道明尼資源 (D) 2003 Q3 法說會逐字稿

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

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

After the speakers' remarks, there will be a question-and-answer period (OPERATOR INSTRUCTIONS).

I will now turn the conference over to Mr. Tom Chewning.

Sir, you may begin your conference.

Good morning and thank you for joining us for our third-quarter 2003 earnings conference call.

Joining me this morning are Steve Rogers, Vice President and Controller; and Tom Wolfe, our Director of Investor Relations.

In addition, other members of management will be available for the Q&A portion of the call.

This 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 uncertainties.

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

Also on this call, we will discuss some measures about our Company's performance that differ from those recognized by generally accepted accounting principles, or GAAP.

You can find the reconciliation of these non-GAAP measures to GAAP on our Investor Relations Website at www.dom.com/investors under GAAP reconciliation.

Dominion interested operating earnings of $1.30 cents per share in the third quarter of 2003, as compared to $1.54 per share earned in the third quarter of last year.

Prepared in accordance with generally accepted accounting principles, or GAAP, we reported a loss of 79 cents per share in the third quarter of 2003.

The following impacts are excluded from the calculation of third quarter 2003 operating earnings. $1.77 cents per share, or $575 million, related to the Dominion Telecom impairment announced on September 22; 25 cents per share, or $80 million, for Hurricane Isabel restoration expenses; 6 cents per share, or $21 million, due to the impairment of (technical difficulty) capital; and 1 cent per share (technical difficulty) related to the buyout of a power purchase contract.

There were no adjustments to third quarter 2002 operating earnings, so GAAP-based or reported earnings of $1.54 per share were the same as operating earnings.

Dominion utilized its operating earnings as the primary earnings performance measurement for external communications with analysts and investors.

We define operating earnings as reported earnings adjusted to remove the impacts of certain items, which include cumulative effects of changes in accounting rules, asset impairment charges, and highly unusual or extraordinary events, such as Hurricane Isabel.

We do this because we believe that earnings as adjusted, or operating earnings, provide the most meaningful representation of the Company's fundamental earnings power.

We also use operating earnings for budgeting and reporting to Dominion Board of Directors, as well as for the Company's profit-sharing plan.

Year-to-date operating earnings from the third quarter of this year of $3.66 per share compare to operating earnings for the same period last year of $3.71 per share.

This year's results are fundamentally strong and better than they may appear on the surface.

Operating earnings this year have been negatively impacted by lost revenue due to Hurricane Isabel, which reduced operating earnings about 4 cents per share.

In addition, we wrote off a portion of the deferred fuel balance as part of the proposed Virginia Steel K (ph) settlement, and that reduced our operating earnings about 3 cents per share.

Adjusting for these items, we can see indicative year-to-date operating earnings slightly ahead of last year.

We think that is very positive, particularly given that it has been achieved in spite of significant share dilution from our balance sheet strengthened equity issuances over the past year, which has reduced year-to-date earnings about 30 cents per share.

Operating cash flow has also been strong this year, and at 2.1 billion year-to-date, it is running about 11 percent ahead of last year for the same period.

Cash flow would have been even stronger if not for several items, most of which are timing in nature.

First, we contributed $169 million to the pension fund in the third quarter.

That pension plan is adequately funded, but we made this contribution to realize an immediate cash flow tax benefit.

In addition, there have been a couple of working capital related items that have impacted cash flow on a temporary basis, including a $240 million increase in fuel inventories as we build for the winter heating season and a $250 million increase in a deferred fuel balance.

We know these are timing in nature and will generate cash as the fuel inventory is sold and the deferred fuel balances are collected from customers.

As a result of pension contributions and the cash cost of Hurricane Isabel, we expect full year cash flow from operations to be around 2.7 to $2.8 billion for the full year 2003 instead of the $3 billion previously expected (ph).

Also, a timing difference related to the Fairless Works financing reimbursement shifted that 750 million in free cash flow expected in 2003 to 2004.

This will cause year-end reported free cash flow to be lower this year, but higher by an equal amount in 2004.

Finally, our key credit metrics are strong, with adjusted debt to cap ratio at 55.1 percent, and the adjusted FSO to interest at a solid 4.3 times at the end of the third quarter.

The debt to cap ratio is adjusted to include off-balance sheet financing and to give partial equity credit to mandatory convertible securities.

And the FSO to interest has been calculated consistent with adjustments rating agencies make to this ratio.

Available liquidity, including cash and cash equivalents, stands at 1.6 billion at the end of the third quarter.

Although the adjusted debt to cap ratio rose slightly from the second-quarter level of 54.7, we believe the overall trend in our credit ratios will continue to be positive.

Our solid investment-grade credit rating and the stable outlooks from Moody's and Standard & Poor's rating agencies reflect the strength of earnings, cash flow, balance sheet, liquidity and financial flexibility.

A recent upgrade in Moody's outlook for Dominion was an important recognition of the progress we have made and the financial strength and flexibility we work so hard to maintain.

We expect fourth-quarter operating earnings per share of 95 cents to $1.05 cents, assuming normal weather.

Based on that guidance and year-to-date operating earnings results, we expect full year 2003 operating earnings to be between $4.60 and $4.70 per share.

We are also reiterating our 5 to 7 percent average annual growth after 2003.

We will finalize our annual budgeting process later this year, and expect to provide specific 2004 earnings per share guidance no later than the fourth-quarter conference call in January.

With respect to our operating earnings per share guidance, Dominion management notes that there could be differences between reported and operating earnings for the remainder of 2003 and 2004.

Differences beyond those recorded in the third quarter and those discussed above have not yet been quantified, and therefore, Dominion is not able to (indiscernible) without a corresponding GAAP equivalent or estimated earnings going forward.

Now we would like to take a few minutes to update you on a couple of items impacting expected E&P production.

Since our last update to you, there have been over 40 days of weather delay in the completion of Devil's Tower.

We now expect initial production from the project to be mid to late second quarter 2004.

This delay will reduce 2004 production by about 15 to 20 BCF from our prior forecast.

While Devil's Tower is important and is a high-profile project, it is a small part of our overall E&P portfolio and is an even smaller part of Dominion Resources portfolio of energy assets.

In addition, in mid-August, we sold 66 Bcf of production deliverable over four years to Texas Municipal Gas Corporation for $266 million in cash, resulting in a sales price of about $4 per Mcf.

The sale was booked as deferred revenue, and the revenue will be recognized as the volumes are produced.

The cash proceeds were recorded in the investing section of the statement of cash flows, not in operating cash flow.

Since these reserves have been sold, the associated volumes will not be recorded in our future natural gas production figures.

As a result, this transaction will reduce reported volumes by 10 Bcf this year, 22 Bcf in 2004, 18 Bcf in 2005, and 16 Bcf in 2006.

It is important to note, however, that this reduction in reported volumes will have no negative impact on reported revenue or earnings.

In fact, on an overall basis, the transaction is slightly accretive to earnings per share.

As we have said many times before, our primary focus is on earnings, cash flow and return on invested capital, not simply showing growth in reported production volumes.

Finally, an update on our hedging.

Including the volumes effectively hedged under the Texas municipal sale, we have hedged more than 90 percent of expected fourth quarter production at a weighted average hedge price of $3.70 (ph) per Mcf equivalent.

We have hedged about (technical difficulty) percent of our expected 2004 production at an average price of about $3.75 (ph) per Mcf equivalent, and we have hedged about 55 percent of expected 2005 production at an average price of about $3.70 per Mcf equivalent.

We have hedged about 95 percent of our generation portfolio in the four quarter of 2003, more than 90 percent in 2004, and more than 85 percent in 2005.

The most notable change in the generation hedging since our last update is additional hedging of the merchant (ph) portfolio in 2004.

We have sourced (ph) 100 percent of Millstone for 2004 and almost 50 percent of Fairless Works, including a portion of that outflow which will be used to serve the 250,000 PECO Energy customers that Dominion Retail recently won by competitive bid.

Immediately following the call, we will post on Dominion's Investor Relations Website, located at www.dom.com/investors, statistical and financial data that we hope you will find helpful in understanding Dominion's strategy and business model and also in doing financial modeling.

Now let me turn the call over to Steve Rogers to review the 2003 earnings results.

Thanks, Tom.

The following variance reconciliation of third quarter 2003 versus third quarter 2002 operating earnings per share can be found on Dominion's investor information page at www.dom.com/investors. 2002 segment results have been restated to reflect the transfer of the electric transmission operations from Dominion Delivery to Dominion Energy.

All variances represent third quarter 2003 actual results as compared to the third quarter of 2002.

Let's start with Dominion Energy.

Dominion Energy manages the Company's electric generation and transmission business, natural gas pipeline and storage business, the Dominion Energy Clearing House and Dominion Retail.

Dominion Energy earned 91 cents per share in the third quarter of 2003, compared to $1.06 per share in the third quarter of 2002.

Customer growth in both the electric franchise service area and the area served by Dominion Retail increased earnings 3 cents per share.

Compared to last year's third quarter, weather in the electric franchise service area reduced earnings 12 cents per share.

Electric sales margins lost as a result of Hurricane Isabel are estimated to have reduced earnings per share by 3 cents.

Settlement of the Virginia fuel case reduced earnings by 3 cents per share.

A change in the allocation of electric based revenues from Energy to Delivery reduced Energy's earnings by 5 cents per share.

Excluding all corporate hedge effects, Dominion Energy Clearinghouse reduced earnings 2 cents per share.

Net gains related to corporate hedges of natural gas production as compared to net losses during the third quarter of 2002 increased earnings by 6 cents per share.

Millstone's contribution increased earnings 11 cents per share.

Other factors increased earnings 5 cents per share, and share dilution decreased earnings 15 cents per share.

Next we will discuss Dominion Delivery.

Dominion Delivery is the Company's electric and gas distribution and customer service business.

Dominion Delivery posted earnings of 25 cents per share in the third quarter of 2003, as compared to 31 cents per share in the third quarter of 2002.

Customer growth in our electric and gas franchise service areas (technical difficulty) earnings 1 cent per share.

Compared to last year's third quarter, weather in the electric franchise service area reduced earnings 5 cents per share.

A change in the allocation of electric-based revenues from Energy to Delivery increased Delivery's earnings by 5 cents per share.

Electric sales margins lost as a result of Hurricane Isabel are estimated to have reduced earnings per share by 1 cent.

Performance of the telecommunications business reduced earnings 2 cents per share.

This item represents the performance of telecoms continued operations, exclusive of the impairment recorded in the third quarter.

And share dilution decreased earnings 4 cents per share.

Moving now to Dominion E&P.

Dominion Exploration and Production is the Company's exploration and production business.

Dominion Exploration and Production's earnings was 30 cents per share in the third quarter of 2003 compared to 32 cents per share in the third quarter of 2002.

Higher average realized gas and oil prices increased earnings 13 cents per share.

A 1 Bcfe decline in equivalent gas and oil production reduced earnings by 1 cent per share.

A change in the DD&A rate reduced earnings by 2 cents per share.

Increased expenses reduced earnings 3 cents per share.

The expiration of Section 29 production tax credits reduced earnings 4 cents per share.

And share dilution reduced earnings by 5 cents per share.

Finally, the corporate cost center.

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

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

On an operating earnings basis, the corporate and other segment contributed net expense of 16 cents per share in the third quarter of 2003, as compared to net expenses of 15 cents per share in the third quarter of 2002.

The 1-cent-per-share variance in operating expenses can be attributed to higher net expenses partially offset by share dilution.

On a GAAP base, or reported earnings basis, the corporate and other segment contributed net expenses of $2.25 cents per share to third quarter 2003, as compared to net expenses of 15 cents per share in the third quarter of 2002.

In addition to the 1-cent per share variance described above, $2.09 per share in expenses resulting from the items detailed by Tom Chewning earlier in the call were excluded from third quarter operating earnings.

That concludes our earnings reconciliation and we will now open the call to your questions.

(OPERATOR INSTRUCTIONS) Dan Eggers from CSFB.

My first question is I just wondered if you could give us an update on what all is going on in the Virginia legislature right now?

Certainly a lot of talk is rolling around -- wondered if you could give us an update from your seat?

We have Thomas Farrell with us, the CEO of Dominion Energy, and he is the person who will speak to that.

Good morning.

You may be referring, Dan, to the report that the Attorney General of Virginia, who's a Republican, and the Governor of Virginia, who is a Democrat, had jointly proposed an extension of our existing rates through until 2010.

Various reasons given for that, a relatively slow start for the competition, delays in our joining an RTO, had led to their conclusion that we should take a serious look -- the Legislature should take a serious look at extending the rate cap.

As you know, in Virginia, that whole issue of deregulation has been handled exclusively by our General Assembly.

There was comments in that letter about the potential of a phasing out of the wires charge.

Meetings will progress on that.

It will be considered in the 2004 session.

This is in Virginia a long session, which means they go from the middle of January to the first week in March.

So it will be handled in that time period.

I think that the immediate reaction from many legislators has been positive to that.

We don't expect -- I think it is highly unlikely, remote, that there would be any impact on the wire charge prior to July of 2007.

I don't think that is an issue that we are concerned about here.

I hope that answers the question.

Good, thank you.

The next question is just on the hedging front, selling forward a decent chuck of production at $4, relative to where the strip is today and where the forward strip is.

What was the motivation for selling at those prices, and is this an indication that 4 dollars is kind of a proper price for your production going forward?

I think you have to take that as a whole.

That number $4 is over a period of four years as present (ph) payment, so there's the future -- there is a discount that was taken in order to achieve that.

We have no credit risk, we have no margin requirements.

We felt that we matched to production very, very well.

So $4 on a present value for four years production with no credit exposure, no margin requirements, is a pretty good day's work.

Fair enough.

Thank you, guys.

Jeff Dietert with Simmons.

I was going to see if you could give us an update on the timing for Frontrunner (ph)?

Duane Radtke is on the phone, I believe --

Sure, Tom, we'd be glad to.

The hull actually shipped from Dubai a couple of weeks ago and we expect it to be in the Gulf in December.

And we are continuing to say that the second half of the year sometime is when we expect Frontrunner to come onstream.

Very good.

Could you give us an update on the O&M and DD&A costs on a per-unit basis as well?

The DD&A went up, I think it is about 2 cents a share.

The majority of that change was due to the sales, the divestitures that we did during the year.

That was about two-thirds of the cost.

And then we had higher abandonment costs under FAS 143 that constituted about a half a cent per share.

On the O&M side, which was about 3 cents, two-thirds of that was due to severance taxes and property taxes.

In other words, the higher price we receive for our product, the more taxes we have to pay.

And then the balance of it was just due to cost pressures under a sales price environment.

Very good.

Thank you for your comments.

Leslie Rich (ph) from Bank of America.

I wondered if you could go over what you said in your prepared remarks about Fairless Works and the free cash flow impact 2003 to 2004.

We expected, Leslie, to receive about $400 million that we had already put up and financed with our short-term lines of credit in a permanent financing.

We made a decision for financial reasons that it was not the best time to do that until later due to market conditions.

And so, we also expected that once that was done, which I believe was like in April, that we would spend another about $350 million and have that funded in that permanent financing.

So, by year end we expect to spend about $750 million that was going to be carried by that financing, so we would expect to get that back next year.

And that will improve not operating cash flow, but that will (indiscernible) our funds available without going to the market.

Okay.

Then I wondered if you could also just talk about the results from Energy Clearinghouse, sort of what was going on there?

Paul Koonce is in charge of that overall -- Kevin Howe (ph) and Paul -- and Paul is with us this morning.

I think the results from the Clearinghouse continue to be as expected, given there's very little volatility.

I think that the earnings are solid.

We continue to expand that business.

What we are doing now is dealing with changes in accounting rules that cause more of the earnings to be more accrual-based or cash-based versus mark-to-market based.

So working through all of that, we feel very pleased by the deal flow and everything is working as planned.

Thank you.

James Yannello (ph) from UBS.

Just a follow-up on Clearinghouse.

Can you provide a little more detail -- what are you doing, what are you not doing, and just a little more flavor on that?

Second question, as far as the Millstone decommissioning trust, if you have the pre-tax, after-tax numbers for the quarter, that would be great.

I think you mentioned the pension fund is now -- I don't know exactly what you call it, but more fully funded or nicely funded.

Can you give us a percentage if you were to market (ph) today?

Thank you.

Just on the Clearinghouse to follow up on what we are doing and what we aren't doing.

We are concentrating on selling the output of the plants that we have under development and making sure that the Millstone stays fully hedged in the (indiscernible) market, as gas prices influence the price in that market.

So we are really focused on making sure that we keep the merchant fleet hedged at good levels and at good prices.

We are focused right now on our winter operating plants, making sure that we have storage inventory for the local distribution companies where they should be, so that we can protect against any price spike that we may incur there.

And we are engaged in following up on third-party origination transactions providing storage services for others.

So it is really a continuation of the types of activities we have been doing over the last three years.

Is it all physical based still?

Paul Koonce.

Yes.

I mean, it is essentially (technical difficulty) hedging the assets that Dominion has and we are staying true to that.

Thanks.

Steve Rogers will answer the question of (indiscernible) trust.

We have total decommissioning trust information here on the call, but predominantly all of it is related to Millstone.

Through September, we had about $36 million of losses on a pre-tax basis from investment activity in the trust.

After-tax is about 23 million.

Now the pension, I'll ask Tom Wohlfarth to cover that.

The general funding level is about 2 or $300 million positively excess funding.

We are positive about $200 million.

Okay, thank you very much.

Rebecca Followill from Howard Weil.

My question has been answered, thank you.

Cary Stevens (ph) from Dominion Resources.

Carrie, you working for us now or are you still independent?

I don't know what happened there.

But I had a couple of questions regarding E&P and then on '04.

First, maybe you can kind of go over what the expectation is for production growth next year.

Would you still say it's double-digit with the Devil's Tower delay?

With the drop, we would lose about 10 Bs (ph) this year due to the VPP (ph), so we are now saying we are going to be at about 450 Bs for 2003.

The VPP, of course, is only for about four months this year and the full year next year, so we're going to lose 22 Bs.

The best way to look at it is let's just ignore the VPP for right now.

And with DT, we would expect still to be 10 to 15 percent in 2004, but be at the low end, and then in 2005, 10 to 15 being at the high end.

Great.

Obviously, the costs were rising this quarter.

Can you guys kind of give us an update on what your outlook is for like lifting and DD&A costs for next year?

Rather than saying next year, obviously, we're still working through all of the numbers.

But for DD&A, we still say $1.20 to $1.25, which is very consistent to our year-to-date performance.

Lifting costs have gone up; we are seeing 85 to 95 cents now.

But again, the biggest component of that would be severance taxes.

And in our own models, our incremental F&D cost going forward would be about $1.40 to $1.50.

So in other words, when we add new production into our full cost pool, we are putting it in incrementally at that rate.

This modernization, are you guys pursuing other opportunities or is this kind of like a one-time event?

On the sales side, we are always interested in both selling and buying.

It is whatever really makes total sense for Dominion.

We have bought some small assets in a few areas this year, but it really would depend on the opportunities.

But if we did it, we would do it within our budget.

In other words, we would either delay some drilling or sell some production.

Looking out to '04, you guys have talked about 5 to 7 percent growth, I guess after '03.

Is there anything that would lead '04 to kind of be above that trendline, and I guess I am just thinking about the kind of step-up in E&P production, as well as the telecom write-off kind of adding back the losses that you were dragging from that business.

Could you kind of talk through that?

(indiscernible) our budget process, but I think there are some pluses.

Obviously, there is lower E&P production than we expected, even though part of it is not going to hurt us on revenue, which was the modernization.

But obviously the Devil's Tower delay will hurt us on production.

We certainly do have some positives and if we do place our telecom and assets held for sale, that will help, but there are also some other expenses that we may or may not incur, like pension increases, etc., that it's too early for us to say.

But I wouldn't say at this point that we are changing any guidance.

The 5 to 7 is still alive and well.

When are you going to make that decision regarding telecom and what's kind of the key issue to focus on?

I'm going to let Steve Rogers give you the accounting answer, because that's really what dictates --

It is an accounting convention that requires a certain number of things be into place, and we're working on getting those things into place, and we expect to get them in place in the fourth quarter and hopeful that that will occur, and so hopefully, it will be by the end of the year.

If not, it'll be the first quarter of next year.

Thanks a lot.

Tom Hamlin from Wachovia Securities.

Two questions.

When you said that you had 50 percent of Fairless Works sold forward and then you mentioned that part of it was to serve the customers that you got from PECO, is that part of the 50 percent?

Yes.

So is that at a firm price or is that just your estimate of what you will sell to them?

It's a firm price.

Can you quantify what weather was in the quarter?

Are you asking weather -- ?

You said it offset the effects of milder weather.

I wondered if you could quantify that.

On a quarter-to-quarter basis, it was about 17 cents for energy and delivery combined, and compared to normal, it was about 2 cents, I believe.

Let me just check one thing.

Exclusive of hurricane.

Exclusive of hurricane.

I am sorry.

Yes, compared to normal it is about 2 cents.

It was about 17 cents year-on-year and then we expected -- we figure about 4 to 5 cents of loss margin because customers that were out during the hurricane.

Okay, thanks.

Michael Worms from Harris Nesbitt.

Just a quick question.

Could you clarify that $750 million capital expenditure number that you were talking about, is that incremental or was that all part of what was planned all along?

It was planned along.

Okay, great.

And then the second question is, can you kind of give us an update on the Surrey 2 (ph) replacements of the nuclear reactor head?

It's progressing on schedule.

The old head is off; the new head is inside containment.

We should have the unit back exactly as scheduled, which is the early part of the third week of November.

Can you give us an update on Cove Point.

Is that facility operating at full capacity.

Can you just give us a little color on that?

Cove Point is operating at full capacity.

It went into commercial operations, I guess, in the latter part of August.

We had trouble with one of the tanks but that has been -- one of the four tanks, but that has been repaired.

The facility is fully operational.

I believe the ninth ship is presently at the dock.

Thank you very much.

Paul Ridzon, McDonald Investments.

What is left of Dominion Capital?

Secondly, the fuel clause reconciliation certainly seems like a non-recurring item.

I'm just wondering why you didn't consider it that way and kind of add it back?

I will take the question first.

Under (indiscernible) with our accountants and internally, it was decided on balance that the most conservative way of showing that was to run it through operating earnings.

There was some argument that would agree with your position that it is a onetime situation.

We certainly think that that settlement, if it is confirmed, would make it a onetime thing.

And at the same time, I guess that the convention that we followed may be in the past, and so that is a good question.

And on balance, we decided to make sure that we were on the conservative side from an accounting standpoint.

On Dominion Capital, we have got a billion dollars' worth of assets remaining to be sold.

It is a little bit of everything, from deferred securities, to mortgage residuals we have (indiscernible) to loans that we have, and venture capital investments, a little bit of land, lessee and lessor interest in (indiscernible) Hydroelectric plant.

It's a combination of a lot of different assets and we are aggressively pursuing reducing that total and hopeful the next conference call we will be able to pronounce (ph) some success.

Could you give an update, just kind of your view as to how you consider the asset market at this point?

You mean the assets for (indiscernible) like electric generation or -- ?

Yes, the E&P front, generation.

There is plenty of assets I think that are for sale that we're not interested in -- gas plants in Texas, California, Midwest, Peakers (ph), things that we wouldn't have any interest in purchasing.

There are a more limited number of assets that are for sale that we are interested in, and what we continue to be interested in is -- at this point is baseload generating facilities, preferably or exclusively nuclear and coal.

If we can find it, we prefer contracts, and we are pursuing those kinds of assets wherever we can find a lead.

From the sales standpoint, we sold not only the VPP but we packaged a small group of assets, non-core, in the Arfosex (ph) area this year, as well as some Gulf of Mexico assets.

I would contemplate that next year we would continue to take some small packages to clean them up of some non-core assets.

Whether we do another VPP would depend on whether it makes sense for the Company to do it, number one.

And number two, you are rather limited as to the type of assets you can use to do a VPP.

On the buy side, there are a lot of assets out on the market, as particularly the pooling time frame comes off of Chevron Texaco.

And there are assets in certain core areas we would like to take a look at, but again, it would be as a capital neutral basis if we looked at those.

You have had a lot of severance over the last few years.

Can you give an update as to what kind of savings you're realizing and then just an update on Six Sigma?

I'm not sure that I have -- unless Steve Rogers has the answer on what we're saving on all of those severances. (indiscernible) That is a good question, and if we find it, we'll certainly put that on (indiscernible).

Six Sigma has once again continued to be a real plus for us.

We have cumulatively saved around $150 million.

What is interesting there is that there are currently 423 active projects with potential P&L impact of 37 million pretax, and there are 560 project ideas in the queue that we have not yet financially validated in terms of savings estimates.

We have 150 active black belts and 239 have been trained since inception.

We had a goal for this year that we met in September.

So we are really high on Six Sigma.

It is a part of our culture and continues to gain more and more momentum as we go forward. (indiscernible) another level of -- somewhere in the 40 to $50 million of savings next year.

David Schanzer from Janney Montgomery Scott.

Just a quick clarification.

You mentioned that there was loss margin due to Isabel of 4 to 5 cents and then on your cover sheet you're showing 25 cents effects from Isabel.

I just wanted to make sure that 4 or 5 cents wasn't included in the 25 -- they are separate items, right?

Yes, the 25 cents are expenses and it is 4 cents in margins -- that is the estimated lost revenue, which is exclusive of the 25 cents.

Okay, thanks.

Ladies and gentlemen, we have reached end of the allotted time for questions and answers.

Mr. Chewning, do you have any closing remarks?

Thank you very much for being with us and we look forward to being with you in January and hope for an early winter.

Have a good day.

Thank you.

This concludes today's Dominion's third-quarter earnings conference call.

You may now disconnect.