道明尼資源 (D) 2012 Q2 法說會逐字稿

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

On the call today we have Tom Farrell, CEO; Mark McGettrick, CFO; 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 if you would like to ask a question.

It is now my pleasure to turn the call over to Corynne Arnett, Director of Investor Relations for Safe Harbor statement.

Good morning and welcome to Dominion's second quarter 2012 earnings conference call.

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

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

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

If you have not done so, I encourage you to visit our website, register for e-mail alerts and view our second quarter 2012 earnings documents.

Our website address is Dom.com/investors.

In addition to the earnings release kit, we have included a slide presentation on our website that will guide this morning's discussion.

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 our recently -- and our Quarterly Report on Form 10-Q for a discussion of factors that may cause results to differ from Management's projections or forecasts, estimates and expectations.

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

Those measures include our second quarter 2012 operating earnings and our operating earnings guidance for the third quarter and full year 2012, as well as 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 on schedules 2 and 3 and pages 34 to 41 in our earnings release kit.

Joining us on the call this morning are our CEO Tom Farrell, our CFO Mark McGettrick, and other members of our management team.

Mark will discuss our earnings results for the second quarter as well as our guidance for the third quarter of 2012.

Tom will update our operating and regulatory activities as well as review the progress we have made on our growth plans.

I will now turn the call over to Mark McGettrick.

Good morning.

Dominion's 2012 second quarter operating earnings were $0.59 per share, just below the midpoint of our guidance range of $0.55 to $0.65 per share.

Mild weather in our Virginia service territory during the quarter reduced earnings by $0.05 per share when compared to normal.

Recall that in the first quarter mild weather reduced operating earnings by $0.11 per share.

So for the first six months of 2012, mild weather has reduced our earnings by a total of $92 million or $0.16 per share compared to normal.

There are two other items I would like to highlight in our second quarter operating earnings.

First, our unregulated retail business had a very strong quarter with results about $0.05 better than expectations.

This was driven by $0.02 of better margins and a $0.03 gain on some mark-to-market contracts that will roll off largely over the next 12 months.

Secondly, we have excluded $74 million from pretax operating earnings from major storm costs related to the late June storm activity that resulted in over 1 million of our customers being without power.

While restoration activity continued into July, we recognized the entire estimated cost to restore service in the second quarter, consistent with our accounting for past major storm events.

Tom will provide more operating details on the storm later in the call.

GAAP earnings were $0.45 per share in the second quarter.

The principal differences between GAAP earnings and operating earnings for the quarter were the costs related to the late June storm activity, and charges related to some of our merchant generation plants which have been or are in the process of being sold.

A reconciliation of 2012 operating earnings to reported earnings can be found on schedule 2 of the earnings release kit.

Now moving to results by operating segment, at Dominion Virginia Power, EBIT for the second quarter was $282 million, which was above the high end of our guidance range.

The impact of mild weather was offset by stronger-than-expected results at Dominion Retail.

Second-quarter EBIT for Dominion Energy was $186 million, which was at the midpoint of its guidance range.

Results from producer services were below expectations given the overall weakness in the natural gas markets, but were offset by lower O&M expenses.

Dominion Generation produced EBIT of $312 million for the second quarter, which was below the bottom of its guidance range.

Mild weather at Virginia Power and lower ancillary service revenues were the principal factors driving these results.

Partially offsetting these factors were reduced O&M expenses.

Year to date across our businesses, we've reduced operating and maintenance expenses by the equivalent of $0.08 per share, more than offsetting the headwinds from lower commodity prices.

On a consolidated basis, interest expenses came in as expected, but income taxes were below our estimates.

State tax benefits as well as the resolution of some IRS audit issues helped reduce our overall effective income tax rate to 35.5% for the quarter.

We now expect our effective tax rate for the full year to be 35.5% to 36.5%.

Moving to cash flow and treasury activities, funds from operations were $1.74 billion for the first half of 2012.

Regarding liquidity, we had $3.5 billion of credit facilities.

Commercial paper and letters of credit outstanding at the end of the quarter were $1.6 billion and, when netted against short-term cash investments, resulted in available liquidity of $2.1 billion.

For statements of cash flow and liquidity, please see pages 14 and 27 of the earnings release kit.

Now moving to our financing plans, we plan to issue between $1.6 billion and $2 billion of debt this year, with a fairly even split between Dominion and VEPCO.

This amount includes the replacement of about $1.5 billion in maturing debt.

We have already locked in treasury rates with hedges for all of our anticipated 2012 debt offerings and have now hedged most of our anticipated 2013 need as well.

As part of our 2012 financing plan, we will issue new shares of common stock through our dividend reinvestment and stock purchase plan, as well as from our compensation and benefit plans, which is expected to raise about $320 million of new equity.

Now to earnings guidance.

We estimate operating earnings for the third quarter within a range of $0.90 to $1.00 per share.

This compares with original operating earnings of $0.95 per share for the third quarter of 2011, which included about $0.06 per share of weather help.

Compared to the third quarter of last year, positive drivers for the third quarter include sales growth at Virginia Power, higher rider-related revenues from our growth projects and lower O&M expenses.

Negative drivers for the quarter include a return to normal weather and a lower merchant generation margin.

Our operating earnings guidance for the full year 2012 remains $3.10 to $3.35 per share.

Assuming normal weather for the full year, we would expect earnings to fall within a range of $3.20 to $3.25 per share, or about 5% to 6% above original operating earnings for 2011.

I mentioned earlier that mild weather in the first half of the year has reduced operating earnings by $0.16 per share.

However, weather in the month of July was a little better than normal, and a hot August and September can reduce some of the full year weather impact as well.

We will discuss our range in more detail on our third quarter call after we see the summer results.

As a reminder, our growth plan is predicated on normal weather.

And you can expect our guidance for future years to be based on 5% to 6% above weather-normalized earnings.

As to hedging, you can find the update of our hedge position on page 29 of the earnings release kit.

Since our last earnings call we've added to our hedges at Brayton Point for 2013.

Our sensitivity to a $5 move in New England Power prices in 2012 remains $0.01 per share.

Our sensitivity to a similar move in 2013 is still only $0.05 per share.

As shown on slide 9, we have locked in nearly all of our anticipated 2013 output at prices significantly above current market rates.

Locking in these positions reduces the risk associated with achieving our earnings growth targets.

So let me summarize my financial review.

Operating earnings for the second quarter were near the midpoint of our guidance range.

Mild weather reduced our earnings for the quarter by $0.05 per share compared to normal.

We've excluded $0.08 per share from operating earnings due to the significant June storm activity.

We are able to offset the incremental earnings headwinds created by the declines in commodity prices through reductions in operating and maintenance expenses.

Our operating earnings guidance for the third quarter of 2012 is $0.90 to $1.00 per share.

Our annual operating guidance remains $3.10 to $3.35 per share.

The midpoint of this range is consistent with our 5% to 6% weather-normalized earnings growth target.

And finally, we've locked in nearly all of our anticipated merchant margins for 2013.

We are confident that through control of operating expenses and taking advantage of the low interest rate environment, we remain well-positioned to overcome the current commodity price environment and meet our weather-normalized growth targets.

Thank you and I will now turn the call over to Tom Farrell.

Good morning.

What has been a particularly mild weather year in Virginia changed quickly in late June, when a series of powerful storms with winds in excess of 80 mph moved through the state and northeastern North Carolina.

More than 1 million of our customers lost power, making it the third largest storm event in the Company's history, behind only Hurricanes Isabel and Irene.

Our employees, with help from utilities as far away as Florida and Quebec, conducted a multi-day restoration effort in 100-plus degree weather.

On behalf of our customers and our shareholders, I offer them thanks.

And I also thank our customers for their patience and understanding.

Each of our business units delivered strong operating performance in the second quarter, and in every case with improving safety performance.

Year to date net capacity factor of the seven Dominion nuclear units, excluding refueling outages, was 100%.

Including the three refueling outages the net capacity factor for the first half of the year was an impressive 93%.

State Line Power Station was shut down in late March.

On June 26 we sold the plant to BTU Solutions, a company that provides demolition services for generation facilities.

On June 29, we executed an agreement to sell the Salem Harbor Power Station to Footprint Power, who will operate the station until it is removed from service in June of 2014.

Footprint is planning to repurpose the site, including the potential development of natural gas fired power station.

Virginia City Hybrid Energy Center was declared commercial on July 10.

The $1.8 billion project was completed safely, on budget and on schedule, following four years of construction.

Virginia City is one of the cleanest, if not the cleanest, coal-fired power stations in the country.

And it may well be one of the last to be built in the United States given recent EPA regulations.

The groundbreaking for the 1329 MW megawatt Warren County 3-on-1 combined cycle plant occurred on May 31.

Procurement of equipment and materials is about 50% complete, and foundation work is well underway.

This fully wrapped $1.1 billion project is scheduled for completion in late 2014.

The Company advanced plans for another 1300 megawatt 3-on-1 combined cycle plant to be located in Brunswick County Virginia.

The facility is expected to be in service in 2016 and should have costs similar to the Warren County plant.

Both will offer significant value to customers.

Like Warren County, we've chosen the gas and steam turbines from Mitsubishi Power Systems of America for the Brunswick facility.

We have signed a natural gas firm transportation precedent agreement with Transco, and have signed a fully wrapped engineering procurement and construction contract with Fluor.

We expect to file CPCN and Rider applications with the State Corporation Commission in the fourth quarter of this year.

On May 22, the Virginia Department of Environment Equality approved the air permits for the Company's conversion of the AltaVista, Southampton and Hopewell Power Stations from coal to biomass, allowing commencement of construction activities.

Completion is expected in the second quarter of next year for AltaVista and the third quarter for the other two plants.

Dominion Energy continues to make significant progress on its growth programs.

Construction of our Appalachian Gateway project is nearly complete, and the project should be in service on schedule by next month.

The Northeast Expansion Project, as well as the Ellisburg-to-Craigs project, are expected to be in service this November.

Construction is well under way on phase 1 of the Natrium processing plant and associated pipeline.

We continue to work toward a December in-service date.

Producer activity remains robust in Ohio.

112 wells are drilled or are being drilled, and 295 permits have been issued.

This represents a 50% increase in both metrics since just last quarter.

On June 11, Ohio Governor John Kasich signed House Bill 487 which provides regulatory certainty for existing dry gas gathering pipelines that are converted to wet gathering service.

The Bill allows Dominion East Ohio to exempt those converted facilities from future PUC rate regulation.

In conjunction with previous Ohio legislation to exempt new gathering investments from utility regulations, these provisions ensure that the Company has an opportunity to earn predictable, sustainable returns on existing and new investments used to provide wet gathering service without incurring regulatory approval delays.

We're currently working with multiple producers to reach agreements to gather their gas.

In addition to gathering, we recently conducted a nonbinding open season to transport gas from the outlet of Ohio processing plants to interconnect with downstream interstate pipelines.

Multiple shippers displayed interest totaling over 1.1 BCF per day.

Investments to build the facilities needed to support this activity will be better known once binding shipper commitments are reached.

On our last earnings call, we announced that we were moving forward with our Cove Point Liquefaction Project.

In June, we requested and received approval to use the FERC pre-filing process for environmental review.

We expect the FERC certificate to be granted within 18 to 24 months.

We also filed in Maryland State Court for a declaratory judgment regarding the Sierra Club's challenge to the project.

A hearing on the matter is scheduled for October and we expect a decision later this year.

The other party to the agreement at issue is the Maryland Conservation Council, who last month filed a brief fully supporting Dominion's position.

We're confident in our ability to construct and operate a liquefaction plant at Cove Point.

We continue to make progress in our negotiations to reach terminal service agreements.

Those agreements are expected to be finalized later this year.

Front-end engineering and design studies are progressing as well.

We will provide a cost estimate for the project later this year as those studies become more defined.

Subject to successful completion of the studies, execution of terminal services agreement and after we received the necessary approvals, we anticipate beginning construction in 2014 with an in-service date in 2017.

As part of its ongoing business, Dominion Transmission recently extended a contract for 49 Bcf of general storage service for a 10-year period at maximum tariff rates.

This is an example of the continued strong demand for our gas storage services.

Economic growth is expected to drive improving results for Virginia Power.

Weather-adjusted sales increased 1.1% for the first quarter and 1% for the second quarter.

New connects for the second quarter were well above last year's level and data center growth continues.

In fact new connects in the first half of 2012 are about 20% higher than the first two quarters of 2011.

While we see continued positive growth signals in our Virginia service territory, we now expect that weather-normalized sales growth for 2012 will be between 1% and 2% rather than our original estimate of 2% to 2.5%.

On the regulatory front, at the end of the first quarter we submitted an application for an increase in base rates for our North Carolina service area.

The request is for a revenue increase of $37 million, net of expected fuel rate reductions, and incorporates an 11.25% return on equity.

The hearing will be held in October and we expect a decision by year-end.

Last month briefs were filed in our Virginia Supreme Court appeal of the effective date for the return on equity established by the Virginia State Corporation Commission to be used in next year's biennial review.

The effective date issued will establish whether the average authorized return on equity is 10.9% or 11.36%.

A hearing on the matter is scheduled for September and we should get a final decision in November.

The appeal will determine if the top end of the return on equity collar to be used for the biennial review of 2011 and 2012 earnings is 11.4% or 11.86%.

On our last call we indicated that Virginia Power's return on equity computed using GAAP earnings adjusted for rate making was less than 9% for 2011.

Incorporating results for the entire first half of 2012, VEPCO's similarly adjusted return on equity for the first 18 months of the 24 months to be covered in the 2011 and 2012 biennial review is still less than 9%.

So to conclude, all three of our business units performed well, and together delivered results that, given the mild weather, met our expectations.

We continue to move forward with our growth plan and expect to deliver 5% to 6% weather-normalized earnings per share growth beginning this year.

Thank you, and we are now ready for your questions.

(Operator Instructions) Dan Eggers, Credit Suisse.

Hey, it was a good update on everything that's going on, Tom, thanks.

I guess just on the earned ROEs at VEPCO, I mean last time through, the Commission seemed to make some discretionary decisions away from the GAAP accounting to get to a different ROE.

Is there anything, when you look at the 18 months so far, where you think there would be some level of discretion for them to change that?

Or is it -- I mean it seems like below the range ROE seems pretty set at this point.

Well, Dan, good morning.

First off, the weather has been below normal.

That's not a discretionary issue.

Those earnings are what they are.

What Virginia Power earns is what it is.

I think what you're referring to probably from the last review was the early retirement program where they carried it over -- part of it over into the second biennial review.

That was not completely out of line with prior precedent.

They've matched it to the retirement -- actual retirements.

But the effect of that, of course, was to bring over $100 million dollars of that VSP into the second biennial review.

And there won't be any discretionary issues around that.

That cost is there, according to the Commission's own rulings.

So I think when you take a look at what we've been dealing with, I think all of these costs are appropriately included in the biennial review period.

They are expensed, as they have been, according to all omission prior commission precedent.

-- Commission precedent.

And I expect we'll see -- of course we don't know what we'll earn.

We'll see how we go over the next two quarters.

But that's where we stand today.

Okay, and I guess just on guidance for the year, the $0.16 of below normal weather would I guess put you below the range, so it's going to take a little better weather than normal to get above the bottom of the range.

Is that the right way to interpret what you said, Mark?

Dan, this is Mark.

If you look at history here in Virginia, we picked up $0.06 to weather last year.

We picked up $0.08 to weather the year before.

This is all in the third quarter.

So if you do the math of it, we get a little bit of weather help between July 1 and the end of the year.

But again, if you look at history here, I think were well within the bounds of the $3.10 to $3.30, assuming we get a little bit of weather help the rest of the year.

Okay.

And then for the fourth quarter -- so you think it's just going to be made up prospectively in the third or fourth quarter, so there's a bit of a fudge factor.

When I think about the growth rate, the 5% to 6%, since weather was closer to normal in 2011, we should be able to grow the 2011 number by 5% to 6% for 2012, and then 5% to 6% for 2013 to figure out where should we be expect 2013 to be?

That is exactly right.

And of course we have heard from a lot of folks.

We built this plan on normal weather, and so weather -- if weather is extreme or light, you should always go back to the midpoint of our range which is based on 5% to 6% weather-normalized growth.

And that's what you should expect us to have in 2013 as we start talking about guidance.

Stephen Byrd, Morgan Stanley.

Good morning.

As we think about the 2014 earnings outlook, I saw on the merchant power side the hedge level remained the same as the prior quarter.

And so as we think about the headwind from the roll-off of hedges there, can you help us think about the offsets to achieve the earnings growth and how you feel about those offsets rolling out from here?

Well, Stephen, this is Mark.

First, if you look at our hedge slide, I think it's on page 9 in the deck.

If you go back just one quarter and reference what 2014 looked like, I believe the hedge market position at that point was about $40 and some change.

We show $42 here just in three months.

And if you look at the market forward price for 2014 as of yesterday, it was almost $43.

So this price has moved up in just three or four months by 6% or 7%, and we're well over a year and a half away from a 2014 midpoint number.

So, first of all we think there's certainly a very good chance that prices will continue to improve 2014 and beyond.

But in addition to that, we will continue to look at -- as we did in 2013 -- an interest rate environment where we can protect ourselves with low interest rates through hedges in the out years to give us some help versus what we might be thinking about today.

We're also continuing to look at expenses, which a lot of folks asked us early in the year whether we could offset the commodity headwinds in 2012 with reduced O&M expenses.

And I think if you look at the first two quarters and what we expect the rest of the year, we've been able to do that.

So we have a number of things were looking at for 2014 and beyond.

But again, if you look at power prices alone, they've improved dramatically just in several months.

We would hope they continue to improve.

Jonathan Arnold, Deutsche Bank.

A quick question -- on Kewaunee -- is there any update there on how you're getting on with a potential sale?

And then can you also remind us how much longer you can keep excluding it from continuing operations?

What's the accounting test for that?

While I think the easy answer to that question, Jonathan, is we expect to have a resolution on Kewaunee this year.

And we would certainly not carry it as a nonoperating expense beyond the end of this year we hope to have the auction complete and results announced by year-end.

Okay, so where is that in the process today?

Is there -- do you kind of have bids or are you shortly to put it out there?

I would say midpoint in the process, data rooms opened and bidders are evaluating information.

Great, thank you.

And then, Mark, I think you missed it how much of the $0.05 increase in retail the quarter was due to these mark-to-market gains that you expect to reverse?

How much was kind of margin expansion?

$0.02 was margin expansion and $0.03 were mark-to-market gains, which the vast majority will roll-off this year.

Okay and you -- so but -- and are you net of that mark-to-market?

I guess you were like $50 million-odd ahead on the year so far at Retail, of which maybe $30 million or so is this mark-to-market.

Is the remaining $20 million of uplift more or less in line with what you were baking into guidance?

Or are you doing better at Retail than you thought you would be doing?

I'd say we're doing better at retail than we thought we'd be doing.

Our margins, particularly on our [last reports], have been better than expected.

So we've been very, very pleased with the Retail results so far.

Okay, and so we'd look at that as a driver going into Q4 as, well,

Well, we'll have to wait and see.

But if the first and second quarter are reflective of the third and fourth quarter, then we would expect Retail to have strong performance.

Okay.

Could I just clarify one other thing?

On weather, from what you've been saying, it's as though kind of weather was going to be a headwind in the back half of the year.

But looking at your kind of Q4 2011 disclosures, it looks like it was a net hurt between having been a benefit versus normal, but a big drag in Q4, so benefiting Q3 but a bigger drag in Q4.

Am I looking at the numbers right?

So you should -- normal weather, you should actually have a help in the second half?

Yes, if you compare it to last year, we had an $0.08 drag in 2011 in the fourth quarter due to weather.

So year-over-year we would expect normal weather to be a pickup for us.

For the second half as a whole?

That's right.

Okay great, thank you.

Paul Patterson, Glenrock Associates.

Just wanted to understand the weather a little bit more.

It looks like the cooling degrees were actually higher than normal.

What's -- is it the heating degree days that are doing it, or is it the storms that are making it weather-adjusted more mild than normal?

I'm just sort of not completely clear on exactly what's driving that.

Well, there were a couple of things.

One, cooling degree days were actually 4% off from norm.

But the humidity in the second quarter was very, very mild.

So we got no extremes and were very close to norm for the whole period.

In particular, in Virginia the month of June, humidity drives increased sales for us and we did not see that.

So, that was the main difference from a strictly degree day view.

Okay.

And then with respect to the outlook for weather-normalized sales growth being less than what you guys had previously thought, just a little elaboration on why that is.

You brought it down I think, right?

You guys had a higher number before and now you guys think it's going to be a little bit more -- lower?

Are we talking about for 2011 or 2012?

2012.

Paul Koonce will take that.

Yes, we've been looking at the megawatt hour sales.

One of the drivers really is the actual consumption that we're seeing by the commercial sector.

I think that's just part of the overall economic situation in the country.

A little bit lighter megawatt hour sales to data centers, but we're protected revenue-wise there because they enter into a contract minimum demand.

So we don't see it really having a material impact on us financially.

Okay, great.

And then Q2 -- I mean Q3, we're seeing a lot of hot weather.

I know you guys are a big -- you guys are in a very wide geographic area.

But PJM seems in very, very hot weather in general, as has I think New England.

And we haven't really seen all-time peaks.

And I was wondering whether or not you guys were seeing anything on the demand response side.

Specifically, we have a new tariff now in PJM with respect to the energy market and the ability to get paid there has changed.

Just wondering whether or not you guys are seeing anything, or if your expectations in terms of outside of Virginia just in PJM in general, do you guys see anything happening there?

Or I just was wondering if you had any thoughts on that.

Paul?

You know, we've been -- we have a number of customers on our system that are participating in the PJM demand response programs.

We have seen PJM call on customers as part of that program.

One of the things that we see happening is PJM really tightening up who participates in those programs, so that for the industry we can really confirm that when it's called on, that they're actually performing.

So are really not seeing anything out of the ordinary, other than we continue to see PJM really tighten down on who can participate.

We think that's a good thing because it's going to become more reliable over time.

Paul Fremont, Jefferies.

Yes, I was hoping to get a sense from you guys given all of the adjustments for interest expense this year and given the fact that you've pretty much, I think, locked down the future rates on borrowings for 2013.

Can you give us a sense of how much incremental interest expense we should expect 2013 versus 2012?

Paul, we're not in a position today to do that.

We'll talk more about that this fall as we put out guidance for 2013 and beyond.

But as you referenced, we've been quite aggressive with interest expense.

We also have a lot of maturities, probably more than many companies this year and next, which should provide benefits for us.

We called in some hybrids earlier, so Scott Hetzer and his treasury group are doing a lot of things.

But we're not in a position today to give any tighter guidance on interest for 2013.

Steve Fleishman, Bank of America.

A couple questions on the Cove Point project.

I guess first, when do you think we'll hear more on this court case with the Sierra Club?

And then also, do you have any kind of latest color on what you expect from the DOE and administration's kind of overall view on LNG export?

Sure Steve, good morning.

First with respect to the court case, first thing I would do is encourage anybody who really has any interest in it to read all the briefs that have been submitted.

They're all there on public file on the Calvert County Maryland Circuit Court.

And I think you can draw your own conclusions about what the most likely outcome of the case is.

Both parties have said the court has all the information.

All the parties have said the court has all the information it needs to decide the case.

Lawyers [would call this] cross motion for summary judgment.

The hearing is in the fall.

We would expect the decision from the court by the end of the year.

And I think the documents are pretty clear that we can do liquefaction and that we can transport gas in and out of the site by pipeline.

So, but like I said, if you -- people question that judgment, read the briefs yourselves and draw your own conclusions.

Now with respect to the DOE, I think most of the signals -- all the signals that have been coming out of the administration indicate that they do not intend to stand in the way of exporting this product.

We should have some indication hopefully by the end of the summer from some of these outside studies that have been done.

And I expect that DOE will move forward fairly rapidly with its permitting as soon as those are issued.

So we're looking for this, for our permit by the end of the year and I have every expectation that we will receive one.

Great.

I guess one other question just on the remaining kind of gas projects that -- I guess the unidentified billion dollars or so that you might do.

Just -- we've had obviously, you know, high gas price, low gas price, now gas price back up.

There has been some pullback in drilling.

Just how do you feel about being able to execute on that remaining billion dollars?

Well, first, remember the billion dollars is not actually in the plan.

It's not in the growth plan.

The growth plan is predicated on the projects that are identified.

That said, we're working -- there's a lot of activity in Ohio.

There is less activity in Pennsylvania and West Virginia, but there's still a tremendous amount of activity in Ohio.

As I said I think during the call, well permits are up 50% just above last quarter's number.

So drilling is still going on.

We're working with allied a lot of drillers, producers on the gathering -- primarily the gathering.

We mentioned we've done an open season on more of a larger pipeline project.

So, how much of the billion dollars, I don't know at this point.

But we're working, chipping away at that.

And we'll have more information about that as we go through the course -- the end of this year.

Julien Dumoulin-Smith, UBS.

So, maybe following up on the last question to start off with.

With respect to Natrium II, perhaps if you can comment on timeline there.

I'd just be curious how confident do you guys feel about getting that done in the first half of the decade.

And I'll follow-up with a second here in a second.

By the first half of the decade, you're talking about through sometime between now and 2015?

Yes, exactly.

That time frame should work for Natrium II, but we don't have any announcements to make affirmatively one way or another on Natrium II.

We're still working with producers on that project.

Okay, great.

And then secondly, when it comes to asset sales broadly speaking, I know you mentioned Kewaunee earlier.

Just on the merchant generation side, how do you feel after Salem Harbor of late about the balance of your portfolio?

Any other processes ongoing?

I would say there -- we don't have any processes ongoing, but let me just mention on asset evaluations.

Said this for -- since I've been CEO of the Company, which is nearing seven years now, we are constantly evaluating our assets.

If they face headwinds that we think cannot be overcome in a reasonable period of time, then that we would evaluate whether we should sell the asset or shut the asset down.

And it's not something we do on an intellectual basis.

We have sold all of our power plants in South America.

We sold a utility in the UK; we sold a power plant in the UK.

We sold acres in Ohio and Pennsylvania.

We have shut down and we sold one-third of our Company when we sold the E&P business.

So, my point about all of that is we're constantly evaluating these assets, and if we don't think we can overcome the headwinds then we will act on it.

But I don't have anything to announce on that.

Great, thank you.

And maybe just a last quick follow-up here to a prior question on LNG.

How confident are you guys in moving forward with the financing proposal later this year?

I mean how is that progressing, if you can?

Julian, this is Mark.

We are well down the road on how we plan on financing this project.

But we would really like to wait to talk about that until we have firmer cost numbers, until we have all the service contracts locked down.

But we have spent a lot of time on what's optimal for our shareholders in terms of financing, and we hope to be in a position later this year or early next year to talk about Cove Point as a package, of which financing would be part of that.

Michael Lapides, Goldman Sachs.

Can you revisit a little bit what's happening or what you're seeing with demand in Virginia?

And the only reason why I ask is that your commentary about new connect levels year-over-year is very bullish.

Your commentary about raw demand -- weather-normalized demand levels, meaning coming in below your original expectation, less bullish.

It implies either some kind of lag in usage or it implies some weakness in kind of usage per customer.

Can you just talk about what you're seeing and touch on the three main customer segments and where differences are showing up?

Yes, this is Paul.

You know we're seeing very strong new connects as compared to last year.

We've had over about 15,000 new connects this year versus a little over 12,000 last year, year to date.

So that's very positive.

I think that shows us that developers and homebuilders are getting back out.

They're turning dirt and we're starting to see that activity in the form of new connects.

Now, it does take some time for new connect demand growth to really show up in our numbers, but that's a good early indicator.

Generally speaking, the industrial loads are all looking strong.

We've had some consolidations of industrial customers here in our service territory, but the overall economic strength is very good.

I would say if you look for where there is some softness in our numbers, it's probably widely distributed among kind of the commercial sector.

And I don't think that is coming as any real surprise given the overall economy throughout the country.

But it's really distributed among a lot of various types of commercial accounts, whether it's laundromats or whether it's welding shops, those types of places.

But we expect, you know, when the economy strengthens that that's going to come back very well.

So I'm seeing good early strong indicators; industrial growth is good, data centers still connecting, just attended a grand opening of a new data center yesterday.

We plan to connect nine this year.

That's still on pace.

So, as I look at things going forward, we have a strong economy, it's widely distributed and all the areas are really doing pretty well.

Okay.

And just to follow up on the industrial side, because when I look at the data in the operating stats portion of your earnings release, year-over-year three months, six months, your customer count for industrial is actually down.

And your demand number for the quarter is actually down 4% or 5%, and for the year to date it's basically flat.

And I kind of felt, just from a weather perspective, industrial tends to be far less weather-sensitive than any of the other categories.

So just -- I am trying to kind of true-up your comments versus some of the data that's in the operating stats.

Yes, as I indicated earlier, we were down about 17 industrial accounts.

That's what's on the schedule.

That's principally a couple of consolidations with pharmaceuticals is one; (technical difficulty) was acquired by Rock-Tenn.

That's another.

So there are some consolidations happening among our industrial accounts.

And again in terms of sales year-over-year, I think it's just a couple of different isolated areas where perhaps a few customers had stronger quarters last year, but not anything really concerning.

Got it, okay.

Thanks guys, much appreciated.

Brian Chin, Citigroup.

My question was asked and answered, thank you.

Thank you ladies and gentlemen.

We have reached the end of our call.

Ms. Arnett, do you have any closing remarks?

Yes, thank you.

Just a reminder that our third quarter earnings release is scheduled for October 25.

Thank you.

This does conclude this morning's teleconference.

You may disconnect your lines and enjoy your day.