道明尼資源 (D) 2008 Q4 法說會逐字稿

Good morning everyone and thank you for your patience in holding.

We would like to welcome you to Dominion's fourth quarter earnings conference call.

We now have Mr.

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

(Operator Instructions)

I'll now turn the conference over to Laura Kottkamp, Director of Investor Relations.

Thanks, Lindsey.

Good morning, and welcome to Dominion's fourth quarter earnings conference call.

During this call, we will refer to certain schedules included in this morning's earnings release.

Pages from our fourth quarter 2008 earnings release kit, or pages from our 2009 earnings guidance 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 guidance for the year ahead.

If you have not done, so I encourage you to visit our website, register for e-mail alerts, and view our fourth quarter 2008 earnings and 2009 guidance documents.

Our website 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 reports on Form 10-Q for a discussion of factors that may cause results to differ from management's projections, forecasts, estimates, and expectations.

Also on this call, we will discuss some measures 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 and guidance kit.

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

Tom?

Thank you, Laura and good morning everyone.

Let me review in short summary form our 2008 results, before discussing 2009 and beyond.

Tom Farrell will then give a strategic review of 2008, and a look ahead to 2009.

Our business unit CEO's will discuss details of their 2009 EBIT forecast after which our Treasurer, Scott Hetzer, will outline financing activities that support our growth.

We recorded both operating and GAAP earnings of $3.16 per share for the full year 2008.

You may refer to schedules 2 and 3 of our earnings release kit for reconciliation of these earnings.

As we have done throughout 2008, we made adjustments for such items as weather and certain tax items that differed from our guidance.

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

As seen on our schedule of these adjustments on Dominion's Investor Relation's website under supplemental schedules, unfavorable electric utility weather cost us $0.03 per share for the year, and storm damage and service restoration also cost us $0.03 per share.

Taxes compared to guidance were lower than expected, providing a benefit of $0.07 per share.

Normalizing 2008 for these factors (inaudible) operating income of $3.15 per share, the top of our guidance range.

Funds from operations were $3.2 billion, which exceeded the high end of the range provided in our original guidance, and we finished 2008 with $2.9 billion of available liquidity.

We are pleased not only with overall company financial results, but with the performance of each of our individual business units during 2008.

You will hear specifics from the leaders of these units later in this call.

Today, we introduced our 2009 operating earnings guidance within a range of $3.20 to $3.30 per share.

The drivers and assumptions that support our guidance, can be seen in our earnings guidance kit beginning on page 6.

Additionally, we are providing first quarter operating earnings guidance of $0.85 to $0.90 per share.

Details on first quarter guidance begin on page 23 of the earnings guidance kit.

For the full year 2009, revenue growth is expected through all of our regulated gas and electric business lines.

This growth is expected to be augmented with the return to normal weather, and lower service restoration expenses in our electric utility business.

We also expect earnings growth in our merchant generation activities.

Primarily as a result of expected return on planned assets, we estimate our pension and OPEB expenses will increase by $141 million on a pretax basis for 2009, as compared to our original 2009 outlook.

This negative $0.12 per share impact is incorporated in our 2009 guidance range.

In terms of cash contribution to our plans, even with the dramatic drop in asset values, all but one of the company's significant pension plans were fully funded at the end of the year.

For the one that was not, no funding would be required in 2009 or 2010, even if there was a 0% return on planned assets in 2009.

In order to offset some of the increased expenses related to pension and OPEB, we initiated certain cost saving measures in the form of reduced plan nonfuel O&M.

Our 2009 guidance incorporates an approximate 5% reduction in nonfuel O&M.

The reductions are proportionate to operating segment nonfuel O&M and results are expected to be sustained beyond 2009.

The planned reductions will not result in reduced safety or service reliability.

As mentioned in our December 19th press release, we have reduced our 2009 financing requirements by $350 million.

Approximately $100 million was actually reduced capital spending in 2008, which we planned to finance in the capital markets in 2009.

We have reduced the rate of capital spend in 2009 on North Anna project by $100 million.

Maintenance CapEx has been trimmed by $65 million.

The remaining $85 million of reduced capital spending is related to a reduced new connect forecast, and a variety of discretionary items throughout the company.

Our three-year capital expenditures plan as detailed on page 31 of our earnings guidance kit stands at $4 billion for 2009, $3.6 billion for 2010, and $3.8 billion for 2011.

We will issue sufficient equity to maintain our targeted credit metrics.

You've heard us reference these targets often and they are FFO coverage of interest obligations of more than 3.6 times and FFO as a percentage of our total debt of more than 20%.

Scott will provide additional detail later on the call regarding our financing plans.

Looking to our 2010 operating earnings outlook, the $3.33 to $3.50 per share, you should expect continued earnings growth on our regulated businesses, driven primarily by returns from our electric generation and transmission projects that qualify for enhanced returns on equity.

The outlook for our nonregulated businesses is based on an average 2010 natural gas price of $6.75 to $7.25 per MMBtu.

At our current hedge positions, our 2010 EPS sensitivity based on a $1.00 per MMBtu change in natural gas prices is approximately $0.16 per share.

Industrial demand for natural gas has fallen with the overall economy and although demand is low and current production and storage levels are high, it is our belief that natural gas prices will strengthen sometime in 2010.

The MP companies have already reduced their rig count by 26% since August, which puts the rig count at its lowest level since May of 2005.

Many of the developers of new sources of domestic gas supply have announced significant cutbacks in their CapEx.

We expect that as the economy and demand recover and grow in tandem, lower production levels would also move gas prices upward in the out years.

Accordingly, as the market develops, you can expect us to hedge at prices that support our 2010 outlook, thereby reducing our sensitivity as the year progresses.

This concludes my remarks.

I will now pass the call over to Tom Farrell to discuss his review of 2008, and outlook for the years ahead.

Thank you, and good morning, everyone.

While we realize that 2008 is old news, a number of our 2008 accomplishments provide an important foundation for 2009 and later years, despite the current economic downturn.

2008 was the first full year that we operated as a restructured company, with newly aligned business segments.

We met or exceeded guidance in each quarter.

Despite the milder than normal weather in 2008, and the challenges that the economy presented in the last quarter of the year, our business units performed extremely well.

Safety records improved across the entire company.

We connected approximately 30,000 -- 37,000 new customers in our Virginia and North Carolina service territory.

Our dividend increased 11%, and in December, the board again raised the quarterly dividend 11%, bringing the annual dividend rate for 2009 to $1.75 per share.

Additionally, the board reconfirmed the dividend policy set in October of 2007, to achieve a 55% payout ratio by 2010.

We continued to move Virginia toward energy independence.

We finished construction on two of our three 150-megawatt peakers serving Northern Virginia, with the last to be completed this summer.

We began construction on our $1.8 billion Virginia City hybrid energy center.

It remains on schedule and on budget.

The project qualifies for 100-basis point adder to the base return on equity.

We also completed both phases of our 264-megawatt West Virginia wind project, of which we own 50%, moving us closer to achieving Virginia's voluntary RPS goal.

At Virginia Power, we successfully launched nine pilot programs targeted at conservation and announced an intended $600 million investment in smart meters.

Just a few weeks ago, Virginia's governor proposed a bill that would enable capital spent on energy conservation, such as smart meters, to qualify for 200 basis point adder to the base return on equity.

The same premium enjoyed by investments in renewables, new nuclear, and carbon capture compatible coal plants.

With regard to electric transmission, in 2008, FERC approved nearly $900 million of new investment over the next two years, that will earn 125 to 150 basis point adders to our approved return on equity of 11.4%.

This treatment helps ensure that needed transmission lines, the most critical of which are our Meadowbrook to Lauden, and Carson to Suffolk line are cited and built in areas to relieve congested load.

We plan to begin construction this quarter on each of these line, with in-service dates in 2011.

At Dominion Energy, we successfully litigated all of the alleged safety issues and completed our Cove Point expansion.

We will begin collecting revenue this quarter.

Our rate case at Dominion East Ohio was successfully settled, awarding us an 11.4% return on equity, as well as a straight fixed variable rate design that makes our revenues less weather and volume sensitive.

The case also established riders for cost recovery, for both our automated meter and pipeline infrastructure replacement programs.

Now for 2009, in the current marketplace, the investors see few positives among the troubling news and widespread pressures on the economy.

Our industry has been effected by many of those pressures, and while Dominion is not immune from the economy's downturn, there are several factors that position us to perform well in 2009, and the years following.

Although growth in our service territory is slower than in recent years, the economic strength of our service area is a positive in this upcoming year, particularly when compared to many of our peers.

Coupled with pre-approved investment in regulated projects, these factors provide fundamental strength, despite the increased pension and OPEB expenses, and temporarily lower commodity prices.

The largest naval base in the world is located in the eastern part of our state.

The Northern Virginia suburbs support the federal government.

New commentators have suggested that there will be a reduction in the size of that government over the next few years.

Data centers in Northern Virginia house equipment that supports half of the nation's internet traffic.

14 of these are on the drawing board in the next five years.

A load equivalent to adding over 130,000 new homes.

This month alone, in January, we have had over 2500 new customer connects, in line with our expectation of about 30,000 new connects in 2009.

Virginia's economy is not recession-proof, but it is recession-resistant.

For example, in November, the department of labor reported on the US cities with the lowest unemployment rates in the country.

Washington, DC and its suburbs tied for first.

The Virginia Beach region ranked third.

And the Richmond area tied for fifth.

All of these large metropolitan areas are in our regulated electric service territory.

It was reported on Tuesday, that Virginia's unemployment rate is 2 full percentage points below the national average.

While our growth in the next 12 to 18 months will not be as robust as it has been in the past few years, we will continue to see growth.

90% of our growth capital expenditures planned for the next three years, it will be for regulated projects that receive established returns on equity.

More than 50% of these projects will receive premiums on base ROE's and will face minimal regulatory lag.

We have received fair regulatory treatment of both the state and federal levels in the past, and we expect to receive fair treatment going forward.

As a result, regulated capital projects will continue to receive priority treatment in our spending plan.

The capital reductions discussed by Tom Chewning, should have no adverse effect on our long-term earnings per share growth rate of 6% or more.

Nor will these reductions in spending effect our safety standards, our operating performance, or our obligation to serve customers.

Virginia is supportive of our efforts to reduce our dependency on power needs from PJM., Including our interest in constructing a third unit at North Anna.

We recently announced that we would initiate a competitive selection process for the reactor design.

While we plan to continue the process of obtaining a COL with GE's ESBRW design, a technology we continue to find attractive, we nonetheless are receptive to other vendors' proposals.

If a change in design selection were to occur, we would discuss any schedule impacts with the NRC.

We believe we are still well positioned to be among the first wave to receive DOE loan guarantee funding.

It is our intent to establish the optimal risk sharing agreement between Dominion and its contractor, before we file an application with our state commission and embark on the construction of a third unit.

We could not reach an appropriate risk sharing agreement with General Electric.

In the interim, we will continue to keep all of our options open by moving forward and pursuing a COL, and continuing with our federal loan guarantee application.

By April 1 of this year, we will file our base rate case with the state corporation commission, the first of it's kind in a decade.

New rates will be in place by September 1, subject to final order of the commission.

Under Virginia law, unlike many other states, the rate cases are forward-looking, taking into account our expected costs, and rate-base additions throughout the rate period.

These provisions are specifically intended to ensure that we capture our current expenses, until our next rate case in 2011.

We expect to obtain the modest rate relief we will seek.

The business unit leaders will now discuss their 2008 performance and 2009 guidance.

First to speak will be Dave Heacock, the President and Chief Operating Officer of Dominion Virginia Power.

Thank you Tom.

For the full year 2009, Virginia Power's EBIT normalized for weather and major storms, fell solidly within the original guidance range of $799 to $829 million.

As we reflect back on 2008, I would like to highlight several noteworthy accomplishments that have set us up for excellent operational performance and earnings growth for 2009 and beyond.

Our transmission and distribution employees had a breakthrough year in terms of safety performance.

Lost day, restricted duty injuries, and vehicle accidents were at an all-time low.

The year-end OSHA recordable incident rate, the number of incidents were 100 employees were year, has declined to 1.8.

This represents a 17% improvement from 2007.

We are especially proud of this accomplishment given the high level of major storm activity throughout our service territory, along with the adverse conditions we experienced while providing mutual aid support to customers in Texas and Ohio, in the aftermath of Hurricane Ike.

We are pleased to report that we are seeing tangible results from investments we have made over the past two years to improve our customers electric service reliability.

Our average customer minutes out fell from 124 in 2007, to 120 in 2008.

This is our best performance in distribution since 2001, a year in which we experienced unusually low storm activity.

We will remain focused on investments in circuit reconditioning and tree trimming, to ensure that our customers continue to realize future reliability improvements.

Our electric transmission business, we secured three favorable rulings at the FERC that set us up to execute our growth strategy, as we strive to create a more robust, reliable transmission grid in PJM.

Two rulings mentioned on previous earnings calls, allow for timely recovery of investments with premium returns.

The most recent ruling received on December 31st of 2008 approved a wholesale charge to recover $153 million in RTO start-up and administrative costs, that Dominion was unable to recover during their rate cap in Virginia.

We successfully implemented nine demand side management programs Tom mentioned earlier.

These programs, coupled with our advanced metering infrastructure strategy, will transform the customer service experience, and serve as a platform for future growth in the area of energy conservation.

We have continued to see outstanding results in Dominion retail, achieving 2008 EBIT of $134 million.

In 2009, we expect Dominion Virginia Power to produce EBIT in the range of $822 million to $852 million, also shown on Page 9 of our earnings guidance kit.

The midpoint of this full year range is $68 million higher than that achieved in 2008.

In our distribution business, EBIT growth was driven primarily by a return to normal weather and storm activity.

Significant growth in our transmission business is driven by leveraging the favorable FERC regulation, with large investments in mandatory regional projects, such as the Meadowbrook to Loudoun 500 KV line, which are required to meet load growth.

Additionally, we expect continued steady growth in Dominion retail.

Finally, looking to the first quarter of 2009, our projected EBIT is in the range of $217 million to $233 million, as shown on Page 24 of the earnings guidance kit.

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

Paul?

Thanks, Dave.

Dominion Energy had excellent safety and financial performance in 2008.

Our OSHA incident rate was down 11%, and lost time restricted duty incidents were reduced 30% versus 2007.

Energy finished the year above its EBIT guidance range of $835 million to $883 million.

Actual EBIT of $885 million represents growth of 20% over 2007.

Our team worked more safely, and we produced stronger earnings.

Drivers for 2008 performance includes record gathered production volumes at Dominion transmission and Dominion East Ohio, and record byproduct revenues.

Record natural gas production at our Appalachian EMP segment, as well as the benefit of VPP volumes that were higher in 2008 versus 2007.

At EMP, we drilled 400 new wells, and ended the year with crude reserves of 1.17 TCFE, achieving a reserve replacement ratio of 305%, when excluding VPP volumes.

And while we were setting new records for drilling activity, the West Virginia department of Environmental Protection recognized Dominion EMP as the first place recipient for its drilling and reclamation program.

We are very proud of this recognition and our excellent environmental stewardship.

And finally, we drilled 7 vertical Marcellus wells.

We undertook this effort to prove up the value of our shale property, and we remain poised to pursue additional farmout transactions when we achieve fair value.

Turning to 2009, drivers for energy will include new rates at Dominion East Ohio, the first since 1994.

Commercial operations of the Cove Point expansion, this project completes four years of significant regulatory and construction activity and is due to commence full operations later this quarter.

Commercial operations of the USA storage project is scheduled to begin service April 1st.

A 7% increase in EMP production, of which 82% is hedged at a price of $8.87 per MMBtu.

And finally, during 2009, we will place riders into effect for both our automated meter installation and our pipeline infrastructure replacement programs at Dominion East Ohio.

The result of these actions and our continued safe operations will produce full year EBIT of $894 million to $965 million.

For the first quarter, we expect EBIT of $252 million to $274 million.

Longer term, we expect to receive FERC authorization on four of our previously announced gas transmission projects before year end.

The total growth capital spend on these projects is approximately $190 million.

We continue to evaluate the timing and scope of the proposed Gateway and Keystone transmission projects.

Gateway is a looping project of existing transmission facilities designed to improve access for Appalachian production to the interstate pipeline grid.

And Keystone will move Appalachian gas, including future production from the Marcellus shale to East Coast markets.

We will pursue these investments just as we have with all major infrastructure projects, when we have identified appropriate long-term commitments with credit quality shippers.

Now I would like to turn the call over to Mark McGettrick.

Mark?

Thank you, Paul.

Dominion Generation produced 2008 EBIT of $2.2 billion.

These results exceeded the high end of our original guidance range by $112 million, or 5%, and were better than 2007 by $640 million, or 42%.

The major drivers of growth for the year were higher margins at our Mill Stone, State Line and Fairless power stations.

A return to full recovery of fuel in Virginia, and stronger wholesale and other utility margins.

These results were achieved despite lower sales due to milder weather in our regulated business.

Supporting these financial results were excellent operating performance by our nuclear fleet, with an annual capacity factor, excluding planned refueling outages of 97.2%.

In a regulated utility fossil fleet forced outage rate of 3.8%, the best on record.

In addition to our financial results, there were a number of key items at Dominion generation to report since our last call.

First, Dominion Generation's safety performance continues to be excellent.

Our 2008 OSHA recordable incident rates for our nuclear and fossil fleets, came in at 0.17 and 0.78 respectively, both are company records.

Second, earlier this week, we'll received a hearing examiners report on Bear Garden, our 580 megawatt combined cycle facility, which qualifies for 100-basis point adder to our base ROE.

The hearing examiner's report recognizes the robust evidence supporting the new need for capacity in Virginia in the strong benefits of our project, but disagrees with the technical bidding procedures used by the company as part of the application process.

We will address these concerns directly with the commission as part of the normal approval process, and expect to be issued a certificate later this quarter.

Third, we completed our nuclear operate at our Mill Stone unit 3.

We realized an increase of 72-megawatts in capacity in the fourth quarter, and this station now represents over 2000-megawatts of generations total rated capacity.

Fourth, we participated in the first two Reggie auctions for fleet in the northeast and we are pleased to announce that we have obtained all of our estimated allowance requirements for 2009.

Finally, on hedging, we increased our base load coal hedge position in the Northeast to 94% for 2009, and 55% for 2010, and captured good margins as we took advantage of declining coal prices.

We also increased our Mill Stone hedge position for 2010 to 40%, prices that support our 2010 growth targets.

Looking to 2009 guidance, Dominion generation is expected to contribute nearly 60% of the total operating segment earnings this year.

As you can see on Page 11 of the earnings guidance kit, the midpoint of Dominion generation's forecasted EBIT represents 7.8% growth, to approximately $2.3 billion in 2009.

Much of this projected growth is coming from our merchant generation business, which is expected to produce EBIT in a range of $1.3 billion, which is more than 18% growth over 2008.

Major components of this merchant growth are higher realized capacity prices and energy volumes in the northeast, including one less refueling outage at Mill Stone.

In addition, we expect to see regulated generation growth in our Virginia service territory through a return to normal weather, income from our new Virginia City hybrid energy center and Bear Garden projects, as well as with sales growth over 2008 levels.

For the first quarter, as you can see on Page 26 of the earnings guidance kit, Dominion Generation's EBIT contribution is expected between $541 million and $627 million.

Dominion Generation has been able to produce consistently strong growth rates over the past several years, and is positioned to continue that trend in 2009 and beyond.

I will now turn the call over to Scott Hetzer.

Scott?

Thanks, Mark.

I'm pleased to report our financing needs are much lighter this year than in recent years.

Primarily the result of three factors.

Strong cash flow, which includes the benefit of recovering a substantial portion of our deferred fuel costs, a reduction in capital expenditures, and a relatively small amount of debt maturities.

Regarding equity issuance, our plan calls for $500 million this year, and $400 million in 2010.

Since we routinely raise approximately $250 million annually from our dividend reinvestment and direct stock purchase plans, we will only need to raise about $250 million of additional equity in the market this year and $150 million next year.

Regarding debt, maturities for 2009 are $435 million, including $110 million of tax exempt debt that we expect to refinance in the tax exempt market.

We also plan to raise approximately $1.6 billion in the capital markets, to fund our growth plan this year and expect that $400 million of this will be raised at [Zubco].

In order to facilitate our plans for raising capital over the next three years, we will be filing a shelf registration statement with the SEC later today, to replace our prior shelf that expired last month.

This shelf allows us to issue debt and equity in a variety of ways, including the ability to access the market, the equity market on a daily basis, what is referred to as an "at the market" or a dribble program to sell common stock.

I will now turn the call back to Tom Farrell.

We expect to manage through these current times by focusing on what we do best.

Efficient, safe operations, with an eye on making strategic choices for the company, that are in the best interest of our customers and investors.

We have made important cuts in capital and significant reductions in O&M.

Undoubtedly, 2009 is going to be a challenging environment for all companies, but we will manage what we can control, and work to mitigate that which we cannot.

In doing so, we will enter 2010 in the best possible position to enjoy a reviving economy.

Lindsey, please open up the lines for questions.

And thank you.

Thank you, ladies and gentlemen.

(Operator Instructions)

Our first question comes from Angie Storozynski with Macquarie Capital.

Ma'am, please go ahead.

Thank you, good morning.

Very impressive earnings.

I just have one question, and I understand that Virginia is in a way shielded from the current recession, but 1.5% growth in regulated electric load seems very optimistic.

I mean we saw earnings and expectations from other companies, maybe not from Virginia, but from other companies and they are significantly below that.

I know that in 2008, especially the fourth quarter, you had some weather impacts, but the sales were down 2%.

If I could hear if that's totally weather-related or not, that would help.

And what is the ROE that you're expecting to get roughly from the upcoming rate case in Virginia?

Angie, good morning.

Good morning.

On the second part of your question, I'll not answer first, we -- we're going to file in late March or by the first of April, and I think it's better for us to sort of keep our powder dry on that particular topic until we finalize the testimony, which it's almost finished, and file it so that the commission hears it, or see it is first when we file rather than learning about where we see things on an earnings call.

With respect to the 1.5% revenue growth aspect in our service territory this year, we've done a lot of analysis on it.

We studied Virginia's trends very carefully.

We have one of the lowest unemployment rates in the country.

And you heard that particularly in our service territory, our economy here is continuing along.

There's lots of anecdotal evidence about that.

The TARP program, the temporary TARP program is in the market looking for over 2 million square feet of office space in northern Virginia.

So we continue to see growth here and we feel confident.

We've been in this business a long time and in this state a long time, and we have a lot of experience with the growth trends here.

Okay, and one more question regarding the utility.

The reduction in O&M expenses, is it a cut in expenses, or is it a delay in maintenance of plans?

Angie, that is intended to be continuous beginning in 2009 throughout our planned horizon.

Some of the reductions are coming in the areas of work force management in terms of people, vacancies, overtime contractors and consultants, and other reductions coming in the areas of advertising, nonutility mains sentence sentence and so forth.

In order to offset the pension -- had we not reduced O&M to offset pension OPEB expenses, our 2009 O&M would have been in the magnitude of 7% over 2008.

These cuts enable to us get it down to in the 2% range.

Okay.

Thank you very much.

Thank you for your questions, ma'am.

Our next question comes from Carrie St.

Louis with Fidelity.

Ma'am, please go ahead.

Hi, good morning.

Hi, Carrie.

Just wanted to talk about the financial targets that you've reiterated.

I appreciate you outlining that strategy.

I just -- it seems like kind of you're falling just slightly under those targets pretty consistently, and I'm just trying to get an understanding of maybe when we actually get closer to hitting them so.

If I did my numbers correct, I looked at your year end debt balance and it looked like you're adding about $1.2 billion in debt financing this year, which was the 1.6 less the $400 million in refinancing.

So I was coming out with like a year end '09 debt balance of about $18.6 billion.

Carrie, this is Scott Hetzer.

We have clearly not abandoned the goals at all.

As Tom Chewning mentioned, we are reiterating those goals.

When I talked about raising $1.6 billion this year, that's over and above maturities.

So the $435 million of maturities, 110 of that in the tax exempt market, the rest we would expect to refinance in a debt market.

The $1.6 billion I referenced is capital markets activity, and could easily include securities that have some equity credit.

We're aware that those markets right now are not wide open, but we have been approached by a number of investors and of course a lot of bankers, that have quite a bit of interest in structuring some sort of security with us that does have equity credit.

Okay.

Well, how about I say it another way, then.

So I looked at your cash flow forecast that you had in the guidance as well and I was getting, you know, you said FFO this year was about $3.3 billion and I was -- it was looking like maybe next year it was running a bit higher.

I guess that does include the deferred fuel recovery, but maybe it was closer to $3.6 billion.

Does that, is that fair?

That's just based on your cash flow chart on page 30?

Yes, it is, and when you, when you make certain adjustments that are typically made by the rating agencies, we show FFO to interest coverage certainly greater than four times, but FFO to debt, in that 20% range.

And we expect to be over 20%.

Okay So if I do 3.6 and assume 20%, then I get about $18 billion of debt, so that's kind of the number that I should think about?

Yes.

Now, also, Carrie, make sure when we talk about the additional debt that we'll be adding this year, we're talking about $500 million of equity to support that.

Yes.

Some to-be-determined amount of equity credit from other issuance that may occur this year.

Right.

And then of course the increase in the return to earnings balance, which is expected to be very healthy.

Okay.

Well, let me just ask you one question then.

So you are considering issuing these hybrid securities, I guess it would be a retail market issuance?

I wouldn't limit it to the hybrids.

The hybrid market has been completely closed.

Maybe the retail market is open a little bit.

I'm also including in that some sort of convertible security.

Okay.

We've had a number of our fundamental investors.

I don't think the hedge funds would participate in a security like that right now, but we think that the fundamental investors, would because they have been calling us on a regular basis.

Okay.

Asking us if we would consider structuring something.

Okay, great.

All right.

Thank you so much.

Thank you.

You're welcome.

Thank you for your questions.

Our next question comes from Jonathan Arnold with Banc of America.

Please go ahead, sir.

Good morning, guys.

Good morning, Jon.

Good morning on your new title, Banc of America.

Thank you.

Technically Banc of America-Merrill Lynch.

Thank you.

Quick question on the CapEx.

You're saying I think the number for '09 in the forecast looks like it's just over $4 billion and really not changed from what the previous 2009 forecast was, and the components show nuclear fuels actually down around $50 million and the growth piece is up a little bit.

And in December, you said you were cutting CapEx by $350 million for 2009.

I just want to understand what is actually changing and I think you said something about an '08 coming in under target.

Right.

Jonathan, first of all, on the '08 piece, of the $350 million reduction in financing requirements, about $100 million was realized through change in our 2008 forecast.

You can see on the cash flow statement of page 15 of the earnings release kit, that our CapEx amounted to about $3.5 billion.

That compared to our original forecast of about 3.7.

So actually we did better than we forecasted when we -- in December.

Most of that reduction's going to be realized in Dominion Generation as we expect.

As it pertains to 2009, throughout the year we update our internal forecasts to reflect potential changes in the plan.

When those changes become permanent, you know, we disclose it to the financial community.

But in the course of the year, there are a lot of puts and takes as we continue to develop our plan.

So the reduction in financing requirements is really through a reduction relative to our interim internal plans, and not a comparison to last year.

And it was really intended to describe a measure of how we're offsetting the hurts in our 2009 earnings guidance.

So unfortunately looking at the two schedules, it can't go from point A to point B.

It's relative to our internal forecasts in the latter part of the year.

Okay.

That's helpful.

So you did reduce it, but we never saw the higher number on paper.

More simply said, that's correct.

Okay, and then secondly, I just want to clarify.

What are you seeing about the timing of the closing of the People's and Hope sale, and is that a significant factor in the 2010 financing needs, or is that not assumed in the base financing picture?

We, we expect to close the sale in the latter part, late third, early fourth quarter 2009.

As far as 2010 is concerned, we would have to -- they didn't close in 2009, we would have to consider, you know, our financing plan in that light.

But we, at this point, as things have progressed, we think we're still on that schedule.

And the entire proceeds of that are expected to retire debt, Jonathan.

Okay, and then finally, on Bear Garden, you referenced a technical issue.

As we read that here in the examiner's report, I mean it seemed to be recommending that you reran the RFP, making it open to existing capacity, which haven't been allowed in before.

I mean if you -- presumably if that's what the outcome was, it would be -- it would actually take you a while longer to do this, or do you just think that's not how this case is going to end?

Jonathan, this is Mark McGettrick.

We don't think that's how the case is going to end.

This RFP was not dissimilar to the latest RFPs in the way it was structured.

So now we think the legislature was very clear in the law they passed a couple years ago, that we need to have new facilities in the state, owned by the utility and we will make that argument before the full commission as part of the normal process in a case.

We're still very optimistic that we'll have a certificate here in the next few months.

Okay, thanks a lot.

Thank you, Jonathan.

Thank you for your question, sir.

Our next question comes from Greg Gordon with Citi Corporation.

Please go ahead.

Good morning, guys.

Good morning, Greg.

Looking at the 2010 guidance versus the 2009 guidance, you guys actually give a lot of disclosure in your guidance release, but if you could just give us qualitatively the positive and negative drivers that you think get you to sort of flat to up earnings, '10 versus '09, are you assuming that Getco, coming out the other end of this rate case will have higher or lower earnings power?

Know that you've put incremental hedges in at Dominion Generation.

Do you think that allows the earnings power there to be stable because our prices are still pretty backward dated?

And then are you adding a lot of earnings in other areas that might be growing to offset some of those pressures?

Greg, I'll ask -- answer the specific question about the rate case and then Joe will cover the other puts and takes of the guidance.

We do expect higher rates in Virginia that would go into effect in September, subject to reduction if the commission comes out with a different result than we expect.

But as I said in my remarks, we will be seeking modest rate relief and we expect to receive it.

Greg, as it relates to the rest of the plan, the growth in 2010 over 2009 is mainly going to be driven by our regulated businesses.

I mean natural gas also, but mainly in Virginia with the rider projects, with the electric transmission projects, and any modest rate relief that we obtained.

At the current commodity price deck and regular tiff to our hedge position, we wouldn't expect dramatic growth in our nonregulated businesses unless there was a significant lift on the price curve.

So most of the earnings are really going to be driven by regulated businesses.

Okay.

So just to be clear, at Getco-- you don't think that your -- let me rephrase that.

Do you think that despite the fact that you're going in for a rate review and you over the last several years, have been earning above what the benchmark ROE would be, your rate base has grown sufficiently to allow the earnings net income and earnings per share in Virginia to be flat to up in '10 versus '09?

Greg, the short answer is yes, but the -- with a little explanation.

Past return on equity that may or may not have been earned at Virginia Power is not particularly relevant to the case going forward.

Under the new rate regulation we have in Virginia, it's forward-looking cast.

It's not a backward cast.

They look throughout the rate period to look at our reasonably anticipated costs.

Simple example is increase in the salaries under a union contract that lasts through the rate period.

That will be taken into account.

Financing costs will be taken into account.

Not what happened last year.

It's what's happening this year and next year and the year after.

And that also includes the increases in our rate base in the forward cast.

So as we look toward new customer connects, the new meters, there's a variety of activities that will be going on, what we have here is different than you will see or experience with most of the other rate cases that will be going on and have been going on over the past year.

Right.

So they will look at a forward test year, look at the rate base associated with that forward test year and assess the revenue requirement based on a forward cost of service, and use the return on capital calculations as articulated in the legislation?

Yes, and I would add, though, it's not -- I wouldn't say test, forward test year.

It's the test period.

Our next rate case isn't until 2011.

Got you.

Okay, thank you.

Thank you.

Thank you for your question, sir.

Our next question comes from Hugh Wynne with Sanford Bernstein.

Please go ahead.

Hi, well done this quarter.

Thank you.

I just wanted to kind of delve a little bit further into the 2010 earnings forecast, by simply measure the EPS growth from the midpoint of the '09 guidance range, the midpoint of the 2010 guidance range.

Looks like we're expecting something like 5% growth.

When I factor in the need to raise some $400 million of equity, it seems that we're probably going to have to deal with dilution on the share count of, 1.5% to 2% so that the overall net income growth for 2010 will probably have to be 6.5% to 7% to deliver the EPS target.

We've heard from your comments this morning the unregulated side of the business -- that much by way of earnings growth, which is reasonable in light of the sort of fixed amount, fixed size of that fleet and the direction of dark spreads.

That kind of implies that the 6.5% to 7% earnings growth will have to come from the regulated side of the business, which if I remember correctly is 55% or 60% of the total.

The implication is that the regulated side of the business is going to have to be growing its earnings in 2010, well into the double digits, maybe 13%, something like that.

Is that feasible?

It seems a very ambitious target to eat.

Hugh, I can't comment specifically on the percentage calculation, but in addition to the base rates at Virginia electric power company, you've got generation rider projects that are earning premium returns on that base return on equity, as well as electric transmission projects that are earning premiums over the ROE of 11.4% and will continue to have gas -- incremental gas transmission contributions.

So, you know, take into account the rider projects, in addition to the base rate.

Well, you know, the rider projects give me another percentage point on some small increment of rate base.

The bigger question, which I would like you to address if you could, is can you really deliver net income growth in the range of 7% off of the half of your business that's regulated.

We believe so and one comment that I -- one thing I didn't mention is being that rates are going to go into effect in September 2009, you'll have the benefit of a full year of increased rates in 2010, so you really are adding two-thirds of the full increase in a calendar year.

Okay.

Thank you very much.

Yes.

Thank you.

Thank you for your question, sir.

Our next question comes from Paul Patterson with Glenrock Associates.

Sir, please go ahead.

Hi, how are you guys doing?

Fine, Paul.

How are you doing?

Just on a corporate and other, it seems to increase a lot in '09.

I went through the release on earnings guidance thing.

I wasn't completely clear as to what was driving that.

Yes, Paul, this is Joe.

That's a tricky little question, but let me see if I can explain it.

When we forecast corporate and other, what we do is we bring in -- we net the corporate eliminations against it, and that's really offset in the interest expense that's also forecasted at the consolidated level, so it's kind of a puzzle.

We forecast at the business unit level, but tax and interest at the consolidated level, and some of the fallout shows up incorporate and other.

So it's really a convention of kind of budgeting zero and corporate eliminations, and then having them reflected as the actuals occur throughout the year.

And you can actually see that quarter-to-quarter, how corporate and other is performed compared to the guidance.

So its really a driver of what is happening in other businesses that's driving that.

Exactly.

And then, with respect to the generation of the $41 million for the year and about $30 million for the quarter, there was a loss -- is that a one time associated -- there was something mentioned about a non-refundable issue for the generators and stuff -- I just wondered if you could break that out a little bit more for us, as to what was going on there?

That was the General Electric contract adjustment for -- Mark, do you want to speak to that?

Yes that was associated with some of the expenditures we had with General Electric as part of the nuclear plant and we adjusted those in the quarter.

Okay.

I'm sorry.

What happened there exactly?

We made a decision to competitively bid that project, and so under our accounting standards, we would say that we had to alter our treatment of the -- of what we had before under that contract.

It doesn't mean that we won't line up with GE, but it means that as plans changed, we took a charge to adjust that to having more or less an open position, and being able to be open with other suppliers.

Okay, and how much would the $30 million was because of the -- because of this?

I'm sorry.

I couldn't hear, Paul.

Sorry.

How much of the -- just how much is that responsible for the, for the charge in the quarter?

I mean it seemed to be bundled together with some tax items and some other things, at least when I read it in the release.

Hey, Paul.

This is Tom.

The GE-related write-offs which was the contract termination, and some prepaids that we had with GE was well over half of that.

Okay.

And then just finally, seems like the dribble seems to be where you guys are oriented on the $250 million.

Is that about right and that could happen sort of any time during the year, or--

It certainly is a good option, and I know where we weren't the first to mention it.

I guess F P&L mentioned it the other day, so kudos to them for being out before us.

But it's certainly an attractive option, particularly when you don't have a large amount of equity to issue, and you can kind of take advantage as markets get firm and not, have to put all your eggs in one basket.

Okay, great.

I really appreciate it, guys.

Thanks a lot.

Thank you, Paul.

Thank you for your question, sir.

There are no more questions.

I'll now turn the conference over to Tom Chewning for any closing remarks.

Sir, please go ahead.

Thank you, Lindsey.

Just a reminder that our forms 10-K will be filed on or before February 26 with the SEC and our first quarter earnings release is scheduled for Thursday, April 30.

We would like to thank everyone for joining us this morning and wish you a safe winter.