道明尼資源 (D) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Dominion's first quarter earnings conference call.

We now have Mr.

Tom Chewning, Dominion's Chief Financial Officer in conference.

Please be aware that each of your lines is in a listen-only mode.

At the conclusion of Mr.

Chewning's prepared remarks, we will open the floor for questions.

At that time instructions will be given as the procedure to follow should you want to ask a question.

Before introducing Tom Chewning, I will turn the conference over to Joe O'Hare, Director of Investor Relations.

Thank you, Lindsay, and good morning.

Welcome to the Dominion first quarter earnings conference call.

This morning we published several supplemental schedules on the website.

Please ask that you refer to those exhibits for certain historical quantitative results.

From time to time during this call we will refer to certain schedules included in our quarterly release or to pages from our first quarter earnings release kit.

Both of which were posted this morning to Dominion's website.

Our website address is www.dom.com/investors/ir.jsp.

Let me start by providing the usual cautionary language.

The earnings release and other matters that may be discussed today contain forward -- 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 10K and quarterly report on form 10Q 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 the measures about our company's performance that differ from those recognized by GAAP.

You will find the reconciliation of these nonGAAP measures to GAAP on our Investor Relations website under GAAP reconciliation.

I will now turn the call over to our CFO, Tom Chewning.

Tom.

Thank you, Joe.

And good morning.

Joining me this morning is Thomas Farrell our newly elected Chairman, President and CEO and other members of our management team.

This morning, I will review our first quarter earnings results and how those results reflect the strength of the core businesses that will remain after we successfully reposition the Company.

I will then update you on our cash flow, credit metrics, liquidity and hedge positions.

Tom Farrell, will comment on operational achievements in our business units, the electric utility restructuring legislation recently passed in Virginia, our recent application to reset the Virginia fuel factor, the status of the Peoples and Hope LDC divestitures, progress in divesting our nonAppalachian E&P assets and our outlook on future earnings quality, business risks, growth and dividend policy.

I will conclude by pointing you to an alternative to the 2008 earnings model we provided on January 31st, and updating you on when you can expect additional forecasts and filing details.

Dominion produced operating earning of $1.50 per share in the first quarter of 2007, compared to $1.64 per share last year.

Operating earnings per share at delivery, energy and generation increased 9% compared to last year strongly affirming the earnings power and positive outlook for the new Dominion.

Customer growth and a return to normal weather in 2007 benefited utility revenue, but brought along with it higher fuel expenses.

These factors effectively offset each other.

On a GAAP basis earnings were $1.29 per share for the first quarter of 2007 compared to $1.53 per share last year.

The major differences between first quarter 2007 GAAP and operating earnings relate to asset divestiture activity including the people sales and the pending sales and charges related to E&P asset divestitures.

All of these transactions GAAP accounting convention requires that we record certain expenses and charges prior to closing, follow recognition of any gains on sales are recorded at the time of closing.

These timing differences cause a temporary reduction in common shareholders equity that will be reversed once the transactions are complete and the full impact is reflected in our consolidated financial statements.

A reconciliation of GAAP to operating earnings can be found on schedules 2 and 3 of our earnings release.

Now on to operating cash flow, credit metrics and liquidity.

Cash from operations totaled just over $1.2 billion, a 23% increase over last year's $984 million.

Quarter-end adjusted debt to total capital was 54.1% compared to 54.5% at year end 2006.

The adjusted ratio of FFO to interest for the 12 months ended March 31st, 2007, improved to 4.3 times compared to the 12 month measure of 4.2 times at year end 2006.

And adjusted FFO to total debt was 22.5% at quarter's end compared to 21.5% at the end of last year.

Available liquidity at the end of the quarter totaled $1.8 billion compared to $3.2 billion at the end of 2006.

This reduction as a result of the exploration in February of a $1 billion, 364 day credit facility and an increase of $418 million in short term debt.

We are bridging our long-term debt maturities through short-term borrowings in anticipating of using divestiture proceeds to permanently retire debt.

A reconciliation of these nonGAAP ratios to GAAP can be found on our Investor Relations website under GAAP reconciliation.

Since our January 31st disclosure there were only minor changes to our natural gas, oil and generation output hedge positions.

We have, however, expanded our hedge disclosure to include our 2007 capacity hedge positions in PJM follow the RPM auction for the planning period June -- June 2007 through May 2008.

For our current hedge positions, please see the schedules on pages 28, 29 and 30 of the earnings release kit.

That concludes our review of first quarter results.

I will now turn the call over to Tom Farrell.

Tom.

Good morning.

In our January earning's call we discussed the importance of safety and operational excellence in order for us to -- to produce the steady and reliable earnings growth we and our fellow shareholders expect.

Our first quarter results reflect the strength of the new Dominion.

Initiatives underway will ensure that we successfully build upon this foundation to deliver strong long-term earnings per share and dividend growth.

Dominion retail is again off to a good start.

For passing its net income of last year's first quarter by nearly 40%.

In adding more than twice the number of new customers compared to the same period last year.

During the first quarter Dominion Energy tied it's peak day send out record of 6.3 billion cubic feet.

During the month of February Dominion Energy also experienced a record storage withdrawal of 78 bcf.

This represents the largest withdrawal of any February on record.

And while these measures show the heavy utilization of our system, we have now completed seven winter seasons in a row without a single firm service interruption.

Many generations units continue to excel in efficiency and safety.

Our merchant coal fleet had an equivalent availability factor in excess of 90% this quarter while our nuclear fleet had a capacity factor of greater than 95%.

Also Kewaunee and three New England plants: Manchester Street, Salem and Braden Point had superior safety performances in the first quarter with zero (inaudible) recordables.

As we enter a new regulatory era in Virginia, operational strength and a focus on safety will serve both our customers and our shareholders well.

Virginia's new hybrid regulatory model will provide Dominion with a competitive return on equity plus incentives not only to achieve continued high levels of customer service, but to invest in construction of new electric generation.

More on that in a moment.

In April we filed our application for the fuel factory reset, and as of July 1, we will begin an annual fuel rate adjustment with deferred balances for under or over recoveries.

The recently passed legislation caps the 2007 increase in total fuel increase at 4% for residential customers.

Without the law the increase would have been approximately 12%.

The balance of our fuel expense will be deferred that in accordance with the legislation.

It is expected to be recovered over the next 24 months as the deferred amounts are phased into rates.

4% cap will have no impact on earnings except for carrying costs on any deferred fuel expense.

I would note here that the Supreme Court's recent decisions with respect to new source review will not impact Dominion.

Unlike many others we reached an agreement with the EPA in the year 2000.

We have almost completed installation of all of the equipment necessary to comply with those rules.

We will not be affected by the very significant cost escalation in equipment and labor.

On April 13th, the Pennsylvania Public Utility Commission approved the settlement agreement for Equitable to purchase Dominion Peoples.

Also on April 13th, the Federal Trade Commission filed a complaint seeking to stop the Equitable's proposed acquisition.

The complaint alleges that the acquisition would lead to hirer prices for the local distribution of natural gas to nonresidential customers in some areas of western Pennsylvania.

Both Equitable -- Equitable and Dominion have filed motions to dismiss the FCC's complaint.

The court is expected to rule on this motion early this month.

We believe our position will prevail.

The West Virginia Public Service Commission has scheduled hearings to begin May 7th for Equitable's acquisition of Dominion Hope.

We have not altered our outlook for closing these transactions at mid year.

As you may have read on Monday, we reached an agreement to sell our Gulf of Mexico operations to Eni Petroleum for approximately $4.76 billion.

Eni is the global energy concern based in Italy and has a growing presence in the Gulf of Mexico.

We expect the sale to close by early July of this year.

The announcement is a significant step in our strategic plan to refocus on the power generation and energy distribution, transmission, storage and retail businesses.

Eni is purchasing our Gulf of Mexico operations not only because of the quality of our assets, because the quality of our people.

Eni is eager to have them join its team.

While we are confident that our offshore organization has a bright future with Eni, this is bittersweet because it acknowledges that we will not be able to keep the bulk of Dominion E&P together as a single operation.

The contribution -- the contribution that the offshore business unit has made cannot simply be measured in production, reserves or earnings.

Our folks in New Orleans have been an integral part of the Dominion culture and have been influential in defining where we are as an organization.

We wish them well in their future endeavors.

We continue to pursue the disposition of onshore E&P operations except those in the Appalachian basin.

And expect to make further announcements in the near future.

We caution you to await further developments when considering the results of the offshore sale on Dominion's ongoing earnings power.

In addition to the sales price of any future transactions other important pieces of information are not yet ready for disclosure including our effective tax rate, targeted credit metrics in view of recent legislative changes in Virginia and ultimately the amount of cash that will be available to repurchase shares of common stock.

As you probably expect, we will have nothing further to say on this topic this morning.

We are actively working to complete our Peoples and Hope transactions and execute on our E&P asset dispositions.

As we complete our repositioning, we will focus on deploying capital in project with attractive returns that will provide stable and predictable earnings and cash flow in the coming years.

The disposition of our E&P assets will reduce Dominion's commodity price earnings sensitivity by about 67%.

Over time with future growth coming largely from gas and electric operations having little or no commodity price exposure, we expect further reductions in earnings volatility.

As a result, not only will Dominion's earnings per share grow, we believe the value that investors place on those earnings will expand as well.

We have a new regulatory environment in Virginia within a territory ripe for additional supplies.

We also have merchant plants and pipeline and storage in areas that are primed for growth and expansion.

PJM has predicted that electricity demand in Dominion's service territory will increase 4,000 megawatts over the next 10 years and 1,700 megawatts just by the year 2010.

It is the fastest growing region with all -- within all of PJM.

The infrastructure to services -- service this demand growth does not currently exist and cannot be expanded overnight.

But Virginia's hybrid regulatory model provides Dominion the necessary incentives to satisfy that demand growth.

Not only are we assured competitive returns on equity.

The new law also provides premium incentives to build new base-load plants including coal and nuclear, combined cycle gas and renewables.

The first step is our announced proposal to add 300 megawatts of natural gas fired electric generation at our Ladysmith station near Fredericksburg.

These units should be online in mid-to-late 2008.

On April 19th, we filed our application with the State Corporation Commission to construct 65 miles of high voltage transmission lines to serve the northern Virginia market at a cost of $243 million.

And later this week we plan to file a second application with the SCC to construct another 60 miles high-voltage lines to serve the rapidly growing Hampton Roads region at a cost of $180 million.

We have also completed the first stage of planning and development to construct a 500 to 600-megawatt clean coal plant in southwest Virginia.

We recently awarded an EPC contract to the Shaw Group for the first phase, that includes engineering and major equipment selection and plan to file with the State Corporation Commission before the fall of this year for approval to construct that plant.

The Nuclear Regulatory Commission's Atomic Safety and Licensing Board recently completed hearing testimony on our early site permit to construct North Anna 3.

The NRC staff supports Dominion's proposal and has issued a permit in draft form.

We plan to file for combined operations license later this year.

And also expect to receive the site permit by the end of 2007.

As was announced yesterday, we awarded to General Electric a contract to secure on our behalf critical long-lead components for possible next generation nuclear-powered unit.

Numerous growth opportunities also exist outside of Virginia.

Upgrades to our merchant plants are a low cost, high return expansion option.

The plan to upgrade at Millstone 3 and additional upgrade opportunities at Fairless Works and PJM and New England coal stations will allow us to supply additional power in very attractive merchant markets.

And across the northeast, we plan continued investments in pipeline and storage that will create favorable returns on capital.

In the short term, in addition to our Cove Point expansion and USA storage projects, we have completed a successful open season on a pipeline project designed to take gas from our (inaudible) area to an interconnect with the proposed Millenium project.

Signing precedent agreements are currently being negotiated.

While dependent upon the future of Millenium this project could be in service by November 2009.

We continue discussions related to further expansions of Cove Point.

And will announcing plans to significantly expand Dominion's transmission storage business in the near future.

Recent (inaudible) rulings on cost allocations within PJM and depending rate settlement for the Cove Point L&G facility are the latest examples of the constructive regulatory environment in which Dominion operates.

Operational excellence from our transmission team will continue to reward Dominion's share holders with strong returns.

We also have the proper incentives and continuing obligation to improve customer service and operational efficiency throughout all of our businesses.

In Virginia we will earn competitive returns on equity, but also with the potential of enhanced returns if we meet or exceed established performance measures.

Post completion of our strategic repositioning, we expect the Board of Directors to reassess dividend policy and move Dominion's payout ratio in line with its utility peers.

I will turn the call back over to Tom for his concluding remarks.

Following the call we will post on our website an alternative 2008 new Dominion indicative model.

This alternative model begins with actual 2006 results for the new Dominion operating units Dominion Energy, Dominion Delivery and Dominion Generation adjusted for normal weather and other items such as franchise growth and commodity prices.

We do not plan to discuss the model on the call today.

However, our Investor Relations team will be available after the call to answer any questions you may have about the model or any other matters of interest.

Also as we stated on January 31st, we expect to issue updated modeling information following the completion of our E&P divestiture process and offer full year guidance in January of 2008.

We intend to provide greater detail of the drivers and characteristics of our remaining businesses to better highlight their earnings power and value.

This concludes our prepared remarks.

Lindsay, open the lines please.

Thank you.

At this time we will open the floor for questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Greg Gordon with Citigroup.

Sir, please go ahead.

Thank you.

Good morning.

Good morning, Greg.

Morning.

On the subject of the asset sales I understand your caution that there are multiple factors involved in -- in getting to the bottom line impact for the Company, what is overall net proceeds are on a tax basis.

You also mentioned the amount of debt/target credit metrics you would be looking at post asset sale in lieu of the change in the regulatory structure in Virginia.

I would presume that while you are not giving us specifics here that -- that the direction there is positive and that -- is it wrong to presume that all things being equal the risk profile and/or the risk rating of the Company from the perspective of the rating agencies should be lower, not higher, and therefore, the amount of debt you might need to retire would be if anything less than what you had previously projected?

Is that a fair -- is that a fair presumption?

Yes.

This is Scott Hetzer.

That is a fair presumption.

But we are not giving specifics, because we have not completed our work and we are not sure how we will adjust our current metric targets as a result of this lower risk profile.

But your -- your presumption is correct.

Okay, guys.Thank you.

Thank you, Greg.

Thank you.

Thank you.

Our next question comes from Jonathan Arnold with Merrill Lynch.

Sir, please go ahead.

Okay.

Good morning.

Tom, I was hoping you could talk about the future strategy overall, once -- once you have completed disposition of E&P.

A lot of what you have been doing lately has been designed to reduce the risk profile of the company.

Can you see a scenario where you might make a similar decision related to the merchant business?

Thank you, Jonathan, for calling in.

We're -- our focus -- primarily focus will be on the areas that I listed in the opening discussion.

We will be pursuing our obligation to meet the demand growth in Virginia through the construction of new base-load power plants that should enjoy not only a fair rate of return competitive with our peers also but also enjoy the case of nuclear 200% -- 200 basis points -- I wish it was 250%.

200 -- 200 basis points, not bad, but it's only 200 basis points, not 200% premium.

The same is true for carbon capture ready coal.

100 -- 100 basis point premium for standard coal and for combined cycle plant.

Renewables get a 200 basis points premium.

And if we hit the targets we get an additional 50 basis points added to our -- premium added to our entire rate base.

So we will be pursuing that as the primary focus along with side by side expanding our pipeline operations our storage facilities at Cove Point.

At the same time, we have a lot of opportunities to expand through uprates our merchant fleet.

Now your question was when we be looking at disposing of the merchant fleet, and the answer is no.

Thank you.

Thank you.

Our next question comes from Hugh Wynne with Sanford Bernstein.

Please go ahead.

Good morning.

I had a question regarding your disclosures on the impact of the PJM capacity payments.

On page 30 of your release you now provide a average capacity hedge price for (Neat) pool and you provide an average capacity hedge price for eastern MAAC.

But you don't appear to add -- to offer an average capacity hedge price for the rest of market.

Instead there is a line that says average rest of market capacity purchase price.

Could you explain what that means and what the -- give us the hedge price for the rest of the market?

Hugh, this is Mark McGettrick.

At the bottom of page 30 it shows you 1,705 megawatts for the rest of the market.

And the subsequent lines below that show our hedge position was unhedged and what the average capacity price is for our shore position at Virginia Power.

And, Hugh, that is a blended rate between what was hedge and what we -- the clearing price from the --

Okay.

So the $0.88 is the blended rate you're getting on the 1,705 and -- is that correct?

Yes.

And the $3.76 above that the average capacity hedge price for eastern MAAC is what you are getting on the 97% of the 1,306, is that right?

No, that is also a blended rate on the total.

Okay.

Just has a different name with the same thing?

In English, the top is PJ -- is Fairless Works and the bottom is Virginia Power.

The $3.76 is a blended price, and the $0.88 is blended price.

They are the same?

Correct.

Okay.

What is the duration of these hedges?

Are you going to continue to be hedged at this rate through 2008?

I think when we put disclosure out later for 2008, the hedge positions will change significantly.

We have just went into this year and early this year fairly heavily hedged.

So similar to the northeast , I think you will see those percentages change when we disclose here for our

Okay.

Very good.

Thank you.

Thank you.

Our next question comes from Sam Pearlstein with Wachovia.

Please go ahead.

Hi.

Good morning.

Good morning.

Now that you have sold the first front of the E&P is there -- is there a scenario under which the remainder might be done in some form other than an auction?

We are -- have all of our options on the table with respect to the disposition of the balance of the assets.

Okay.

Thanks.

Thank you.

Our next question from Paul Fremont with Jefferies.

Sir, please go ahead.

Thank you.

You talked a little bit about investment opportunities in the merchant fleet, and particularly New England.

Can you just remind us are there -- is there still spending necessary to essentially bring those plant up to state environmental requirements?

And -- and by which dates do you have to make up your mind in terms of making those investments?

We have already made up our mind with respect to the investments at Braden Point.

And we are on schedule to meet those.

We will complete the rest of that work, I believe it's 2012 is the last expenditure that will go into the Braden Point plant.

We've installed SCRs already so we're already taken care of the (inaudible) requirements and we're -- what we are working on the sulfur dioxide and mercuries -- mercury requirements.

Sale and harbor remains an issue that's got to be negotiated with all the stakeholder in New England.

And with respect to [Fox] and Mercury.

Are those numbers included right now in the estimated capital spending numbers or is that a decision yet to be made?

No, they have been in there since we bought the plant.

They've been in our forecast since we bought those plants

Okay.

Thank you.

Thank you.

Our next question comes from Paul Ridzon with KeyBanc.

Sir, please go ahead.

Good morning.

You indicated you would like to expand your presence in transmission and storage is that -- are you thinking about build or buy along those lines?

And can you give us a sense of when you could see some visibility on that?

It is largely build through expansions off of our existing system.

And we've -- we have been working on quite a few things.

We mentioned one this morning that some new information and we expect to have a series of announcements over the course of the next year.

And you indicated post -- post the restructuring you would like to bring the payout to an industry norm.

Is 60% what you have in mind when you think about a norm?

Yes, well, it depends on what group you use, but somewhere between 55% and 60% is where our peers are.

And then lastly, with the results of the Gulf of Mexico behind you, how incrementally better do you feel about that, and given the pricing there, and from what you are seeing is that indicative of what you might see on the onshore pricing?

Well, as I said during my remarks, I certainly can't ask you from answering questions, but I can not answer them.

So, I appreciate very much your interest.

We are as interested in it as you are, and I think it is just better policy for us not to comment any further on the E&P dispositions.

I understand.

Thank you very much.

Thank you very much.

Thank you.

Our next question comes from Vikas Dwivedi with Morgan Stanley.

Please go ahead.

Thank you.

This is Vikas.

Good morning.

Just turning back to Hugh Wynne's question a little bit on the capacity payments.

You guys are net short effectively in (inaudible), but long in eastern MAAC through Fairless Works.

If you build new capacity in (inaudible) and actually end up long, can you guys keep the excess capacity sales or is that still kind of flow back as a credit to customers?

We would expect that to get recovery for that in the first rate case for any capacity payments that we'd have to make for a short position.

If we go long, obviously, we wouldn't have any.

And so there's a sharing mechanism that's been defined in terms of all system sales if we get into a long position where we'd share with customers.

Okay.

Got it.

And if I could switch topics real quick for one final question.

Do you guys share any views on how liquefaction capacity in the upstream part of the gas chain is potentially going to affect your ability to further expand the Cove Point terminal?

This is Paul Koonce with Dominion Energy.

We continue to watch the liquefaction market and every indication is that there will be available liquefaction capacity in the 2012 or 2014 time frame, which synchs up with when we're looking at further expansions at Cove Point.

So we don't see that really causing any delay in our plans.

Okay.

Got it.

Thank you then.

Thank you.

Our next comes from Shneur Gershuni with UBS Securities.

Please go ahead.

We seen to have lost Mr.

Gershuni.

Our next question comes from Paul Patterson with Glenrock Associates.

Sir, please go ahead.

Good morning, guys.

The $16 million in litigation reserves.

Good morning, Paul.

The $16 million in litigation reserves.

What is that about?

That is the result of the -- we took a look at the results in the (NightSort) case, where the assets at Chesapeake has purchased from NightSort in Appalachia -- West Virginia.

This royalty case that was held there.

We are in a different court.

We think we have different circumstances.

We do not expect to lose the case.

We expect to prevail.

But out of abundance of caution we set aside a reserve.

Okay.

Great.

And then the last 12 month ROE for the utility excluding the unrecovered fuel.

Do you have any -- can you tell us what that is?

I am sorry.

Could you repeat that question, please?

The last 12 months of -- the 12 -- the ROE -- the regulated ROE that you would estimated for the utility if you were to exclude the unrecovered fuel portion of it?

Okay, well we -- in the 2005 annual information filing if you adjust for fuel under recovery and equity adjustment at Virginia Power, the ROE was 15%.

We have not filed the 2006 AIF, but looking at the 10K indications are it would be about 15% or more.

We will have to take a closer look once that 2006 AIF is filed.

And that includes the fuel adjustment.

That includes the fuel adjustment --

-- of $404 million after taxes.

Okay.

So that includes the -- and then what about the retail energy marketing operation?

Is that part of it as well?

No, it is not.

Okay.

And Paul, let me restart, actually in 2006 the fuel was $364 million.

The $404 million applies to 2005.

Okay.

Great.

Thank you very much.

Thank you.

Our next comes from Dan Eggers with Credit Suisse.

Sir, please go ahead.

Good morning.

Hi, Dan.

Question on the -- we know about the Millstone expansion, but can you just give a little more color on what you guys see at Fairless and some of the other assets as far as potential upgrades are concerned?

Dan, Mark McGettrick.

We have an opportunity at Fairless we think to -- to uprate that based on some inlet cooling opportunities, which we could do fairly quickly.

And we will make a final determination on that here probably within the next month or two.

And then at Braden Point we are looking at a turbine uprates where particularly Braden 3 and again we are pretty far down the road on that determining what the economics are.

And we expect over the next couple of months to also confirm where our direction is going to be on that.

By order of magnitude, and I know you don't have it pinned down, but a ballpark of what kind of size we are talking about?

I would think on the Fairless Works it could be anywhere from probably 75 megawatts to 120 megawatts.

And on Braden maybe between 15 and 30 megawatts.

Okay.

I have got it.

On the environmental CapEx plan for Dominion New England you guys were out early as far as that capital spending in your numbers.

But are there updated numbers or updated CapEx that would go along with those obligations just given the inflation we've seen kind of across the industry?

No, we have spent in total about $250 million already.

And we have about $350 million to spend over the course of the next five years.

And those numbers are firm.

Got it.

Okay.

And then, I know we are not talking about E&P sale, but the decision on Canada to retain those assets for E&P and how that fits into the portfolio.

No, I am sorry if I said something to lead you to that conclusion.

We -- Canada is part of -- we consider that to be part of the onshore nonAppalachian assets that are for sale.

Okay.

Got it.

Thank you, guys.

You are welcome.

Our next question comes from Shneur Gershuni with UBS.

Please go ahead.

Sorry about that before guys.

I had some phone challenges.

I do want to, I don't want to beat this to death and so forth.

But if I can just focus on the E&P segment for a little bit.

With the sale of the Gulf assets which were arguably one of our most -- most volatile of the E&P assets with respect to earnings and so forth, it was -- it appears to have been a successful sale, and so forth, is there any thought or reconsidering of keeping some of the onshore assets if you don't get the pricing that you are looking for with respect to the -- let's say the Rockies or some of the other onshore assets?

No, but we will consider -- if we don't get the pricing we're looking for in the sale we will consider a spin.

But we're going to retain the Appalachian assets.

But we made our decision about this last fall and there's -- we haven't seen anything that's going to change our mind.

And then, secondly, with respect to the Appalachian assets, is there plans and indications to target some of the deep zones right now that some of the other firms have been talking about with respect to the prospect in the Appalachian reserve?

Yes.

Is it something you would be targeting sooner rather than later, or is it more an '08 or '09 type of story.

Well, it's something we've been looking at already.

And I think we probably should leave it there.

Okay.

Thank you very much.

Thank you.

Our next question comes from Daniele Seitz with Dahlman Rose.

Please go ahead.

Thank you.

I just was wondering you are mentioning the construction of these 300-megawatt combined cycle plants in Virginia.

Do you have a sense already of the type of budget you are looking at since it is supposed to be done by late '08?

In terms of cost per kilowatt.

Yes, the Ladysmith site, Daniele, that project's estimated to run between $120 million and $140 million.

It is [peaker], by the way.

Not a --

Okay.

Okay.

And I guess the other plants are for longer term aside from the additions that you have already mentioned the larger plants like the coal plant, etc.

Or like those already scheduled for much later?

Yes.

Okay.

And this will be sufficient in terms of additional capacity or would you have to make some new contracts -- purchase power contracts over the next two or three years?

We may look at some purchase power contracts or renewing some contracts that are expiring.

But the plants that Tom Farrell referenced -- it will have to be a significant construction program to meet the 4,000 megawatt incremental demand here in the next 10 years.

So there will be additional plants identified either through uprates or new plants here in the near future to support that construction.

But we may well again renew some contracts or extend some contracts.

I am assuming also that the expansion of Cove Point, you are looking for something similar to what you have just done or something even more involved.

It would be very similar to what we have just done.

Adding tanks with capacity for contracts for long periods of time.

Great.

Thank you.

Thank you.

Our next question comes from Jonathan Arnold with Merrill Lynch.

Thanks for the follow up, guys.

I just wanted to ask a question on the gas deliveries.

They were down pretty sharply in the quarter despite the weather have been been considerably more favorable.

And your customer account only being down a little.

Could you talk to some of the dynamics there?

What's driving that number?

It was off in residential like about 11%.

Jonathan, this is Joe.

We're really not prepared to discuss that line item detail on the call.

There is going to be -- the 10Q will be filed later today.

And that's probably going to be -- that will be covered in the [MDNA].

If you have questions after that please given investor relations a call.

Thank you.

Thank you.

Ladies and gentlemen, we have reached the end of our allotted time.

Mr.

Chewning do you have any closing remarks?

Yes, Lindsay, thank you.

Just a reminder that our Forms 10Q will be filed with the SEC later today and our second quarter earnings release is scheduled for Wednesday, August 1st, 2007.

We would like to thank everybody for joining us this morning.

And we look forward to talking with you in August.

Good day.

Thank you.

That does conclude today's teleconference.

You may now disconnect your lines at this time.

And please have a wonderful day.