道明尼資源 (D) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to Dominion's third quarter earnings conference call.

We now have Mr.

Tom Farrell, Dominion's Chief Executive Officer, and other members of management in conference.

(OPERATOR INSTRUCTIONS)

At the conclusion of management's prepared remarks, we will open the floor for questions.

At that time, instructions will be given as the procedure to follow if you would like to ask a question.

I will now turn the call over to Laura Kottkamp, Director of Investor Relations.

Thanks, Lindsay.

Good morning and welcome to Dominion's third quarter earning conference call.

During this call, we will refer to certain schedules included in this morning's earnings release and pages from our third quarter 2008 earnings release kit.

Schedules in the earnings release kit are intended to answer the more detailed, discreet questions pertaining to operating statistics and accounting.

Investor relations will be available after the call for any clarification of these schedules.

While we encourage you to call in with questions in the time permitted after our prepared remarks, we ask that you use the time to address questions of a strategic nature or those related to fourth quarter 2008 guidance.

If you have not done so, I encourage you to visit our web site, register for e-mail alerts, and view our third quarter 2008 earnings documents.

Our web site address is www.dom.com/investors.

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

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

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

Those measures include operating earnings before interest and tax, commonly referred to as EBIT.

Reconciliations of such measures to the most directly comparable GAAP financial measures we are able to calculate and report are contained in our earnings release kit.

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

Tom?

Thank you, Laura.

And good morning, everyone.

We will begin our call today by reviewing third quarter results and fourth quarter operating earnings guidance.

Each of our business unit heads will then review their third quarter performance and discuss what they foresee for the fourth quarter.

Our CEO, Tom Farrell, will conclude with updates on several strategic projects and regulatory matters, as well as other timely items.

We will be happy then to answer your questions following our remarks.

Dominion reported the operating earnings of $0.94 per share for the third quarter, $0.02 above the top end of our guidance range of $0.87 to $0.92 per share.

GAAP earns were $0.87 per share.

A reconciliation of GAAP to operating earnings can be found under schedule 2 of our earnings release kit.

As we have done for the first two quarters of 2008, we made adjustments to such items as weather and nonrecurring tax items.

These adjustments provide a clear comparison of actual performance to our quarterly guidance.

As seen on our schedule of these adjustments on Dominion's investor relations web site under "Supplemental Schedules," unfavorable electric utility weather cost us one-cent per share in earnings while the actual tax rate compared to guidance helped us by one-cent per share.

As we experienced utility weather and taxes as we expected for the third quarter, operating earnings would still have been $0.94 per share.

For the fourth quarter, we expect operating earnings of $0.67 to $0.72 per share, a minimum increase of 25% in earnings per share over the fourth quarter of 2007.

Drivers expected to compare favorably to 2007 and include: higher contributions from our Merchant Generation business, lower outage expenses at the Utility Generation business, higher contributions from the Company's gas distribution and gas transmission businesses, and higher margins from the Company's remaining E&P operations.

Expected offsets include the absence of earnings from Peoples and Hope, lower characteristics from the Company's produced services business, higher depreciation expenses at our electric utility, and higher interest expenses.

Complete details of the Company's fourth quarter 2008 guidance can be found on pages 39 through 43 of Dominion's earnings release kit.

We are confident that our operating earnings for the full 2008 year will fall within our guidance range of $3.10 to $3.15 per share.

We are maintaining our 2009 outlook of $3.30 to $3.45 per share.

Our hedging programs leave us with fairly minimal exposure to commodity prices next year.

Anticipated increases in pension and other benefit costs along with higher interest rates put pressure on our potential to achieve the upper half of this range.

However, as within any organization, there are numerous opportunities to reduce expenses and to offset the potential negative impacts of these factors.

As will be covered by Dave Heacock, electricity demand in Dominion service territory is still growing but at a lower rate than experienced over the last decade.

A lower growth rate should not have a significant impact on earnings or capital spend over the Company's five-year planning horizon.

Many of you are already focusing on prospects for our industry for 2010 and beyond.

In addition to many of the previously mentioned factors, much concern has been voiced over the declining dart spreads in wholesale electric markets.

These margins continue to improve from the low seen this summer.

Mark McGettrick will cover our perspective on this issue in his remarks.

Another consideration is the availability in cost of capital.

While we believe that these markets will become more liquid and welcoming to investment-grade utilities in the months and years ahead, Dominion has developed alternative cases that reduce capital spending from those levels we have previously forecasted.

Without getting into specific project detail, our growth CapEx can be reduced by approximately 10% over the next two years and by 50% of our planned growth capital spend in the following three years, without altering our 6% or more annual operating EPS growth target over the 2009 to 2013 period.

These reduced capital spending levels would result in a lower rate of growth post 2013 unless Dominion found ways to replace delayed or postponed projects with other revenue-producing assets.

We will also look for ways to reduce maintenance CapEx that won't result in lowering our performance levels or increasing safety risk.

Outside capital spending, we will need to find ways to combat the consequences for the potential of continuing declining commodity prices and higher defined benefit cost, if we are to achieve our targeted 6% or more annual operating EPS growth after 2009.

On our January 2009 earnings call, we will provide detailed 2009 operating earnings guidance, an outlook for operating earnings for 2010, and an updated forecast of our long-term growth expectations.

In the near term, our strong liquidity position allows us alternatives to closed or choppy capital markets for well into 2009.

Available liquidity at the end of the quarter was $2.7 billion, and currently stands at $3 billion.

If you adjust for Lehman's commitments, the amounts would be $2.5 billion and $2.8 billion respectively.

You can see this in the appendix of our earnings release kit beginning on page 52.

At the end of the quarter, we had $1.85 billion of commercial paper at standing.

While we have been successful in placing our CP since the credit market's turmoil began, at the beginning of this month we made a draw of $870 million on one of our credit facilities in order to reduce the amount of CP outstanding by approximately 50%.

The amount of outstanding CP currently is $700 million, and we are pleased to report the market has recently shown signs of moving toward normal trading activity.

Regarding maturities, we have $400 million of Dominion in mid November and $120 million at Virginia Power in late November.

Additionally, Virginia Power has a $225 million security that can be put back to us in December, and given the current rate environment, we are planning to refinance that security.

Accordingly, we have plans for both Dominion and Virginia Power to access the debt capital markets between now and the end of the year.

However, given the current levels of spreads as well as the reduced liquidity in the market for any name, we are monitoring the markets constantly and will access the capital markets only when we perceive a window of opportunity.

We are focused more on good execution, participation, and after-market trading than we are on absolute price levels.

We also have two Virginia Power tax exempt securities totaling $122 million that we expect to be able to successfully refinance prior to their maturity on December 1.

Regarding equity needs, we do not foresee the need for any additional equity beyond that which we have previously disclosed.

Our plan still includes $800 million of new equity next year.

$200 to $250 million of which is covered by our drip and direct stock purchase plans.

$205 million of after-tax proceeds from our recent farmout of Marcellus acreage further reduces this need.

Even excluding any additional farmouts of Marcellus acreage, that leaves approximately $350 to $400 million of new equity issuance next year for a Company with a market cap of over $20 billion.

We believe that this is a very manageable number.

Also as I mentioned earlier, depending on what course the markets take, we have the flexibility to reduce our growth capital spending plan substantially.

We're certainly aware of the status of the credit markets, but with investors becoming more familiar and comfortable with our regulatory recovery system in Virginia and the significant reduction in the Company's risk profile over the last year, we are confident that there will be an opportunity issue for names such as Dominion and Virginia Power.

And worst-case scenario, if we were to assume that we would have no external capital available at the Company other than that generated by our drip and stock purchase plans, we already have adequate liquidity through August of 2009 to meet all of our schedule debt maturities, our projections of working capital requirements, capital expenditures, and dividends, and the possibility of increases in commodity prices and corresponding margin collateral associated with our hedging activity.

Most companies have experienced some negative consequences of the meltdown of the US and global capital markets.

Fortunately, Dominion's sound business model and strong liquidity position have allowed us to navigate through this difficult period with minimal negative impacts.

However, we continue to closely monitor the capital markets and have the flexibility to respond should these conditions continue or worsen.

Turning to our pension plans, our asset values have, of course, declined given recent market conditions.

However, using best estimates as of this week, we are still fully funded on all our significant pension plans.

Even if our pension assumptions deteriorated from current levels, the earliest we would be required to fund the contribution would be mid-2010.

We will not know the final 2009 pension expense until year end.

We know all of the final assumptions, including the discount rate, which under current market conditions would be significantly higher and would thus result in an offsetting reduction in pension expense.

We currently expect, however, that the negative impact would be about $0.06 per share, which is already factored into our 2009 outlook.

We will provide the pension expense assumption along with all of the other relevant earnings drivers on the January earnings call.

This concludes my remarks.

I will now pass the call on to Dave Heacock.

Dave?

Thank you, Tom.

Dominion Virginia Power produced third quarter EBIT of $179 million, which fell in the guidance range of $173 to $189 million as shown on page 33 of our earnings release kit.

Weather normalized EBIT for the quarter was in the upper half of the guidance range.

This was despite enduring tropical storm Hanna in early September.

Now electric distribution and transmission businesses, we have continued to see improvement in our safety performance in the third quarter of 2008 as compared to 2007.

Year to date, OSHA reportable incident rates were down from 2.4 to 2.1.

This is the number of incidents per 100 employees per year.

We are very proud of this accomplishment given the adverse conditions we faced in providing mutual aid in Texas and Ohio related to hurricane Ike.

We deployed 200 internal resources and 500 line and tree contractors to support Entergy, AEP, and CenterPoint in their restoration efforts.

Despite the slowing economy and our regulated service territories, Dominion should continue to experience growth during our period of national economic downturn.

Federal and military load remained strong and continues to grow.

You should also recall that northern Virginia is a national center for internet activity.

We have recently confirmed that a number of significant projects are proceeding that will add to our load growth.

In addition, we are still foreseeing approximately 40,000 gross new connects for 2008.

Given the economy, we are keeping an eye on bad debt.

Year-to-date bad debt charge-offs to revenue are at 0.28%.

The same level as one year ago.

We are seeing some precursors that would indicate future upward pressure on bad debt such as increasing number of bankruptcies and more customers in arrears.

We will continue to monitor and analyze our arrears and bad debt and develop new strategies to help our customers proactively manage their accounts.

We do not expect this to have any material impacts.

Looking to fourth quarter guidance shown on page 40 of our earnings release kit, we expect to produce EBIT in the range of $192 to $208 million.

Our expectation based on normal weather and storm activity is higher than the EBIT produced in the fourth quarter last year, primarily due to lower O&M expenses and our regulated transmission and distribution businesses.

I'll now turn the call over to Paul Koonce.

Paul?

Thanks, Dave.

Energy's thirds-quarter EBIT of $170 million was well above the high end of our guidance range of $128 to $158 million.

Driven by improved margins across all of the energy segments.

Dominion E&P was helped by strong prices.

While Dominion Transmission and Dominion East Ohio experienced higher gathered volumes and strong natural gas liquid gas sales.

Producer services performed better than forecast due to opportunities that arose around our storage and transport positions, resulting from hurricane Ike.

And all segments exercised good O&M cost control.

Also during the quarter we undertook several steps to improve our safety performance.

We engaged Dupont Safety Systems to assess our safety culture with the goal of achieving world-class safety management.

At our gas distribution operations, Dominion East Ohio Peoples and Hope, the number of OSHA incidents dropped to 15 versus 24 for the same quarter last year.

Dominion Transmission reduced the number of incidents by 50% compared to last year's third quarter.

And on a year-to-date basis our OSHA incident rate for all of Energy is now at 2.46 versus 2.7 at the end of the second quarter.

Operationally, we experienced a 9% quarter-over-quarter increase of industrial throughput at Dominion East Ohio due to increased steel and refining operations in our service territory.

We're also on pace to install over 350,000 automated meters by year end.

When this program is complete, it will significantly enhance customer service by eliminating the need for monthly estimated bills.

We began installation last year, and we've had excellent implementation today.

In fact, we installed over 51,000 units this quarter versus 25,000 third quarter last year.

And during these challenging economic times, it's worth noting that since 2003, Dominion East Ohio has had in place a bad debt tracker that allows for 100% of uncollectible accounts to be recovered through an annual true-up.

This feature eliminates our need for an annual rate case filing simply to reflect changing economic circumstances throughout our service territory.

At E&P production is up 11% quarter-over-quarter when excluding royalty interest production.

And we've drilled 114 new wells this quarter versus 84 wells for the same quarter last year.

A number of projects are either under construction or in late stages of development at Dominion Transmission.

Under construction this year are the USA storage project, the Cove Point Terminal, and 150 miles of related transmission facilities.

We have received a FERC certificate for our Hub 1 project, filed the application for our rural valley expansion, and we are preparing FERC applications for our Hub II and III project as well as our pier modernization expansion.

We continue our scoping work on Appalachian Gateway and concluded a successful open season on Keystone.

We are now in discussions regarding proceeding agreements with potential subscribers for these two pipeline expansions.

Looking to fourth quarter guidance, which you can view on page 41 of the earnings release kit, we projected EBIT range of $243 to $269 million.

The mid-point of which is an increase of approximately $41 million over fourth quarter 2007.

We expect earnings to be up due to implementation of new rates at Dominion East Ohio and continued strong gathered volumes.

And year-over-year, we expect higher natural gas liquids margins and higher natural gas prices as a result of our ongoing hedging activities.

Now I'd like to turn the call over to Mark McGettrick.

Mark?

Thank you, Paul.

Dominion Generation produced strong third-quarter results with EBIT of $799 million.

These results were in the upper range of our guidance range and $62 million above the third quarter of 2007.

The major drivers of growth were stronger wholesale utility margins and higher margins at our Millstone, State Line, and [Ferilous] power stations.

These results were achieved despite lower sales due to milder than normal weather and our regulated business.

[Deporting] these financial results were excellent operating performances by regulating utility fossil fleet with an equivalent forced outage rate of 3%, the best on record.

And a nuclear fleet capacity factor excluding planned refueling outages of 99.5%.

In addition to our financial results, there were a number of other key items at Dominion Generation for the quarter.

First, generation safety performance continues to be exceptional.

Our OSHA recordable incident rate for nuclear and fossil and hydro operations came in at 0.35 and 0.70 respectively for the quarter.

Second, we continue to make good progress on our wind expansion in West Virginia with an incremental 50 megawatts coming on line this fall and our Indiana wind project, which will add 150 megawatts by early next year.

Third, we participated in the first REGGI auction in September, and we're very pleased with the results.

Although we do not plan on disclosing the number of allowances we received, the auction pricing results were consistent with our projections toward the low end of the range at approximately $3 per allowance.

Finally, with regard to future coal prices, they continue to see a dramatic fall from summer highs as we have been projecting.

Today forward Colombian coal prices for calendar year 2009 and 2010 are in the low to mid $80 per ton range, off a high of around $175 per ton just 120 days ago.

And Central Ap Coal has fallen to $78 to $80 per ton for 2009 and 2010, off a high of around $150 per ton.

Given this large drop in coat prices, dart spreads for both 2009 and 2010 continue to improve.

Just over the last three weeks, dart spreads have improved by $5 per megawatt hour from Central Ap sources, and $10 per megawatt hour from Colombian sources.

As we have mentioned in the past, our dart spreads are fully hedged for the balance of 2008, 85% to 90% hedged for 2009, and almost 40% hedged for 2010 at good spreads.

We have more than a year to lock in the remainder of our coal supply for 2010.

And I look for us to start averaging in as coal prices continue to fall.

We believe coal pricing in the $60 to $70 per ton range is a very reasonable out-year assumption.

Looking to fourth quarter guidance, you can see on page 42 of our earnings guidance kit that we project an EDIT range of $389 to $480 million.

The mid-point of which is an increase of approximately $148 million over the fourth quarter of 2007.

We expect the quarter's results to be driven by continuing strong margins in our merchant portfolio and lower planned outage expenses at our utility generation business in Virginia.

I will now turn the call over to Tom Farrell.

Good morning, and thank you for joining us.

I am thankful that in the midst of the seemingly endless, unpleasant economic news we have all heard this quarter, Dominion achieved the positive resolution of a number of outstanding issues we discussed on our last call.

And that we again met our operational and financial goals.

Positive outcomes on pending cases and continued progress on specific projects at each of our business units will contribute to our short-term earnings and have positioned us for long-term growth.

In Virginia, we continue to move forward on generating and transporting power into constrained areas.

Notably this quarter we received approval from FERC for premium returns on 11 vital transmission projects that totaled nearly $900 million.

On four of those projects, including both our Meadow Brook-to-Loudoun and Carson-to-Suffolk lines, we will receive 150 basis point premium matter to our approved 11.4% return on equity.

We will also receive 125 basis point premium to the allowed 11.4 return on equity on seven other projects.

Both of the 500kb lines which cost approximately $250 million each are expected to be in service in the spring of 2011.

Earlier this month, the State Corporation Commission gave its final approval to the Meadow Brook line, contingent upon approval by the commissions of West Virginia and Pennsylvania of segments in those states.

West Virginia has already done so, and we expect a resolution in Pennsylvania soon.

We are also awaiting final approval for our 580 megawatt Bear Garden combined-cycle facility which will cost approximately $600 million.

We expect the final order of approving the plant early in 2009.

We completed the evidentiary hearing and have already begun site preparation work.

As specified by Virginia law, this plant qualifies for a 100 basis point premium adder to the return.

On last quarter's call we mentioned that we had notified the Department of Energy of our upcoming loan application for a third unit at North Anna.

In August, we filed that application as part of the ongoing process toward potential construction of a new reactor there.

We expect that we will receive updates on the status of the application over the next several months.

As you know, the entire process takes many years.

While we have submitted this application on the federal level and completed several key steps in the process with the NRC, we have not yet submitted an application with the State Corporation Commission of Virginia.

With both the design of the reactor still unfinished and the cost of the overall project uncertain, we would not plan to seek final construction approval from the Commission until we have a better understanding of these variables and the viability of taking on such a large-scale project for our customers and shareholders.

We likely will, however, file in the near future for approval of preconstruction costs and the recovery of an enhanced return on our investment.

Turning to Dominion Energy, two weeks ago, the Ohio Public Utilities Commission approved an annual revenue increase of $37.5 million for Dominion East Ohio.

This is the first base rate increase for our LDC in 14 years.

The Commission approved an overall rate of return of 8.29% which translates to an approximately 11% return on equity as well as a straight fixed variable rate design.

The Ohio PUC also approved riders for conservation programs, a five-year authorization program to recover costs for a pipeline replacement program, and recovery of costs associated with automated meters.

Last quarter we announced that we had secured a buyer for our Peoples and Hope LDC's.

The sale application was filed with regulators in Pennsylvania in September and in West Virginia this month.

The 30-day regulatory waiting period during which the FTC could intervene or object has expired without any FTC action.

You will recall that it was the FTC's intervention which prevented us from concluding the sale to Equitable.

We would expect this transaction to close no later than the end of the third quarter of next year.

Moving now to our EP operations.

In September, we announced that we signed a new farmout agreement with [Anterrel] as a result of their difficulty in obtaining follow-on financing.

The revived sale of 114,000 acres principally in northern West Virginia and southwestern Pennsylvania resulted in the sales price of $347 million or $205 million after tax.

We ultimately received the price of $3,037 per acre.

Even with the recent announcements about reduced earnings for a number of major E&P players, we are finding that companies are still eager for a valuable, scarce resource such as our Marcellus acreage.

Post the Anterrel farmout, we still hold between 485,000 to 685,000 acres.

We are continuing to pursue further transactions and will have more to say at the appropriate time.

Finally, a followup to the case surrounding Cove Point that we discussed with you in July.

Earlier this month, FERC issued an order fully re-authorizing the Cove Point expansion project.

There have been no delays, and we remain on schedule to complete the expansion by year end.

This time last year, we were concluding a major strategic initiative to reposition Dominion.

While we could not have foreseen the economic and financial turmoil that our country and our industry would be facing a year later, we feel our current business model has held us in good stead in this environment and will continue to do so through all economic conditions.

Operationally, we are performing very well.

You heard from the heads of our business units about our operational strength this quarter, and their expectations of solid performance next quarter as well.

In Virginia, our building program is working to address a very significant existing generation capacity deficit before we can even begin to address growth.

Our regulatory model compensates us fairly for undertaking construction projects to help make Virginia energy independent.

We do not foresee challenges in financing specific projects with known returns.

For this reason we do not expect any significant changes in the capital we have already committed to our major regulated building projects such as Virginia City, which is underway, or Bear Garden, where we have already begun site work.

We also expect to complete all $900 million worth of electric transmission projects over the next two years, all with enhanced returns.

I would like to spend a moment on the risk of regulatory lag and its potential impact on our earnings over the next few years.

First, with respect to capital expenditures related to our growth projects in Virginia, including all $900 million of transmission upgrades, the $1.8 billion for the Virginia City hybrid energy center, and the $620 million for Bear Garden, there will be no regulatory lag.

All of the projects will receive rider treatment, and we will recover the cost of construction as well as enhanced returns on all $3.3 billion through our rates as the capital is expended.

Second, with respect to base rates, under Virginia law, any proposed rate increase goes into effect 150 days after filing by the utility, subject to a final order of the Commission.

We will file for rate relief in the early spring of next year and, therefore, our new rates will go into effect in the early fall of 2009, greatly reducing any potential for regulatory lag.

In fact, reducing the risk of regulatory lag was the fundamental principle of Virginia's 2007 re-regulation law.

Looking toward the end of the decade, we have the flexibility to delay some projects.

Particularly ones that do not have regulated rates of return.

At the same time, we also know what value these projects bring to our shareholders over the long term.

We will continue to assess our options and - - as we move ahead.

Financially, even in spite of these constrained markets, we are well positioned for the next few years.

As a strong investment-grade Company, we anticipate access to capital markets to finance our infrastructure growth projects.

Last week we reviewed our five-year plan with our Board of Directors.

At the conclusion of the meeting, the Board declared our fourth quarter dividend and reconfirmed the dividend policy they adopted last year, just the same increases in 2009.

In 2010 they will allow us to reach our 2010 targeted payout ratio of 55%.

This policy should result in a greater than 10% increase in our dividend in 2009, starting in the first quarter.

With the majority of our earnings generated from stable, regulated businesses, we are capable of continuing to pay a consistent increasing dividend.

We are on target to achieve our 2008 earnings per share goal, and to deliver our 2009 outlook.

Although a number of factors do produce a headwind for 2010 and beyond, we have sufficient time to assess alternatives, to help us achieve our long-term operating earnings per share objectives.

Dominion's management team is comfortable with our business model and confident in our ability to be a superior performer in our sector, in whatever marketplace environment lies ahead.

Thank you, and Lindsay, please open the lines for questions.

Yes, sir.

Thank you.

At this time, we will open the floor for questions.

(OPERATOR INSTRUCTIONS)

And our first question comes from Carrie Saint Louis with Fidelity.

Please go ahead.

Hi, good morning.

Hi, Carrie.

I just wanted to ask a couple of questions.

On the decision to draw on the bank line, I'm just curious - - I mean, obviously, the balance was high at the end of September.

Was it an issue of pricing, just comfort with the market?

How long do you intend to have the bank line drawn?

Carrie, good morning.

This is Scott Hetzer.

It was not a decision on pricing and it was not a decision based on not being able to sell CP.

As Tom said, we have been successful selling commercial paper every day we've been in the market selling it.

It was in - - in $1.8 billion, our balance at the end of the third quarter was a balance that we're normally comfortable with.

But certainly in these markets following Lehman's bankruptcy and everything behind that, that was a number that we were not as comfortable with.

So we made the decision early October to go ahead and draw and reduce the balances by about 50% just to take some of that risk off the table.

And that bank borrowing continues until we decide to pay it back.

And we'll decide to pay it back when the markets - - when we feel comfortable with the markets.

You know you do have these maturities coming up.

And I know you talked about wanting to access the markets when you thought there was a good window.

Is your view that some of this draw might have been a bridge for that, or if you decided to not go into the term debt markets, would that mean that you either draw more on the bank line or use more CP?

Well we've got the opportunity to do both.

And certainly the CP markets feel much better today than they did even at the beginning of October.

We see them returning to nearly normal.

So we do have that opportunity to ramp up CP.

But we also expect to access the markets when they're - when they're available, if they are, as Tom said, if they're absolutely closed through the balance of the year.

Our alternative would be to draw on the bank lines.

Okay.

Two quick last questions.

I just wanted to understand - - you talked about CapEx reductions.

If you go ahead and cut CapEx, what I'm hoping you're going to say is that that wouldn't mean that just don't issue equity.

That if you cut your CapEx, you'll still issue equity and you'll just reduce the amount of debt and equity financing needed by a consistent amount?

That - - that is correct.

We - - if we cut CapEx, it would cut needs for all capital raising.

Okay.

With the current credit situation, have you guys at all thought about - - because you have been large CP users, have you started to think about the fact that maybe a stronger balance sheet - - maybe getting back to tier one CP access would be a longer term goal or things haven't caused you to revisit that yet?

Carrie, we think what's going on in the markets now is relatively temporary.

And do not - - have not adjusted our targeted credit ratings.

We feel very good about the long-term access to the markets, both the long-term debt markets and - - and the commercial paper markets.

And our targeted credit ratios should position us well for that.

We do not expect to get to a tier one CP level.

Thank you.

Thank you.

Thank you for your questions Miss Saint Louis.

Our next question comes from Samuel Brothwell with Wachovia Capital Markets.

Please go ahead, sir.

Hi.

Good morning, everyone.

Good morning, Sam.

Just a question on your '09 guidance range.

Actually a couple.

With respect to anticipated equity issuance next year, do you see - - does your guidance incorporate that across the year more - - more toward - - back end loaded toward the end of the year, the front of the year?

Sam, we will never answer a question as to an equity offering.

But you - - I'm sorry.

We'll never give any answer to when we're going to issue equity.

It will be during - - other than it will be during 2009.

But I think the sensitivity of when we issue it is not significant to our earnings range.

Because of the large number of shares that we already have outstanding.

Okay.

I appreciate that.

The other thing I wanted to ask you is - - given your hedge position on all your commodity exposure, how material a move in commodity prices on speaking - - I'm speaking specifically about natural gas, would it take to move you either up or down off your guidance range?

Can you give us any sense of that?

The sensitivity to a dollar movement natural gas at this point is about five cents per share up or down.

Okay.

Okay.

Thank you very much.

All right.

Thank you, Sam.

Thank you for your question, sir.

Our next question comes from Paul Patterson with Glenrock Associates.

Please go ahead, sir.

Good morning, guys.

Hey, Paul.

How are you?

All right.

Just a couple quick questions.

First question I have is with respect to the impairment on the $50 million of impairment at the nuclear.

What's kind of causing - - causing that, and just elaborate a little bit more on that.

Well I'm going to give you the - - the broad picture.

On the nuclear decommissioning trust I believe is what you're referring to.

It's a cumulative number of $50 million for the year.

It's $19 million for the quarter.

We mark any unrealized gains and losses as special items in our nuclear fleet outside of regulation.

The - - the values of the securities held in those nuclear decommissioning trusts specifically at Millson and (inaudible) went down, and so we marked it to that level.

On any decline in market value or increase in market value in the nuclear decommissioning trust in Virginia, that is handled through a regulatory liability account which exists now because that plan's so overfunded that we consider that to be an asset of the Virginia rate payer eventually.

So that is the - - they are not realized losses.

It's a mark to market of the decommissioning trust at that time.

I get that.

I guess what I'm sort of wondering is that it - - the term is sort of - - the description is a permanent or non-temporary impairment.

Accounting phrase that - - it goes back - - we can have a discussion offline about it.

But it's a matter of - - they - - it was a temporary market blip it's one thing.

But in a condition where you had such consecutive quarters of bad stock market performance, they can look at it securely and fairly subjectively and say this is not going to come back.

So it's really a mark to market, and the wording shouldn't distract you too much.

It is really what the value decline was in the third quarter of those trusts that were outside regulation.

Okay.

Fair enough.

That's all I was wondering.

The - - the second question I have is sort of - - sort of bigger picture.

We're seeing some activity on the M&A front - - potentially here.

And I was wondering whether or not - - your stock is sort of in some ways out performed others out there with merchant generation exposure, sort of the same kind of profile.

Any thought about what you're seeing out there or potential opportunities or sort of big-picture idea about sort of the change in the landscape and how - - whether there are any opportunities that might be coming up there?

Paul.

Excuse me, this is Tom Farrell.

I appreciate your asking that question.

When I became CEO two and a half years ago, I adopted a policy that we wouldn't comment on M&A in - - in any manner or form.

Including how it's going in the industry or what - - what we may be thinking about or not thinking about.

So I - - I understand the interest, but we have long had a policy of simply saying you'll have to ask some other CEO that question.

Okay, thanks a lot.

Thank you.

Thank you for your questions Mr.

Patterson.

Our next question comes from Hugh Wynne with Sanford Bernstein.

Go ahead.

Good morning.

Congratulations on a good quarter, and actually a good set of quarters since divesting the MP business.

Thank you very much.

Thank you.

I have a question for Tom Chewning regarding the outlook for '09.

You had mentioned if I remember right that it may be harder to achieve the upper end of your guidance range due to increased pension and interest expense.

And my notes certainly - - while I believe you mentioned perhaps a six-cent increase in pension expense as a possibility in '09.

Did you quantify what the potential increase in interest expense might be relative to the level at which you had based your guidance?

Well Hugh, first I said it's hard to achieve the upper half.

Rather than - -

Yes, the upper half, correct.

And that is a distinction I'm sure somebody's going to pick up.

So I'll reinforce it anyway.

I'm going to ask Scott Hetzer to answer the question on interest rates specifically.

And Hugh, we haven't disclosed publicly what the impact might be to earnings.

But I did scan your note this morning, and clearly, we think that the impact is less than what you've estimated in your note this morning.

We do expect, of course, what we've modeled in for - - the balance of 2008 and 2009 reflects current market conditions.

And it's - - it still allows us to affirm guidance range for '09.

Importantly, that which is funding our regulated businesses will be eventually recovered in rates, of course.

One other point that came up in the research that led to the - - the note we published this morning was the fact that Dominion, while it has a very strong pension position, has relatively weaker leverage and cash flow coverage ratios than other hybrid utilities of its size and even many other regulated utilities.

And I guess my follow-on question would be, is that a situation that may have to change in the current credit environment if you're to maintain the - - the ratings that you have today?

Will - - will S&P and Moody's be putting pressure on you perhaps to strengthen the leverage ratios and cash flow coverage ratios under these conditions?

Well a couple of things pertaining to that question.

First off, we - - we have met with all three rating agencies within the last 30 days, and all three seem very comfortable with where we are.

Also again, not having had the time to go through your note in great detail but just scanning it, it looks like, of course, you - - you were picking up second quarter debt balances.

And our GAAP debt dropped almost 4% points in this third quarter driven by two things.

One is an increase in - - a nice increase in retained earnings.

And secondly, a dramatic change in the AOCI balance of $1.2 billion, strengthening the equity account.

Also, I suspect when you're - - if you're looking at weak credit ratios, I suspect you're picking up trailing 12 months.

And if you get - - if you're picking up the quarter in the last quarter of 2007 which had a lot of accounting entries pertaining to the divestiture of the MP operations.

It really makes the analysis fairly meaningless.

As we look at the cash we've produced for the first three quarters which is over $3 billion using funds from operations, we look at that as very strong, and puts us well on our way to achieve our targets for FFO for the year.

And then as we model in - - as we model in three-quarters of actual in the fourth quarter of pro forma, we see us very comfortable with where we'll be on our credit ratios at the end of the year.

Great.

So no - - no mid - - no corrections here in the capital structure of the Company is required.

No.

We are well on our way to achieving goals we have set a year ago.

Not only achieving those goals but those goals are higher than the standards that the (inaudible) might hold us to.

So I don't want you to think we are adopting a different standard here.

Our coverage ratio is well over 4%, four times and cash flow is good.

I appreciate your interest in that because that in deed is the real key factor is FFO to interest and FFO to debt.

And we are doing quite well as we clear out some of the confusion of the sale last year.

But as we look forward and as this year has gone on, our coverages are excellent.

Great.

Thank you very much.

Thanks, Hugh.

Thank you for your question, sir.

Our next question comes from Steve Fleishman with Catapult Capital Management.

Please go ahead.

Hi, guys.

Morning, Steve.

Hi.

Just wanted to clarify a couple of things.

First, in - - when you guys are giving your guidance, are you incorporating in there any expectation for additional Marcellus sales or not?

That would be something that would be additive?

Yes.

Steve, you've asked me this question a couple of times, and I think you told me I've given you a different answer each time.

Yes.

Maybe the third time I'll get it straight.

We do not have any Marcellus - - extra, additional Marcellus sales in the low end of our guidance range for next year.

However, if we were to achieve the upper half of that range, they would certainly have to be some of the Marcellus sales.

Okay.

And then on the - - on the Peoples and Hope sale, what is the - - is there any risk in that sale in terms of the buyer having sufficient - - capital to close?

No, the buyer does have sufficient commitments secured for both equity and debt.

So they already have their equity and debt commitments secured?

Yes.

Okay.

And just so I understand your comments on - - on your long-term guidance, you are reiterating your 6% plus growth.

You're saying there are some headwinds, but that you're developing plans to offset those headwinds?

That's correct.

And that's what we'll hear in January?

Is that - -

That's correct.

Kind of the summary?

That's it.

Okay.

Great.

Thank you.

Thank you, Steve.

Thank you for your question, sir.

Our next question comes from Danielle Seitz with (inaudible) Research.

Please go ahead.

Good morning.

I was wondering about the level of uncollectible accounts and I was wondering what level it was at and is it recoverable through regulatory channels?

I believe your question is about accounts receivable.

Yes.

Whether they are recoverable.

Dave Heacock and Paul Koonce.

Good morning.

This is Dave Heacock.

The number for the electric utility in Virginia is 0.28% of revenue.

It's pretty much flat year-over-year.

So we're not seeing a big change in that number as of yet.

Right now it's going to go into our future rate cases.

It's recoverable.

Essentially spread over all of our customers in the future.

Okay.

This is Paul Koonce, on the gas distribution side at Dominion East Ohio, we have a tracker that recovers bad debt expense.

And at Peoples and Hope, it's not material.

Great.

Thanks a lot.

Thank you, Danielle.

Thank you for your question.

Our next question comes from Paul Ridzon with Keybanc.

Please go ahead, sir.

Good morning.

You gave a sensitivity of a dollar moving net gases, about a nickel of annual earnings.

Is - - is that contemplating your hedge position, or is that - - if you were naked?

No.

That's contemplating - - that's 2009 number with our hedge position.

Okay.

Since you first gave '09 guidance, net gas has come off.

What has been the offsets?

You know, Paul - - all sorts of offsets - -.

I don't think we matched one factor negative with another positive.

But we're - - we're so highly hedged that - - that the movement has been very, very small.

I mean, that number's been updated to - - current - - current numbers.

So we're using current numbers, and if you take a look at the sensitivity, it hasn't really moved a whole lot since we originally gave that forecast.

It's moved a lot up, and then a lot down.

But it's actually coming back very much close to where it was when we originally gave guidance.

I understand.

Thank you very much.

Thank you, Paul.

Thank you.

Thank you for your question, Mr.

Ridzon.

Our next question comes from John Kiani with Deutsche Bank.

Go ahead.

Good morning.

Hey, John.

You recently acquired Zero, a smaller retail electric provider in Texas.

I was wondering if you could provide a little bit more color around just the - - the strategy there and how you think about or what you like about the retail electric provider business in Texas.

And then - - more particularly, do you see Zero as a platform for growth in that business in Texas and in general?

John, the retail business at Dominion has grown over the last five years from $5 million in earnings to over $80 million in earnings.

And it has largely been handled through very conservative hedging programs, and low customer acquisition costs.

And it has been concentrated in the mid-Atlantic, Northeast, and Midwest.

The largest electric retail market in the - - in the United States and somebody told me in the world, is in Texas.

I don't know if that's right or wrong.

So we waited, we've been watching Texas for that market for a long time, and we waited until we saw some dislocation in it.

And bought a smallish company to put our toe in the water in that market.

And we'll see how it goes.

We're not in any hurry to expand it, but opportunities may present themselves over time.

But that's not something we're going to concentrate on at the moment.

We have plenty of other things on our plate.

Okay.

Thank you.

Thanks.

Thank you for your question, Mr.

Kiani.

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

Mr.

Chewning, do you have any closing remarks?

Yes, I do, Lindsay.

Thank you.

Just a reminder that our Form 10-Q will be filed with the SEC later today and our fourth quarter earnings release is scheduled for Thursday, January 29, 2009.

I'd like to thank everyone for joining us this morning and wish you a pleasant, cool fall.

Good-bye.

Thank you.

That does conclude today's teleconference.

You may disconnect your lines at this time and please have a wonderful day.