frozen rate?

That's 48 dollars [Inaudible] .

And that includes the fuel and we do have a floating fuel factor.

That includes fuel and includes ancillary services reserved everything at a total rate, right?

Yes.

Okay.

Thank you.

Your next question comes from Jessica Rutlidge , Lazard Asset Management.

Hi guys!

Could you take us through the major corrections as we are looking at operating cash flow?

The major correction?

Well.

If we are taking net income and we are doing the adjustments necessary to get an operating cash flow number, could you take us through the major components of that?

Yeah.

Of course the major one is DDNA, which is net of EPS.

Yeah, and this of course is preliminary.

The major items would be of course net income billion dollars.

DDNA is a billion dollars 1043.

Deferred income tax is 281 million.

Accounts receivable was 405 million dollar negative.

I am just trying to pick up big ones Jessica, because this is a very detailed preliminary statement of cash flows.

The margin in the past, deposits.

Assets and liabilities was about 200 million.

Positive or negative?

Negative, and we had a prepayment of 226 million.

That's the big items Jessica.

So, I mean - I think, you know, obviously, when we report the statement of cash flows or our cash flows we do a full GAAP and there is a number of items.

Anything specific do you want to ask about?

In addition to what you gave me, could you tell us what non-cash mark-to-market was for the quarter?

Yeah.

It was almost nothing.

Let me -- just one sec here.

So, its so small its hard to measure.

Positive or negative?

One positive.

Yeah.

Okay.

Yeah.

Non-cash earnings of 7 million.

And there were no mark-to-model changes, in that [Inaudible] ?

No.

Okay and one last question, if you hear me, when you give us the fully loaded debt number or when you gave that to us before, what are you adding back into it?

I know you told this before, I just want to double check.

We are adding backdrop all our balance sheet financing including the Dominion Telecom synthetic leases, operating leases as well as the allocation by our laundry (ph) agencies of capital for our clearinghouse, about everything you can think of, plus.

The allocation of capital to the clearinghouse is that essentially guarantees that?

No, that's a calculation with one of the rating agencies developed not as everyone who is in this business and we are not exactly strict sure how to get there and it is, you know, it is not the major number but it is one of the numbers that they do have.

Thank you very much.

Thank You.

The next question comes from Sam Nangia of CL Securities.

Couple of quick questions.

The first one was if you could just give us the tax rate for this quarter versus previous third quarter?

Yeah.

It will be around 34% or so for this quarter, the effected tax rate.

Sam, I am sorry I can't find my calculator.

Okay.

You had no plan of asking other questions?

Yeah, sure.

And, you know, the other question that kind of comes to mind is that we have seen a big increase in the EMP hedging numbers for the O3 and I am wondering if that somehow also impacted the earnings guidance for next year?

Well, I think it has certainly impacted the amount of hedge that we have and therefore takes a little bit of risk out of that.

Yeah, I mean, I guess the answer is that we certainly could count on the hedge prices that we did.

The additional hedge pricing had a different level than we had in our earlier models.

Okay.

I know you guys haven't released this information in the past, but let me just try this anyway.

Are you going to be giving us any kind of hedged, any kind of number at which you have actually hedged gas prices?

No.

We are going to continue to give a forecast on average realized price versus hedges.

We have many number of hedges and different types.

So it is very difficult for us to give you a single amount.

Sam, the effective tax rate was 38%

That is 3Q01and then this 3Q02 is 34%?

Right.

Right and I guess just a, the one last question I would just have is that, you know, again earnings came down by, you know, not that substantial number for you guys, but, you know, still came down by some loss for you guys for next year.

Just, I guess, one is obviously the equity issuance.

Second, could be that, you know, different assumptions for realized prices, which was probably the biggest sensitivity, at least to my model.

Anything else that you can tell us about for '03?

Well, I think the big difference in '03 is that we concluded that the current analysis is which was a big growth number for us in the past, we are not going to have that growth because of lack of volume in that business to be faced (ph) and you know, the margins that are available in the electric charge particularly, that is the biggest factor that is different and we've gotten more and more conservative on that.

And of course, that also leads to less mark-to-market income.

Thus, I guess more that offset the value doesn't really impact our cash EPS like it does book EPS.

That's great.

Thank you.

Next question comes from Jeff (ph) of [Inaudible] Research.

Good morning.

I wanted to just follow up on the debt-to-cap number, I know the -- I think the target number you played out has been 55 percent.

Is that based on what you have included in the number you gave us this morning?

No. that was always on the GAAP basis.

That excluded the telecom business, didn't have operating leases in it.

Didn't have allocations for capital to the clearing house.

So, we have gotten all of talking about the GAAP number because the real percent number is how does the agencies look at things.

Okay.

So based on what the rating agencies are looking at, that's the number you gave out this morning.

Is there a level you are working to, with the -

Over, over a period of time, and I will stress over a period of time, I think that market has misconstrued some of the earlier comments.

I think that the agencies expect us to be at certain numbers like at the end of this year.

We will meet, you know, what they previously expected for year-end, but it is only 18 to 24 months type target and it looks like it were continuing to delever in our model without further public market issuance and models only go to 2005 but those numbers get to be very very strong, get to be under 50 percent, or right on 50 percent debt-to- total cap and also importantly the numbers for funds from operations to interest and fund from operations to total debt.

Also which is very important to agency, continued to improve.

Great.

Okay and with - for 2003 have you assumed capacity factor target for Millstone?

Tom Chewn -

We expect Millstone 3 has said, this has come out of its refueling outage.

After its last 2 refueling outage its run over 500 days without a reduction in power.

We expect that to occur again.

In Millstone 2, we will go into an outage in the fall, refueling outage in the fall.

Other than that we expect our entire nuclear program will have a capacity factor above 92 percent, that depending upon how long the outages take on the [Inaudible] repairs in Virginia, that could reduce the Virginia side of it.

Okay and finally, on the oil and gas, there is several storms in the gulf this fall, how many days where those rigs in the gulf evacuated?

Was it two weeks hold over?

It is about, may be it is around 10 days, 8 to 10 days and fortunately for us even though we lost production during that time, it appears latest projection is that we still need a 450 bcf production.

Okay and then you are looking at 10 percent annual growth after that number?

10 percent next year, it could yield higher than that in 2004.

The reason is 2003 has been reduced this [Inaudible] that we expected to be in place in the second quarter of 2003 at Devils Tower, it has been delayed about three months.

But that doesn't impact 2004 because it will be online all 2004.

So, we previously had a growth rate of 15 to 20 percent for 2003 and 2004 and it looks like 2004 will be more like 15 percent from 10 percent.

Okay and your comps in that Devils Tower now seems that, that this three-month target is doable?

Yeah, we recently had people over in Singapore looking at the actual construction of the spar and talking to people on the ground and clarifying with them what the top management is going to set about the delays.

They had a really delayed start up in operation over there but once they got started they are doing fine.

So, please don't think they can make up the slow start, but they are doing fine now.

Excellent.

Thanks a lot.

Thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers, Mr. Chewning are there any closing remarks?

[Inaudible] today you might imagine in conjunction with every quarter just closing.

Well, from our position, things are going well for us.

We are excited.

I think we've got us the best management team and the best game plan and the best, sort of, assets in the industry and we are excited and charged up.

We thank you for being with us this morning and look forward to talking to you later on.

Thank you.

This concludes today's Dominion conference call.

You may now disconnect.