道明尼資源 (D) 2009 Q1 法說會逐字稿

Excuse me, everyone.

On the call today we have Tom Farrell, CEO and other members of senior management.

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

At the conclusion of the presentation we will open the floor for questions.

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

I would now like to turn the conference over to Laura Kottkamp, Director of Investor Relations for Safe Harbor treatment.

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

During this call we will refer to certain schedules included in this morning's earnings release and pages from our first quarter 2009 earnings release kit.

Schedules in the earnings release kit are intended to answer the more detailed discrete 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 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 second quarter 2009 guidance.

If you have not done so, I encourage you to visit our website, register for email alerts and view our first quarter 2009 earnings document.

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

And now for the usual cautionary language.

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 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.

Reconciliation 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.

Now for the last time I'll turn the call over to our CFO, Tom Chewning.

Thank you, Laura, and good morning, everyone.

Following an overview of first quarter financial results, and second quarter operating earnings guidance, each of our business unit CEOs will review first quarter performance as well as what they foresee for the second quarter.

Tom Farrell will update you on strategic issues and regulatory proceedings including the Virginia base rate case filed on March 31, of this year, following Tom's remarks we'll will happy to answer your questions.

This earnings call is my last as Dominion's CFO and I'm pleased to say that it's an excellent quarter to discuss.

Operating earnings were considerably above the upper end of our quarterly guidance range; however, GAAP earnings were reduced by certain special items that I will discuss later.

Operating earnings for the first quarter of 2009 were $0.97 per share, $0.07 above the upper end of our quarterly guidance range.

As we have done each quarter since this time last year, we look at weather and tax variations from guidance to get an appropriate view of how we did versus our forecast.

Favorable weather added $0.03 per share while our taxes cost us $0.02 more than expected.

Storm damage and restoration cost us an additional $0.01 per share.

After normalizing for these items we're back to operating earnings of $0.97 per share.

You can find complete reconciliation of operating earnings compared to quarterly guidance on pages 33 through 39 of this morning's earnings release kit.

Interestingly the first quarter reveals certain dynamics related to the nation's economic recession that helped create the positive variance to guidance.

The Federal Reserves continued support of short-term markets, reduced demands borrowing cost for the quarter versus our projection.

Frac spreads as well as income from our producer services and park and loan activities benefited from movements of and between commodity prices in the quarter.

Lower natural gas costs have led to increased dispatch at our Fairless and Manchester stations.

And decreasing demand for goods and services resulted in lower cost, helping us to achieve our targeted O&M reductions.

As it relates to demand for energy our first quarter '09 results compared to first quarter of '08 demonstrate that our earnings sensitivity to regulate electric sales advances are minimal.

Our first quarter megawatt hour sales were 3.8% below our forecast, and 2.4% below first quarter of '08.

However, as shown on page 52 of our earnings release kit our first quarter weather-normalized base revenue was only 1.7% below first quarter of '08 and was actually six-tenths of 1% higher when rider revenue is included.

Assuming that our first quarter sales variances by customer class hold true for the remainder of the year, we would expect to earn approximately $0.035 less than originally forecast for 2009, well within our 2009 guidance range.

However, we continue to believe that demand growth will return later in 2009.

As you will hear later in the call, Tom Farrell will provide support that the Virginia economy appears to be leveling off and there are many expected uplifts as the year progresses.

This strong first quarter performance allows us to reconfirm our 2009 operating earnings guidance range to $3.20 to $3.30 per share.

GAAP earnings were $0.42 per share, I mentioned earlier that GAAP earnings were reduced by certain special items.

Two large noncash special charges were taken in the quarter.

First, due to the low natural gas prices at the end of March, our oil and gas pool suffered an impairment of $272 million.

Even if gas prices continue to be depressed we believe we still have extremely valuable E&P assets in Appalachia, and we have no value in our cost pool for the greater than 500,000 acres of Marcellus shale acreage we still control.

Second, the net losses in our nuclear decombusting trust funds were approximately $50 million, given the dates and projected decommissioning cost of our units these trust assets are still sufficient to fund our future obligations.

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

Cash flow for the first quarter was approximately $1.5 billion, over $900 million greater than the first quarter of 2008, and liquidity available at the end of March was approximately $3.4 billion, which is an increase of nearly $0.5 billion since year-end 2008.

For statements of cash flow and liquidity, please see pages 17 and 53 of the first quarter earnings release kit.

We have completed our plans to raise equity from the market for 2009.

Since our last earnings call we have raised $250 million of equity.

$57 million was raised through a debt for equity swap.

$2 million in a private placement with officers and directors, and $191 million was raised through our at-the money or dribble program.

Dominion expects second quarter 2009 operating earnings in the range of $0.61 to $0.66 per share, compared to actual operating earnings of $0.50 per share in the second quarter of 2008.

Complete details of the Company's second quarter 2009 guidance can be found on pages 40 through 46 of Dominion's earnings release kit.

While many analysts and investors are focusing on Dominion's sensitivity to natural gas prices, and looking at potential earnings levels in 2010 and beyond it is important to realize that there are several potentially counter balancing assumptions in our long-range earnings picture.

Should the current recession be prolonged beyond 2009, we should expect natural gas prices to remain lower than our outlook range of $6.75 to $7.25 per MMBTU.

However, we should continue to experience less inflation and non-fuel 0&M expenses and lower borrowing costs than we have included in our prior forecast for 2010.

here will undoubtedly be continuing opportunities to arbitrage between commodities as long as there is any volatility in the marketplace.

Low natural gas prices would allow our merchant gas generating facilities to be dispatched more regularly, helping to offset some decrease in margin from our other unregulated generating stations.

Ultimately, the nation's economy will recover and with it, natural gas prices will surely rise.

However, we believe our combination of businesses will continue to show reasonable growth while the economy and commodities are depressed.

My point is not to consider one sensitivity in isolation when estimating Dominion's future operating earnings prospects.

As demonstrated by the dynamics of our first quarter results the Dominion business model can still produce strong earnings in a down economic cycle.

With that, I will turn the call over to Dave Heacock.

Dave?

Thank you, Tom.

Dominion Virginia Power experienced strong financial and operational performance in the first quarter, from a financial perspective, we have produced an EBIT of $225 million, the midpoint of our guidance range.

Favorable revenue related to weather was directly offset by restoration expenses caused by major snow and ice storm in early March.

Operationally, our regulated distribution and transmission businesses continued to see steady improvement in the metric we use to measure reliability.

At the end of the first quarter, our average minutes out per customer for the previous 12 months excluding major storms stood at 119.5 minutes, as compared to 123.7 minutes at the same time last year.

Since 2004, we have realized a 19-minute improvement in this important metric.

We also experienced continued strong safety performance in the first quarter.

So we should record by incident rate the number of incidents per 100 employees per year for Dominion Virginian Power remains at an all time low of 1.8.

New connects in our electric service territory finished the quarter at 7,400 and are on pace with our annual forecast of 30,000.

Looking longer-term over the next five years, we remain confident that we will realize substantial growth in three major areas.

Data centers, military bases, and transportation.

Plans are on track for 14 new data centers to be built in Northern Virginia by 2013 that equate to a projected load equivalent of nearly 130,000 homes.

Military expansion projects related to base realignment and closure continue on a solid pace with significant construction at Fort Lee and Fort Belvore.

The eventual build-out at these two locations is projected to add 133 megawatts of load over the next four years.

We have also recently received a request for a new substation to feed expansion at the Quantico marine base.

In the area of transportation, the metro rail extension phase one from False Church to Weston, Virginia is fully funded and will be complete by 2013.

New growth at the redevelopment in the Tyson's Corner area, in conjunction with phase one is still projected to provide a build-out of 480 to 830 megawatts of load by 2013.

Construction on two of our major 500 KV transmission lines, Meadow Brook to Loudon and Carson to Suffolk is progressing on schedule to deliver an ontime in service date of 2011.

These lines receive a 150 basis point premium, atop FERCs approved 11.4% ROE.

As expected we experienced some upward pressure on expenses associated with bad debt in the first quarter.

The net charge-offs as a percentage of revenue rose to 0.47% as compared to 0.29% at the end of 2008.

This number was largely driven by several bankruptcies in the industrial sector in February.

We will continue to take proactive steps to effectively manage negative impacts of the economy.

January marked the beginning of two significant smart meter generation projects at Midlothian and Charlottesville.

We installed about 6,700 meters, and associated equipment in Midlothian in January and February, and started the Charlottesville project in early April.

To date, the new meter technology is performing well and as expected.

Full deployment of smart meters, an estimated investment of approximately $600 million will begin in 2010 contingent upon the successful completion of these demonstration projects and the establishment of appropriate cost recovery.

Turning to second quarter guidance, we projected an EBIT range of 168 million to $184 million.

The midpoint of which is approximately $12 million above the second quarter of 2008.

We expect this quarter's results to be driven primarily by return to normal storm activity and electric service activity.

Higher DD&A and routine operating expenses are expected to be offset by continued growth in our electric transmission business.

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

Paul?

Thanks, Dave.

Energy produced first quarter EBIT of $315 million.

This result was well above energy's EBIT guidance range, and above first quarter 2008 EBIT of $304 million.

And if you will recall, first quarter 2008 included 4.1 BCFE of now expired VPP volumes.

Drivers for the quarter include initiation of service at Cove Point in March, and for the full quarter for the gas transmission related facilities.

Higher market center service revenues and lower fuel expense at gas transmission and higher than expected performance at producer services.

These positives are partially offset by the change in rate design at Dominion East Ohio.

Energy safety measures were equally impressive.

For the first quarter energy's OSHA incident rate was down 11% and our loss time restricted duty rate was down 36%.

And just recently, AJA recognized Dominion East Ohio, and Dominion Hope with its 2008 AJA safety achievement award for fewest days away restricted incident rate along most large and small G&As distribution industries.

Turning to operations.

Dominion East Ohio's automated meter and pipeline infrastructure replacement programs are both on track.

The automated meter program should be almost 50% complete by year end, and in less than one year, we have already replaced 80 miles of distribution main and 15,000 service lines.

Both investments qualify for rider treatment.

During the quarter Dominion transmission filed it its peer modernization project.

This filing represents $50 million of budgeted capital and more importantly, will enable Cove Point, to receive the world's most advanced ships.

This project is expected to be complete in mid-2011.

Dominion transmission continues its practice of incrementally expanding its pipeline network through a series of bite sized projects.

Hubs one, two, and three, Rural Valley and USA Storage are all in schedule.

A discussion of the quarter would not be complete without mentioning producer services.

This team was able to capture substantial margins due primarily to colder than normal weather, throughout the Mid Atlantic and Northeast market area, and the utilization of firm transportation, storage rights and field service optimization.

As in the past, the Company has been able to take advantage of the seasonal dislocations that can occur in this business.

Now looking to second quarter guidance.

We project an energy EBIT range of 180 million to $205 million.

The midpoint of which is an increase of $42 million or 28% over second quarter 2008.

We expect earnings to be up, due to the full quarter of revenues associated with Cove Point's expansion and the implementation of the new rate design at Dominion East Ohio.

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

Mark?

Thank you, Paul.

Dominion generation produced first quarter EBIT of $622 million.

This result was at the top of our guidance range, and represents more than 9% growth over the first quarter of 2008.

The major drivers of growth for the quarter were higher margins at our merchant business and improved weather at our regulated utility.

Supporting these financial results was continued excellent operating performance across our generating fleet.

During the quarter, our nuclear capacity factor, excluding planned refueling outages, was 100%.

And our planned refueling outage at North Anna, which included a 10-year in service inspection was completed in a record 25 days.

Our fossil hydro fleet also had excellent performance.

Our utility fleet posted its lowest first quarter forced outage rate ever of 3.17%.

In addition to our financial results there are a number of key items at Dominion Generation to report since our last call.

First Dominion generation safety performance continues to be excellent.

The first quarter OSHA-reportable incident rates for our nuclear and fossil fleets were 0.18, and 0.88 respectively.

Second, on March 27, we received Virginia Commission approval of Bear Garden, our 580-megawatt combined cycle facility which qualifies for a 100 basis point adder to our base ROE.

Construction is now underway, and the facility is expected to be operational in the summer of 2011.

Third, on April 17, the Virginia Supreme Court upheld the Commission's approval of the Virginia City Hybrid Energy Center, ending a challenge to the CPCN by several environmental groups.

Construction of the facility is progressing on schedule, and currently stands at about 25% complete.

We expect this facility be operational in 2012.

Finally several new projects went on line since our last update.

At Ladysmith, our new 150 megawatt peaking unit achieved commercial operation on April 6, which was 56 days ahead of land.

At our Bath County pump storage station the unit 4 upgrade of 48 megawatts was completed.

In our Fallow Ridge phase one wind product in Indiana, achieved full commercial operations during the quarter, adding 150 megawatts of new renewable capacity to our portfolio.

In total, we have added almost 350 megawatts of new capacity this year.

Looking to guidance for the second quarter.

As you can see on page 43 of the earnings kit.

Generations forecasted EBIT is between 419 million, and $507 million.

The midpoint of that range represents nearly 17% growth compared to the second quarter of 2008.

Drivers of this growth come from our merchant generation business, which includes fewer planned outage days at our Millstone, Kewaunee, and Fairless stations.

Partially offsetting this growth is a return to normal weather in our regulated service territory, a heavier than normal utility outage schedule, and reduced FTR and wholesale margins at our regulated utility business.

Dominion generation has produced consistently strong growth rates over the past several years, and is positioned to continue that trend going forward.

I will now turn the call over to Tom Farrell.

Good morning, everyone.

And thank you for joining us.

For the past two years, we have concentrated on our infrastructure growth plans across the Company, while maintaining our focus on safety and excellent operations.

This quarter proved no exception.

In this economic environment, it would be natural to assume that all large capital projects have been scaled back or even canceled.

I assure you that in Virginia, where we are currently the second-largest importer of power in the nation, that is not the case.

Our state, as you have heard in prior comments, fares relatively well in recessionary times.

The state's unemployment rate continues to run 2 percentage points below the national average.

Employment in our service territory is better than the state-wide average.

Even in this economy, PJM recently reiterated the need for over 4,600 new megawatts in Virginia over just the next 10 years.

Our recent rate filings with the Virginia State Corporation Commission support this multi-year expansion plan and our outlook for continued growth in our service territory.

On March 31, we filed the base rate case, seeking the first increase in Virginia in 17 years.

We also filed our annual fuel case, riders for our Virginia City, and Bear Garden generation plants, and an electric transmission rider.

In July we plan to file an additional rider to capture costs associated with the demand side management efforts, and the smart metering program that Dave Heacock mentioned earlier.

Under a newly enacted Virginia law, we are entitled to earn an equity-like return on our O&M expenses as well as on capital deployed in these efforts.

In our base rate case filing, we demonstrated the need for 12.5% return on equity, with an additional 100 basis point premium for outstanding operational performance.

I would note that our 12.5% request is within the range of earned returns of our peer utilities.

Virginia Power's operating performance is the best in its history, which we believe deserves a premium return compared to our peers.

This combined 13.5% ROE if granted, will serve as the base ROE for the rider projects, both Virginia City, and Bear Garden, qualify for separate 100 basis point adder to the underlying allowed return.

Importantly, the rate case is forward-looking, in that it provides the cost recovery and a return on equity rate base through November 2011.

The end of the initial rate period.

This was a critical aspect of the legislation enacted in 2007 that ensured we would not face significant regulatory lag on reimbursement of our costs or the opportunity to earn on our expanding capital investments.

As the fuel case, base rates, and riders are phased in, the total impact to Virginia Power's residential customers is less than a 7% increase.

Last week we received a case schedule from the commission.

You should keep in mind, that our commission and its staff have a lot on their plates in 2009.

They have our 6 cases, those will be filed shortly with filings by AEP and then Allegheny.

It is understandable that they have spread the matters out over the course of the year.

In any event statutorily interim base rates as filed will go in to effect September 1, subject to refund.

I mentioned that we were moving ahead on our infrastructure plans in Virginia.

As Mark McGettrick reviewed for you, our additions at Ladysmith, and our upgrades during the quarter added almost 200 megawatts of new plant in Virginia.

That brings the total capacity added so far to our Powering Virginia growth plan to about 750 megawatts in just 18 months.

Bear Garden, and Virginia City are under construction.

These two plants will add more than 1100 new megawatts of capacity by 2012.

We need however, much more base load power in Virginia over the next decade.

In March we began a competitive process to determine if nuclear technology vendors could provide an advance reactor for the third unit at North Anna.

We expect to complete this initial phase by the end of summer with final negotiations concluded by the end of the year.

Dominion and General Electric were unable to meet a satisfactory risk sharing agreement on an ESVW design.

We hope this process be bear better fruit.

Also want to spend a few minutes highlighting our renewable energy programs.

We already have a voluntary renewable standard in Virginia, which we plan to meet.

Even if Federal legislation is adopted, we are well positioned with our current and future portfolio of renewable megawatts.

Our Virginia City plant can burn up to 20% biomass, and our 83 megawatt Pennsylvania biomass plant is among the largest in the United States.

Our share of the in-service megawatts at our Fouler Ridge, and DEDPowerWind facilities totals nearly 300 megawatts.

Our proposed wind farm at Prairie Fork in Illinois would add 330 more, bringing our wind resources to approximately 600.

We are also evaluating sights in two Western Virginia counties to consider additional wind farms.

Dominion has a number of other viable renewable projects waiting in the background.

Including an expansion at Fouler Ridge which we can pursue one we see capital more available.

Our recently created alternative energy solutions group will be looking at emerging legislation and technology to ensure that we are pursuing worthwhile opportunities and maximizing our current portfolio across the Company.

Let me conclude with a few words about the Virginia economy and the price of natural gas.

As I discuss Virginia you may want to refer to page 52 of the earnings release kit.

Tom Chewning noted the Virginia power's weather normalized regulated electric revenue increased by $5 million or about six-tenths of a percent in the first quarter of 2009, over the first quarter of 2008.

The increased revenue stream occurred, despite a 2.4% decrease in total sales, and a nearly 13% decrease in industrial sales.

Residential sales decreased a little over 1%, and revenues were flat.

Commercial sales increased about 1% and revenue increased by 3.6%.

These results relate primarily to our customer mix.

Residential and commercial customers are responsible for more than 75% of sales.

And they represent approximately 83% of retail revenue.

Industrial customers account for only about 10% of our regulated electric sales, and about 6% of our regulated electric revenues.

You should compare this to the average utility, which has 26% of total sales and 19% of total revenues from industrial customers.

You may find it interesting that our governmental revenues averaged about 60% higher than our industrial customer's contribution.

As noted, this is also shown on page 52 of the earnings release kit.

The increase in revenue also reflects the beneficial effects of Virginia's regulatory scheme.

Because we have current recovery as we expand our generation fleet and transmission system.

In the first quarter, added revenues came only for Virginia City.

As the first quarter shows, and as we have highlighted in the past, because of the low industrial concentration in our service territory, Dominion's earnings are much less sensitive to changes in the economy than they are to the effects of weather that drive the heating and cooling requirements of our residential and small commercial customers.

We also benefit from stable revenues that come from the unusually high governmental presence throughout our service territory.

In fact this customer mix has worked to the benefit of our customers in our base rate case.

If Virginia Power had the mix of a typical utility, we would have had to seek a higher rate increase.

So while Dominion has been affected by the economic downturn the impact has been mitigated by our customer mix, and the relative strength of our service territory.

Looking ahead there are signs that the Virginia economy has hit bottom.

Bankruptcies peaked in January and February and are down significantly in March and April.

In fact April filings are at the same level as they were in April of 2008.

Before the major meltdown last summer and fall.

Our unemployment rate continues to be among the lowest in the United States and has stabilized.

We believe that as we exit this year, we will see increasing weather-normalized sales, as well as continued revenue growth at Virginia Power as we saw in the first quarter.

With respect to natural gas, we believe that during 2010, and certainly by 2011, natural gas prices will revert to a range of $6.75 to $7.25 per MMBTU.

Street analysts agree as shown in their mean estimates of $6.75 for 2010 and $7.25 for 2011.

In addition, electric utility analysts estimate an average 2010, New England, round the clock price of approximately $72 per megawatt hour, and an average 2011 price of $74 per megawatt hour.

Over 10 times the estimated price of natural gas and considerably higher than the current 2010 forward curve which is around $55 a megawatt hour.

While we have not altered our fundamental business strategy, we have adjusted certain aspects of how we approach commodities hedging in our merchant segments.

Because it is our view that the price of commodities will rise in tandem with an economic recovery we believe the best course of action is to reduce temporarily the volumes we target as we average in over time, and instead hedge when market prices reflect an economic recovery.

Since our last call, we did take the opportunity to execute some additional 2010 hedges at Millstone, but we focused that hedging on the front part of the year, to protect against the possibility of a delayed economic recovery.

This hedging activity does not change our 2010 EPS outlook.

We still expect to approach our targeted hedge percentages as we near each fiscal year.

We monitor commodities markets on a constant basis so we can act when favorable conditions exist.

Similarly, we have scaled back our E&P drug program for the balance of 2009.

For the year we expect to drill about 300 wells versus about 400 originally planned.

This change will conserve about $50 million of capital, and will have only a minor impact on near-term production given the long-lived nature of a typical Appalachian well.

We are in the midst of a large-scale, long-term infrastructure growth program to meet the growing energy needs in our Virginia service territory.

The Virginia Commission, and FERC, have already approved about $4 billion of new energy infrastructure in Virginia, which we will build out over the next three years.

Increasing our rate base in each of those years.

Much more remains to be done, those investments will only get us about half of what PJM says we need over the next 10 years.

We also continue to operate select merchant plants and grow our Dominion Energy segment by expanding our pipelines, gas storage, and L&G business.

Our operating and safety performance equal or exceed the best in our 100-year history.

Although the economy has not yet recovered, our business model has proven resilient, and we have weathered the initial rocky months with less pain than many analysts projected.

We have a strong economy in Virginia that is well supported by the Federal and state governments, the military, and a healthy and growing level of Internet traffic and support.

While we continue to work on executing superior daily operations, our focus remains on building, and preparing for the future as it has over the past two years.

As the economy bottoms, and we move toward a more positive economic climate.

Dominion's diverse energy infrastructure base will allow us to take advantage of many opportunities.

Before we take questions, I want to thank Tom Chewning for his dedicated, tireless, superb work on behalf of Dominion, its shareholders, employees and customers.

He has served as our CFO for a decade.

One that has been market by constant change.

He held that position as we purchased CNG, expanded, and reduced our E&P business, deregulated, and reregulated.

He led us through market meltdowns caused by Enron, 9/11, and financial bubbles.

He has guided us with a steady hand, sharp intellect, financial acumen, and an unerring sense of integrity.

All of us owe him a debt of gratitude and I personally thank him for our partnership.

Our loss is his family's and our community's gain.

He will be replaced by Mark McGettrick who many of you know.

You will learn that Mark has a different style but shares many of Tom's qualities.

He has very big shoes to fill as he knows, but he is extremely able and will perform very well.

Tom, on behalf of all of us.

Thank you for your dedicated service.

With that we will take your questions.

Thank you.

(Operator instructions) Our first question comes from Greg Gordon with Citi.

Thank you, good morning.

Good morning.

I want to echo what Tom said, for guys like me who have been in the industry for 15-plus years, it's hard to think of getting up in the morning and coming to work without Tom Chewning being a part of it.

Congratulations on your retirement.

Thank you.

My first question is with regard to the quarter, can you review for us or refresh our memories on the producer services business model and what led to your ability to put up such a good number and is that a structurally sustainable number, or did that have to do with, sort of market conditions in the quarter?

Hi, Greg, this is Paul Koonce.

Thanks for the question.

The business model in producer services is a physical business model.

We have got a real nice set of storage and transportation assets that come from asset management arrangements, made up of our unregulated generation portfolio.

They have certain transportation contracts that we can manage.

You have got upstream transportation that are in support of our retail business, and so you take that portfolio, and you put it together, you really have a very nice Mid Atlantic Northeast presence and then you add to that the Dominion field service Appalachian aggregation business, those came together with the weather, and really produced a very strong result.

It was really accumulated a day at a time.

I would not expect that to continue throughout the year, it's more a function of the weather condition, and the different basis relationships that are set up, but it's a very strong result and one we're very pleased with.

Great.

My second question, sort of goes to, sort of the book end comments at the beginning and the end around, economic outlook as it pertains to earnings outlook.

Would it be fair to summarize those comments as saying that should '11 -- 2011 commodity prices not recover to what we all believe they should, that there are offsetting factors that would mitigate that impact on your ability to meet your long-term earnings growth goal, but not fully offset it?

Is that fair?

I don't know about the last part about fully offsetting it.

Not one particular factor would fully offset it, but a combination of factors well could.

My estimate in terms of if we continue -- we're assuming here, Greg, that the commodity prices are tied to a level of the economy.

That's not the only part of that equation although some of it is obviously supply, which we think is going to be diminished here in the next couple of years.

But between interest rates and O&M, and other opportunities that we have, I think that we feel pretty comfortable that we could take away, at least half if not three-quarters of that just from natural offsets, and we saw that in the first quarter.

Where we had a very low-interest cost on a short-term borrowings, and we expect that until the economy recovers that short-term rates will stay low and there will continue to be stimulus.

That cost of goods and services is falling, and we're nailing the ability to set what our prices are, rather than having them set for us, and have to take prices.

And we have some other O&M, we are on track, we said that we would reduce our forward forecast, we had a 7% initial forecast for increase in O&M, we reduced that to 2%.

First quarter showed that we were within that band.

So I can't say 100%, but depending upon a movement in 2011 of a -- say, $1 but a good bit of it, we feel could -- can be offset with some fairly related offsets.

Great.

Final question.

We saw the New England grid operator meaningfully increase the reserve margin outlook recently, but they -- the numbers looked like they are heavily dominated by demand response and some other things that are a little bit befuddling.

I know that Mark has looked pretty closely at the situation and had been skeptical of that demand response -- those demand response numbers.

Can you comment on what is going on in New England, and whether or not these reserve margins should be alarming to us?

Greg, this is Mark.

Our -- our view really hasn't changed on demand response in New England.

I think what is going to happen is there may be a reprieve for a year or two based on the economy downturn in New England.

But the demand response numbers, where they are today we think there's huge risk that they either will not show up or not be able to perform as expected, and that will impact the market at a future date.

Great.

And even if they do show up, they are relatively high-cost increases, correct?

They are, particularly the recent ones that have come out.

So certainly we continue to watch this closely, I think it's pretty clear for the next couple of years based on capacity where we are.

But I think again, the economy has probably given them a reprieve for a year or two, and we'll see what happens after that.

Thank you, guys.

Thank you, Greg.

Our next question comes from Paul Patterson with Glenrock Associates.

Good morning, and and congratulations to Tom Chewning as well.

Thank you, Paul.

Just to follow-up a little bit with Greg's question, it sounds like you guys are pretty bullish on 2010 in terms of an economic recovery.

Can you give us more of a flavor in terms of how bullish you guys are in terms of what you think in terms of the kind of recovery?

Or is it just as you sort of indicated on the call with your outlook on commodity prices and supply and demand that you are going to see a rebound here?

Paul, the -- I'm not sure I would say we're super bullish.

We do think -- and there's sort of two parts of it.

Virginia has an unusual customer mix.

When you have government giving you on average 60% more revenues than industrial customers provide, that's an unusual thing.

You see on that page in the earnings kit, I think the governmental revenues were over $100 million in the first quarter.

And that's pretty common actually.

I mean regular for us.

Virginia unemployment rate is 7%.

It has been that way for a couple of months now, so it has stabilized.

You have all of this base expansion going on, the Internet -- or the military base expansion going on.

You have the Internet traffic increasing.

So we think Virginia's economy is going nowhere but up, and how quickly and how far, that remains to be seen, but we think it will be improving over the course of this year into next year and the year after that.

We have already had approved $4 billion in new capital programs, that doesn't include the new meter program that we're looking at, which would be another $600 million.

So Virginia, we think is in relatively good shape.

Your specific question it seemed to me was more around the gas price market and what will happen with air, and it's impact, of course, on our electric revenues in New England, in particular.

And as we come along here we think gas prices will recover into that range.

I'm not going to say in the first quarter of 2010, I don't know that.

Will it be in the second quarter?

I don't know that either.

We shaped some more hedges in New England this quarter to protect against a little bit slower recovery in the first half of the year.

But we do think '10 will be better than '9, and '11 will be better than '10 and that will be reflected in the commodity prices.

I don't want to put a number around it.

Fair enough.

Let me just ask you on the the DD&A with the fuel interest that you guys had, how should we think about the impact in terms of the benefit of the DD&A in 2009 or 2010?

Just any flavor or ballpark idea of what we should think about with that?

Yes, Paul.

This is Paul Koonce.

We expect that that DD&A benefit will be about $0.02 a share going forward, and that's within our guidance, so.

That's an annual rate, Paul, for 2009 and it will be smaller than that, because we missed a quarter.

Okay.

Great.

Thank you very much.

Thank you, Paul.

Our next question come from Paul Fremont with Jefferies.

Thank you very much.

I guess first question would be on trading or producer services.

It looks like you are ahead of your number that you were expecting for the entire year, so I think you -- the annual guidance, I think was for a $12 million improvement, and it looks like you did 26 in the first quarter.

Is that -- have you sort of achieved the full amount that you think you are going achieve for the year, or would there be additional contribution?

Paul, this is Paul Koonce.

The full year amount is about 40 and we're at about 26, so we have not exceeded the full-year amount.

And we can't really predict when those dollars are going to come in.

It's more a function of weather and basis relationships, so we're off to a great start, but that's all I would say about that.

Secondly, in terms of the hedging, it looks like your generation is mostly hedged, so in deciding potentially not to move forward with hedges, that would apply mostly, I assume to the sale of the gas -- the Appalachian gas; that would be correct?

Which year are you speaking about Paul?

For 2010?

We're relatively well hedged in both areas, and we consider both areas as we look at all of it.

We don't look at it and say let's just look at power by itself and let's look at E&P by itself, we look at the whole deck of commodities at the same time.

And I guess my last question is -- I guess there was some sort of an EPA notice of violation for Kincaid and State Line.

Can you give us some indication as to what the EPA concern is there?

Paul, that was a new source review violation that we received, oh, I guess a week or 10 days ago.

We'll be meeting with the EPA over the next 30 days or so to talk about the issues that are in that.

At this point, it's a little unclear in terms of are they aware of what our plans already are the station to address some of those are not?

So we'll have better information probably on the second quarter call just where we stand with that.

Thank you.

Thank you.

Our next question comes from Dan Eggers with Credit Suisse.

Thanks.

Tom, congratulations.

It has been a pleasure.

I guess question for you guys on the Virginia rate case now that you have filed.

How do you think about pursuing potential settlement talks?

You have got an awful lot of cases there.

Is there a way to get to a universal settlement, or given the times until last case do you think you need a full docket before you--?

Dan, you trailed off, I couldn't hear that very last part.

Sorry I just, do you need a full docket given the fact it has been so long since you had a rate case, or is this an opportunity to settle in some sort of universal fashion in Virginia?

Well, we certainly will be open to a settlement, Dan, if the parties that traditionally get involved in these things in the Commonwealth, which are the staff of the commission, and certainly they are going to want to analyze the case very carefully, the Consumer Council, which office -- that office is located in the Attorney General's office.

Our industrial customers that usually intervene, and I expect they will intervene in this -- and there will be others, but we're certainly open it to, we did resolve our fuel case last year, for example, which was an 18% increase.

We resolved the Southwest Virginia coal plant case, the Virginia City hybrid matter was resolved with a return on equity, et cetera.

This is a little -- there are a lot of parts here.

But the Bear Garden rider, the transmission rider, and the -- the Virginia City rider are relatively straightforward.

This is an issue on the transmission rider which people will look at, which is the deferral that we had based on -- from earlier costs that we carried through the frozen rate period.

So we're certainly open it to, but we're also going to make sure we get what we believe is appropriate level of reimbursement, and equity returns based upon our performance, and what our peer utilities are earning.

So if we can get it settled, we will certainly try to do that.

If you were to pursue that route, what would be kind of the timing where we need to get staff and everybody on the docket?

And then you would have a conversation point?

Is that how we should look for this to risk?

Well, it's certainly not going to happen in the next few weeks.

After that, I don't know.

Probably -- it's very hard to judge, Dan.

Okay.

And the other question, I guess, just philosophically on the hedge, no-hedge decision.

A lot of people in the past in this industry have made varying decisions on not hedging or being smarter than the forward curve.

Can you just philosophically talk about the discipline you guys are going to use when you decide to hedge again, and what is the minimum level of exposure you are willing to have, current year, one year forward, two year forward?

Well, you can see since our last call we added another 10% to the hedges at Millstone.

I think we are now about 50% hedged at Millstone, and a little bit higher than that in other parts of the business.

And we're going to watch very carefully.

The -- we obviously hedged a little bit since the last call at a price that's lower than our expectation of what is going to happen in 2010.

We did that because we're not gamblers.

We're not going to sit there and just hope that things get better, we're going to -- we hedged a little bit just to protect against a little bit more down side.

We shaped those though, to make sure they were concentrated on the first six months of 2010.

So we're watching very carefully.

We weigh that judgment almost on a constant basis.

So we don't want to go in to 2010 where we are right now, but we'll have to see what the economic conditions are at the time.

So you would -- if you don't see an improvement in gas prices, you would stay this open for the rest of the year?

I would rather not speculate on that right now, Dan.

We're going to have to -- it's only April -- tomorrow is May, I guess.

We'll see how we go through the summer, early fall.

Okay.

Thank you.

Thank you.

Thank you.

Our next question comes from Jonathan Arnold with Merrill Lynch.

Good morning.

Can you hear me?

Yes, Jonathan, good morning.

My congratulations and good luck to Tom as well.

Thank you.

Dan actually asked the main question I was going to ask on power revenue would be going into next year, but my related question to that is I'm just trying to gauge what exactly you are saying about 2010 guidance?

I noticed it was still in the back of the release but didn't really appear in the front press release, and then you didn't reit late your growth-rate statement.

And how should we think about that within the context of the -- what you said about the natural gas -- the outlook range of $6.75 to $7.25 and then the potential for offsets?

Are you feeling less good about those numbers, or you feel that -- and then that's why you have pushed the 2010 guidance sort of off of the front page of the release, or are we feeling that the offsets could still get you into that range?

Jonathan, this is Tom Chewning, First it is not guidance for 2010.

It's an outlook.

As you know, if we felt the outlook would change, we're probably obligated to say so.

We are taken a look at our sensitivity to natural gas prices, and it's about $0.15 very every $1 movement down or up for 2010, and we have also taken a look at some offsets which I mentioned earlier that we see, and, so we -- no, we really haven't -- our protocol is not going to be to affirm an outlook.

You will not see it in a press release going forward.

But if we should be negative on that outlook, we're -- we would be obligated to say so.

So that's the reason you don't see it.

Because we give it once a year, and unless it changes, we're not going to comment on it.

But we constantly look at it to see whether or not we can feel that we don't need to change it.

So if you don't see a change, then we still feel comfortable with it.

But we're not commenting.

But the same goes for the statement of beyond 2010 on the 6% growth?

Yes.

Okay.

And could I just ask as a follow-up, a little more around the GE decision on nuclear.

Can you give us a little more color into what were the kind of issues that you couldn't get resolved?

Was it more pricing commitment or the nature of the product and what are you looking to -- to have -- better resolved in this next go-around with other potential suppliers?

Jonathan this is Mark, I can't talk in specifics about discussions with GE, but I think generally we have been very upfront about what we are looking for in a partner in a contract to build nuclear plant.

That is a much higher level of price certainty than others have been able to take.

A contract structure that there's significant risk sharing between the parties, and a firm deliverable in terms of their design versus the time frame that we need to move ahead.

And we were just not able to get that with GE after much effort, and we hope that the other bidders in this process will be able to give us better clarity on that, so we have a product that we feel good for our shareholders and our rate payers that we can move ahead with.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Hugh Wynne with Sanford Bernstein.

Good morning.

I thought that Tom Farrell's words regarding Tom Chewning and his instinctive integrity were spot on.

That's a quality that I have always admired and he'll be missed very much.

Thank you.

A question for Tom Farrell I understood that you have a robust view regarding the economic resilience of the state of Virginia.

I didn't quite get the expectation for volume sales at -- at Dominion Virginian power.

We're down I think on a weather-adjusted basis, 2.4% in the first quarter.

The 009 earnings guidance was predicated, I believe on 1.5% weather-adjusted growth.

Is that still the expectation for the year as a whole, or has that been brought down?

Where do you stand now?

I'm glad you asked that question.

This issue around a 1.5% sales growth has been sort of hanging around out there in the marketplace.

And that's one of the reasons why we went into the detail that you did, that we see on the -- I think it's page 52 of the guidance kit.

We're showing you the breakdown among our customer classes.

Because the focus, we think, obviously you all have to draw your own conclusions.

We think -- the focus should be on what is going on with the per-revenue growth, and not necessarily our sales growth, although obviously sales growth contributes to the revenue growth.

The reason for that is because -- largely because of our customer mix.

You see that our commercial sales growth actually increased first quarter of '09 over the first quarter of '08, which was a very robust quarter.

First quarter of '08.

The residential sales web down of a little over 1%, but the revenues were actually flat.

The big decrease on a percentage basis was in the industrial load, and the governmental was relatively flat.

So as you put together our rate structure and our customer mix, a headline sales growth number is probably not the best -- most informative thing to look at.

We think it's important that you look at what is going on in the various customer classes.

Now all of that said, I don't know that we will hit 1.5% growth as we exit the year.

We do think that the market here as stabilized in that question will see growth from here.

But you need to recognize that if we stayed where we are right now for the ambulance of the year at these levels, that we're talking about, about $0.03 or $0.035 I think, is the number

Yes.

That we would have in lower earnings out of Virginia Power in the balance of 2009.

If we stay right where we are, this down 2.5% -- whatever the number was, the highlight number--.

Yes.

The balance of the year, we would up down $0.035 which is well within our guidance range.

So we don't have a concern about it.

We -- we don't think it ought to be the number people concentrate on.

You should take more of a look at what is going on in the revenue numbers.

Great.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Carrie St.

Louis with Fidelity.

Hi, good morning.

Hey Carrie.

I just wanted to say, Tom, it looks like you're going out on top because Carolina won and you got a positive outlook on [Vepco].

I know it pains a UK graduate to say the first part of that, I know as a security holder you are happy with the second.

So I just, again, wanted to wish you luck, and congratulate you.

But I also just wanted to just ask about financing plans for the rest of the year on the debt side, and what are you guys thinking about?

Carrie, the plans haven't changed at all from this point from what we said in the January call.

Of course, we have completed the equity offering that we -- the amount of equity we expect to raise from the market.

The $250 million.

The other $250 million that comes in from the drip in the automatic plans is tracking well after the first quarter, and so, really, that leaves the debt that we had talked about and potentially some hybrids, and we're taking a close look at that.

You can see that cash flow was extremely strong--.

Yes.

-- in the first quarter, so we don't feel a need to rush out and do anything.

We'll wait and see if that adjusts our plans any but at this point we haven't changed the plan.

Have you -- I forgot from the first quarter, just the split between Vepco and Holdco.

Obviously the hybrid would be the at the Holdco but do you have a rough idea?

The financing at Vepco is very light.

I think it's just one issue, it's I believe it's $500 million.

Okay.

Great.

I did see -- you guys had that cash flow slide from before, where you kind of laid out cash flow expectations.

That wasn't in this packet, but I'm just assuming everything from the last packet should be more or less intact?

That is correct.

Okay.

Of course like I said cash flow for the first quarter is very strong.

FFO was strong, but working capital--.

Yes.

-- of course ebbs and flows was very strong as well.

Okay.

Great.

Thanks for all of the help.

Thank you Carrie.

Thank you.

Thank you.

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

Mr.

Tom Chewning, do you have any closing marks?

Yes, thank you.

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

And I would like to personally thank my boss Tom Farrell from saying so many nice things.

He certainly kept them from me up until today so I am very flattered by it.

And I would like to thank all of you people that gave me such a hard time on the previous earnings calls, for being so nice as I exit.

I would like to thank the many fine Dominion personnel in Investor Relations and throughout the Company for their professionalism and hard work to produce our earning's calls.

I particularly I want to single out Laura Kottkamp who has co-led our IR effort the last several year.

Laura will be moving in a few weeks to lead the Company's important Supplier Diversity program.

We wish her well in her new role at Dominion.

Greg Snyder who presently co-managed this group with Laura will lead IR going forward.

In future calls, as an extremely interested Dominion shareholder, I will be listening rather than participating.

I have all confidence that I'll continue to hear positive news from Dominion in the quarters ahead, or you can be assured I'll call Mr.

Farrell, that day.

Thank you, again, for being with us.

Just a reminder hat our Forms 10-Q will be filed with the SEC later today.

And our second quarter earnings release is scheduled for July 31.

We wish you a plea pleasant spring.

Good morning.

Thank you.

This does conclude this morning's conference.

You may disconnect your lines, and enjoy your day.