道明尼資源 (D) 2012 Q3 法說會逐字稿

Good morning and welcome to the Dominion's third quarter Earnings Conference Call.

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

At this time, each of your lines is in a listen only mode.

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

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

I would now like to turn the call over to Tom Hamlin, Vice President of Investor Relations and financial analysis for Safe Harbor Statement.

Good morning and welcome to Dominion's third 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 specifics and accounting.

Investor Relations will be available after the call for any clarification on these schedules.

If you have not done so, I encourage you to our website, register for email alerts, and view our third quarter 2012 earnings documents.

Our website address is www.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 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 of our Company's performance that differ from those recognized by GAAP.

Those measures include our third quarter 2012 operating earnings, and our operating earnings guidance for the fourth quarter, and full year 2012 and 2013, as well 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 32 to 39 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 third quarter, as well as our guidance for the fourth quarter of 2012.

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

I will now turn the call over to Mark McGettrick.

Good morning.

Dominion's 2012 third quarter operating earnings were $0.92 per share,toward the bottom of our guidance range of $0.90 to 1 dollar per share.

Mild weather in our Virginia service territory during the quarter reduced earnings by $0.01 per share when compared to normal.

While temperatures, as measured by degree days, were above normal, other factors impacting weather related demand, principally low humidity, offset the higher temperatures.

Although the degree days were above normal in July, they were close to normal in August, and below normal in September.

Additionally, the highest temperatures during the quarter occurred in the after math of the (inaudible) storm in early July where over 1.2 million of our customers lost power.

Full restoration took nearly a week which prevented us from benefiting from the extreme weather.

Through the first nine months of 2012, mild weather conditions have reduced earnings by a total of $0.17 per share compared to normal.

Lower interest expenses and a lower effective tax rate had a positive impact on the results for the quarter.

Negative factors in the quarter, relative to the mid-point of our guidance range, were a storm related outage at our Hastings processing plant and an unplanned outage at Millstone due to water temperature limitations that required us to remove unit 2 from service for almost two weeks.

Earnings for GAAP purposes were $0.36 per share for the third quarter.

Earlier this week we announced our decision to close the Kewaunee nuclear plants and the associated write-down of the investment in that plant.

This was the principal factor for the lower GAAP earnings for the quarter.

Other differences between GAAP and operating earnings for the quarter were the results related to the Brayton Point, Kincaid, and Ellwood power stations that we are in the process of selling.

Consistent with our treatment of previous transactions, results for these assets were excluded from operating earnings as of this quarter.

The 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 third quarter was $242 million, which was just below the mid-point of its guidance range.

Lower than expected results at Dominion retail, due to mark-to-market changes were partially offset by lower than expected storm costs and lower operating expenses.

Third quarter EBIT for Dominion Energy was $178 million, which was below the bottom of its guidance range, but the (inaudible) storm had a negative impact on operations at our Hastings processing plant.

This unit was offline due to a loss of all site power for several days which impacted processing volumes and income.

The overall weakness in the storage and gas transportation markets also impacted results from both the gas transmission and Producer Services businesses.

Dominion Generation produced EBIT of $617 million for the third quarter which was also below the bottom of its guidance range.

Mild weather at Virginia Power, lower ancillary service revenues, and higher operating expenses, were the principal factors driving the results for the regulated generation business.

In the merchant business the Millstone outage I referred to earlier was the principal driver for lower merchants generation contributions.

On a consolidated basis both interest expenses and income taxes came in better than our estimates.

Consistent with past practices interest expenses associated with the merchants plants that are now being sold have been excluded from operating earnings.

State tax benefits as well as the resolution of some IRS audit issues helped reduce our overall effective income tax rate to 35% for the quarter compared to our guidance range of 36.5% to 37%.

We now expect our effective tax rates for the full year to be about 35% to 35.5%.

Moving to cash flow and treasury activities.

Funds from Operations were $2.8 billion for the first nine months of 2012.

Regarding liquidity we have $3.5 billion of credit facilities.

During the quarter we extended the term of these credit facilities by an additional year to September 2017.

Commercial paper and letters of credit outstanding at the end of the quarter were $1.4 billion and when netted against short-term cash investments, resulted in available liquidity of $2.1 billion.

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

Now moving to our financing plans.

We issued slightly more than $1 billion of five, ten, and 30 year notes for the parent company in September.

We were pleased with the market's response to our offering and thank those of you who participated.

We had planned to issue an additional $750 million of Virginia Power debt in the fourth quarter, but have decided to push that issue into 2013 based on current cash projections.

We have already locked in treasury rates with hedges for a substantial portion of our anticipated 2013 debt needs and have begun to lock in rates for 2014 needs as well.

As part of our 2012 and 2013 financing plans 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 in each of those years.

The expected proceeds from the sale of the three merchant power stations should be sufficient to offset any need for market equity in 2013, as well as reduce some of our debt need.

Now to earnings guidance.

We estimate operating earnings for the fourth quarter within a range of $0.65 to $0.75 per share.

This compares with original operating earnings of $0.58 per share for the fourth quarter of 2011.

Which included about $0.08 per share of weather hurt.

Compared to the fourth quarter of last year, positive drivers for the quarter include; a return to normal weather, earnings from our newly completed growth projects at Dominion Energy, sales growth at Virginia Power, and higher (inaudible) related revenues from our generation growth projects.

Negative drivers for the quarter include lower merchant generation margins, and a higher effective tax rate.

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

With normal weather our year-to-date operating earnings would have been $2.53 per share rather than the $2.36 per share we have reported.

Adding the middle of our fourth quarter guidance range to our reported year-to-date operating earnings would result in a full year operating earnings that would be below the bottom of our guidance range.

Therefore, absent a cold fourth quarter, it will be difficult for us to achieve full-year-results that are within that range.

However, when adjusted for weather we expect earnings in the middle of our guidance range which is 5% to 6% above the $3.05 per share we earned in 2011.

Last month we issued operating earnings guidance for 2013 of $3.20 per shareto $3.50 per share.

The middle of this range assumes normal weather and corresponds to a 5% to 6% increase over the middle of our guidance range for 2012.

Therefore, the weather hurt we have experienced in 2012 should have no impact on our growth targets for 2013 and beyond.

As to hedging you can find our hedge positions on Page 29 of the earnings release kit.

With a decision to sell the Brayton Point and Kincaid power stations and our 50% interest in the Ellwood power station, we will no longer include these positions in our hedge disclosure.

Since our last earnings call we have made no changes to our hedge position for Millstone.

Our sensitivity to a $5.00 move in New England power prices for the remainder of 2012 is less than $0.01 per share.

Our sensitivity to a similar move in 2013 is now only about $0.025 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 third quarter were toward the bottom of our guidance range.

Lower interest expenses and a lower effective tax rate paid positive impact and results for the quarter.

Negative factors in the quarter relative to mid-point of the guidance range were mild weather, higher operating expenses, and unplanned outages at Hastings and Millstone.

Our operating earnings guidance for the fourth quarter of 2012 is $0.65 to $0.75 per share.

We expect weather-normalized earnings for 2012 to be in the middle of our original guidance range and consistent with our 5% to 6% weather normalized earnings growth target.

And finally, we have issued operating earnings guidance for 2013 of $3.20 to $3.50 per share.

The middle of this range assumes normal weather and corresponds to a 5% to 6% increase over the middle of our guidance range for 2012.

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

Good morning.

Each of our business units delivered strong operating performance in the third 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 99%.

Including the three fueling outages, the net capacity factor for the first nine months of 2012 was an impressive 95%.

Earlier this week we announced our decision to close and decommission the Kewaunee nuclear power station.

Last year we announced our intention to sell the facility because it no longer fit strategically with our merchant portfolio.

However, we were unable to find a buyer for Kewaunee and expect to cease power production in the second quarter of next year and move to safe shutdown.

The decommission obligation is fully funded.

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

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

During the third quarter significant progress was made toward biomass commissioning which should be completed during the fourth quarter.

Construction activities are progressing for the one thousand 329-megawatt Warren County 3-on-1 combined cycle plant.

The EPC contractor has poured the foundations for the major equipment components.

This fully wrapped $1.1 billion project is scheduled for completion in late 2014 and is on time and on budget.

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.

We have made progress with equipment procurement, gas supply agreements, and permitting is under way.

On July 31 Dominion executed the EPC contract with Fluor and issued a limited notice to proceed.

We expect to file a CPCN and Rider applications with the Virginia State Corporation Commission next month.

The projects to convert the AltaVista, South Hampton, and Hopewell power stations from coal to biomass are progressing on schedule, and on budget.

Engineering is 95% complete and the three projects are expected to reach commercial operations prior to the end of next year.

The Company is proposing to modify the existing Bremo power stations units 3 and 4 by converting them to use natural gas instead of coal.

A minor permit modification has been submitted to the department of environmental quality, and a fixed-price EPC contract for this work has been awarded.

A CPCN application was filed in the state corporation commission in August.

Pending the receipt of the required approvals, the station will commence operations on natural gas beginning in the summer of 2014.

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

The Appalachian Gateway project was placed into service on September 1; on time, and below budget.

Pipeline expansion will relieve congestion in the region allowing conventional natural gas production to move to market.

Both the Northeast Expansion and the Ellisburg to Craigs Project are expected to be in service next week; on time and on budget.

Development of the Utica Shale formation is proceeding as demonstrated by the leading indicators of announced well permits and drilling activity.

Through early October the Ohio departments of natural resources had issued 413 horizontal well permits to multiple producers with 176 wells drilled to date.

35 of those wells are now producing.

24 rigs are currently on location in Ohio.

Dominion continues to leverage our Ohio and West Virginia infrastructure in support of this rapidly growing energy supply.

The construction of phase 1 is moving forward.

The inlet, outlet, and product lines are expected to be complete in November.

All major equipment, spears and towers have been set, and piping and electrical work has been progressing well.

Over 900 workers are on-site working two shifts to meet a late December in-service date.

As noted in our last earnings call, recent legislation paved the way for Dominion East Ohio to construct new gathering facilities and to convert existing strategically located pipelines to wet gathering service outside of utility rate regulations.

Building on that framework, we have entered into several gathering and processing agreements to date and we continue to negotiate with many producers and mid stream developers.

And, as disclosed last quarter, Dominion East Ohio is now negotiating with parties who expressed interest in over 1 billion cubic feet per day of residue gas transportation moving processed gas from Ohio plants outlets to various downstream interstate pipelines.

We are pleased to announce that Dominion East Ohio recently entered into a long term service agreement with M3 Ohio gatherings to provide significant firm gathering services for wet gas in northeastern Ohio.

Under this agreement Dominion will receive 180 million cubic feet per day of gas from Utica and conventional wells committed to M3 Ohio, and will deliver those volumes to the Kensington processing plant, which is presently under construction.

The services will be provided from existing pipeline assets with limited capital upgrades to support the project.

We will begin this gathering service for phases of Kensington that are slated to come online in early 2014.

We are continuing to develop a liquefaction project at Cove Point.

The project, which is expected to cost between $2.5 billion and $3.5 billion, exclusive of financing costs, has a planned capacity of approximately 750 million cubic feet per day on the inlets and 4.5 to 5 million metric tons per annum on the outlet.

Dominion has continued to receive strong interest from the market and is in advanced negotiations with multiple parties for definitive terminal service agreements.

We have made significant progress towards finalizing these agreements and remain confident that the full plant capacity will be contracted by the end of this year.

On October 1, a hearing was held in MD state court in our request for a declaratory judgment regarding the Sierra Club's challenge to the project.

The other part of the agreement at issue is the MD conservation council who filed a brief fully supporting Dominion's position.

A decision is expected on this matter later this year.

The front end engineering and design studies are on schedule and are progressing well.

The pre-filing process is also progressing in accordance with plan.

Two open house meetings have been held with the public to discuss the scope of the project.

[Clerk] issued its notice of intent to prepare an environmental assessment that will address the potential environmental impacts of the construction and operation of the facilities supporting the project.

We will provide a more detailed cost estimate early next year as those studies become more defined and we finalize our financing plans.

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

At Virginia Power economic growth is continuing to drive improving results.

Compared to 2011, weather adjusted sales are up 1.5% year-to-date.

Year-over-year growth in sales to data centers was 9% for both the third quarter and year-to-date.

New connects for the third quarter were also well above last year's level.

New connects in the first nine months of 2012 actually are about 30% higher than the comparable period for 2011.

On the regulatory front, hearings were held in October on our application for an increase in base rates for our North Carolina service area.

The request is for a $53 million increase in base rates, less a $27 million reduction in fuel revenues.

The net revenue increase of $26 million incorporates an 11.25% return on equity.

We expect a decision by year-end.

On September 15th a hearing was held in our Virginia spring court appealing of the effective date for the return on equities established by the State Corporation Commission to be used in next year's bienniel review.

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

So, including the statutory return on equity collar, the appeal will determine if the return on equity to be used for the bienniel review of 2011 and 2012 earnings is 11.4% or 11.86%.

We expect the final decision next month.

Virginia Power's return on equity computed using GAAP earnings adjusted for rate making was less than 9% for 2011.

Incorporating results through the third quarter of 2012 Virginia Power's similarly adjusted return on equity for the first 21 months of the 24 months to be covered in the 2011 and 2012 bienniel review is about 9.5%.

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

We continue to move forward with all of our growth plans and expect to deliver 5% to 6% weather normalized earnings-per-share growth in 2013 and beyond.

Thank you and we are now ready for your questions.

Thank you.

(Operator Instructions).

Our first question will come from Dan Eggers with Credit Suisse.

Tom, I just want to make sure I understand on the Cove Point lawsuit in Maryland.

I think originally the expectation was there would be a decision toward the end of this month then you said by year-end in your comments.

Is there some slippage on that from a scheduled or procedural process or do you think that the original expectation is still reasonable?

Good morning, Dan.

I'm not sure where an expectation comes that would come by the end of this month.

I don't think we ever said that, but the hearing was October 1st and all the parties agreed that no evidence was needed and the judge could decide the case based on the briefs.

There's no change in expected timing.

Could come any day.

Okay.

Thank you.

And then on VEPCO with the earned ROE at 9.5% through the first 21 months can you walk through some of the major adjustments, the de-ratio and those costs that you guys have in there that the commission might potentially try to address as far as maybe adjusting the ROE and where your position is on the validity of those expenses coming out of the ROE calculation?

Well, there are a variety of them that occurred in 2011, 2012.

I wouldn'tcall them adjustments.

They are GAAP earnings which is what the statute calls for the commission to review.

There are, like I said, a number of them.

First one is that the VSP that we did, the early retirement program, that was a severance program which was in 2010.

The commission's last bienniel review carried a $100 million of that negative effect into this bienniel review.

We have the de-ratio.

We have write-off of the Casper allowances, Carol allowances rather, and one of the important things to keep in mind is we are $0.17 down for weather in 2012, which is what it is.

There's no weather adjustment for any rate making in Virginia whether it's forward-looking rates or bienniel reviews.

So there's number of issues.

We have the coal plants in Chesapeake and Yorktown and some others so there's a list of them.

We can be happy to take you through the details of each of them if you have any further questions.

Okay.

And he will just the last one, Tom, on when we're looking at the decision to sell the coal plants and the surprise that there was no ultimate bid for Kewaunee and the idea of actually selling a nuclear power station is interesting but what is your level of confidential or what's your level of interest you've had on those plants so far and your timeline is going to help defray some of the equity needs for 2013 maybe into 2014.

We have very high interest actually in those plants.

We've had many, many parties express interest.

I don't think you can compare, you obviously can do whatever you want.

I don't think you should compare Kewaunee to Kincaid, Ellwood or Brayton Point power station.

Kewaunee is a very unfortunate situation.

It's a superbly operating plant, there are great people there, but it is a relatively small nuclear facility.

(inaudible) There's no capacity payments there, gas prices have reduced, the energy prices there I think very difficult for a single unit nuclear facility to at least, for us, to work in that market.

We couldn't make it work and, apparently, nobody else could either since we found no buyers, but I don't think that's a comparable situation to a Brayton Point and Kincaid.

Okay.

Thank you, guys.

Thank you.

Our next question will come from Paul Fremont with Jeffries.

Hi.

First question just a clarification which is based on the fourth quarter guidance of 65 to 75 effectively then your annual guidance would really be now $3.00 to $3.35.

Is that fair?

Well, Paul, this is Mark.

We did not change the $3.10 to $3.35 but what we wanted to give everybody color on today is that with the range we gave for the fourth quarter we're going to need $0.04 or $0.05 of weather colder than normal weather to get into the original guidance range of $3.10 to $3.35.

So we've kind of bounded it for everybody but the most important thing we think to focus on there is that with the range that's out there when you normalize for weather we are right in the middle of our weather normalized 5% to 6% growth off last year.

Okay.

Second question would be when you talk about the interest expense on power plants being excluded, would the bulk of the interest savings, at corporate and other, also be financing costs associated with those plants or is it just a generation that we should be look at in terms of the interest savings?

The interest savings this months that was taken out of the operating earnings was about $17 million and that's what you should expect in the fourth quarter as well from the sale of the merchant plants.

Okay.

Because the total interest savings was closer to 50 so can you at all walk us through what the driver was for that?

Are you talking quarter-over-quarter or year-over-year or what are we talking about?

Third quarter 2012 versus third quarter 2011.

It looked like the consolidated interest savings was close to $50 million.

Yes.

I think we need to walk you through that, Paul, on that number.

There's only one other item that impacted interest year-over-year of significance other than our focus.

Now we have refinanced a lot of debt year-over-year, that has improved 2012 over 2011, which as lowered our interest expense.

We have the non-ops of the merchants plants, which I've referenced, was the $17 million, and we did have one interest rate swap we settled in the third quarter of this year which was about $10 million.

So the way I would describe it is you take the $10 million, plus the $17 million, which we've referenced, and the rest of it has to do with efficiencies around refinancing of the portfolio.

Okay.

And, last question would be, there's a significant increase at VEPCO in terms of operating and maintenance expense there.

What would have been the driver there?

Again, what period are you talking about ?

Again, the third quarter 2012 over third quarter 2011 it looks like interest O&M expense is up like $20 million.

I'll ask Paul Koonce to go ahead and take that.

Yes.

You're right.

That is noted in the kit.

That's electric transmission related O&M so it's rider related O&M so it's offset in the revenue so it really has no earnings impact.

Okay.

Thank you.

Thank you, Paul.

Thank you.

Our next question will come from Greg Gordon with ISI Group.

Thanks.

Good morning guys.

Morning, Greg.

So to be clear, just to clear up from the last question, if you earned $2.36 for the nine monthsending and the guidance is $0.65 to $0.75,then before the weather add-back you would be between $3.01 and $3.11 is that fair?

Yes.

Okay.

Great.

Thank you.

Other than the biennial review, is it right that you're also going to probably have a base rate case next year, and can you talk about what will be adjudicated in that versus what won't be adjudicated in that given the way the legislation works?

I mean is ROE going to be addressed or is ROE already set through the biennial rate review and is it really just a review of operating costs and capital?

I am just a little unclear on how this all works together.

Sure, Greg.

Excuse me.

The way the statute works, you have to over earn above the collar in two consecutive rate reviews in order for there to be a consideration of a reduction in your rates.

So it has to be above the 50 basis points twice.

The collar, twice.

Consecutively.

In order to ask for a base rate increase you only have to be below the 50 basis points collar once.

We believe we will be significantly below the 50 basis point collar at the end of the biennial review which means that triggers the possibility of a rate increase.

And the way the commission ruled last year was there's going to be a base rate case it should be filed at the same time as the biennial review.

So the ROE issue will be basically the same in both of them, but we will be filing for all of our increased costs that have been associated with the run rate we've had at the Company.

So it will be more a traditional rate case.

Of course, you don't have any of the riders in there.

The earnings from the transmission, electric transmission, or from the generation riders, are not included in the rate review and would not be included in a base rate review.

And a reset of the return on equity would also not be a part of that case, or would it?

The review of the ROE is in both a biennial review and in a rate case.

Got you.

Thank you.

Okay.

Thank you.

Our next question will come from Paul Patterson with Glenrock Associates.

Good morning.

Morning, Paul.

Morning.

With the $17 million of debt associated with the plants I was a little confused by that.

How does that actually work?

Is that going with the plants?

Paul, what we have done consisting with any of the divestors that we've had, is we takeout the EBIT contribution from operating.

Non-operating, we takeout the interest expense for financing whatever the asset might be.

We did it with the people's transaction, we did it with Hope, we did it with Kewaunee.

We've done it with all them, but the asset base here is fairly big so it stuck out where it's a large number, but we have always taken out both sides and will continue to do that until the plant is sold.

Okay.

The writes offs.

You know, if you look year-over-year we did see a lot of write-offs.

I'm just sort of wondering how should we think about these non-recurring expenses going forward?

Do you think we're pretty much through with the merchant write-off experience?

Or I guess also, anything at the utility or what have you.

How should we think about recurring/non-recurring expenses?

If you follow me.

Well, I think it is fair to say over the last two, three years we've had quite a few non-operating expenses as we've reshaped the portfolio.

Some positives, some negative.

Peoples was a positive expense and the sale that we've had there but I think we're near the end of that, if not at the end.

We think 2013, after the resolution of the merchant assets that are currently out for sale, I think you should see pretty clean operating versus non-operating expenses going forward.

Okay.

And then on the edge that program that you guys have which you didn't highlight in this presentation but you have in previous ones.

Elaborate to us about how you think that might impact Dominion specifically but just also any industry impact this algorithm that you guys have come up with.

Well, first off with respect to Dominion we're not forecasting it as part of our earnings other than what we hope to get out of it next year is in the 5% to 6% per share earnings growth projection or forecast.

Paul, the product works.

That's for sure.

How many people we are able to show that to and sell it to, and its potential impacts.

It's not just going to be in the United States.

It's works everywhere.

Particularly useful I think in Europe to meet their energy efficiency mandatory targets, but we will see.

I can't forecast for you yet what it will do to Dominion's earnings growth in a positive way or what it would do to the industry at large, but there's no question I don't think the algorithm works and allows you to certainly reduce your fuel expense across your system.

Okay.

But we can't get really offensive.

Do you have any idea when we might get a better idea as to what the impact might be?

Or is it just too much whatchamacallit?

I think we will probably not be able to give you any real good view of that until 2014.

Okay.

Okay.

Thanks a lot.

Thank you.

Our next question will come from Steve Fleishman with Bank of America.

Yes.

Good morning.

Morning, Steve.

A couple questions.

Just first on the utility sales.

Tom, you mentioned the strong data centers and new connects.

Overall sales look down, I assume some of that's weather, but industrial is also down.

Could you just give more color on the sales growth this year and thoughts on outlook for that?

We will ask Paul Koonce to do a that for you, Steve.

Yes you know, if you look at what's in the kit, certainly that's actual sales which takes into account the weather impact that we experienced in the third quarter and really the absence of de-ratio weather mostly but as Mark mentioned in the call, September was certainly below.

You know, we are seeing strong growth.

Tom mentioned 1.5% year-to-date weather normalized sales.

We've mentioned in previous quarters that there's been some ramp rate demand around data centers.

We saw that pick up.

So I think from quarter to quarter you're going to see a little lumpiness there but from a revenue standpoint those customers have contract minimum demand so we're protected, but I think you see that kind of coming through a little bit this quarter.

Industrial sales were down about 100,000 megawatt hours.

Of course, that's against the total system of about 23 million for the quarter.

You know, we're not a very intense industrial marketplace with a northern Virginia, central, and eastern Virginia and it is just a lot of small numbers added up.

I would say if you looked at our top five industrial customers, their consumption is up so that's good.

So what you see in the kit is really the actual sales based on the weather but when we peal it back we have seen very strong megawatt hours sales to data centers and generally, accumulation new connects over the last 12 months.

Steve, this is Mark.

Open thing I would add to Paul's comments was, and your reference to weather, quarter-over-quarter weather was about $0.6 better last year than this year and so there was a weather extreme in the actual numbers as well.

Okay.

One other separate question on Cove Point and LNG export.

I assume you need to get the court ruling to finalize these terminal agreements?

No.

Okay.

And then I guess also do you need the DOE report and the final outlook on, how much LNG export is allowed to be able to finalize the agreements?

No.

Steve, because they'll all be contingent on us getting the permit and having the rights.

They will all be contingent on us getting the DOE export permits getting the (inaudible) environmental permit, and winning the Cove Point lawsuit.

So the fact that those three things are out there doesn't mean we won't sign these contracts by the end of the year.

We believe we will sign the contracts by the end of the year, but they will have in them like anything that needs a permit in the future will have a provision in it that says if we don't get the permit, then the shippers don't have to obviously pay us anything.

So I don't think that's anything out of the ordinary.

Okay.

Thank you.

Thank you, Steve.

Thank you.

Our next question will come from Julien Smith with UBS.

Hey.

Good morning.

Good morning.

Good morning.

So quick question going back on the fourth quarter comments here.

Obviously, we're a little bit into the fourth quarter here.

What is the weather year-on-year versus normal, if you will.

I think we better talk about that in January, Julien.

Because the weather months are November and December.

October's not an influence in the fourth quarter much at all.

Okay.

Alright.

And then secondly a little bit on weather again.

The de-ratio impact, can you quantify that within the weather number that you included there at all?

Specific to the de-ratio?

Now we talking about in terms of Hastings?

Or are we talking about in terms of Virginia Power?

Actually, maybe perhaps both.

Okay.

Hastings costs us about a penny.

Okay.

And then the de-ratio when it comes to DVP's.

DVP, it's a couple cents that it costs us.

Alright.

Great.

And then maybe just kind of following up on the last question on Cove Point.

As far as providing incremental data points, as far as financing plans, et cetera, would you need to get resolution in terms of DOE export authorityprior to giving is clarity there?

Or would you be willing to provide us that clarity early 2013 regardless of what happens with the DOE here?

I think we'll be able to give you our plans because they will be based upon the TSA agreements and the fee studies, the actual final estimates on the capital costs.

The DOE permit will come when it comes.

The economic impact analysis was originally going to be issued in the summer time and then somehow or other it seems to have gotten caught up in this ongoing election thing.

Actually as far as it goes to the DOE I would be curious, do you expect there to be a limitation on the total quantity of exportable LNG?

What kind of conditions here are we talking about, if any?

We don't know that.

Let me go back some.

I haven't been here that long, but I have a been here long enough to have seen charts where people were going to build three and four hundred gas fired power plants all over the United States.

This was the hot thing.

Everybody was going to do that.

And then we saw, I don't know how many, LNG import facilities were going to be built.

Something like 43 of them were going to get built and I think about three of them got built.

So we have lots and lots and lots of announcements around LNG exporting.

In our situation we already have an import facility.

We have the terminal, we have the pipes, we have the storage, we have a pipe that goes directly into the Marcellus and Utica shale that's dedicated to Cove Point.

All we need to do is build a liquefier.

So, the environmental impacts are, we believe, very modest.

We think that's what the FERC review will demonstrate.

There's not going to be another one built on the East Coast in the United States I do not believe.

So we were early in the queue, we're not first in the queue, we're not second in the queue, but we're in the top 25%, first 25% in the queue.

We're going about this in a very working like manner.

We're not paying much attention to all the other announcements, we're dealing with our customers, and our fee studies, and our financing plans, and we have to deal with the Sierra club on this one particular issue, and forging ahead with the FERC process.

So, we're going to keep at it every day step by step and we believe we will get all the necessary approvals but that all still remains to be seen.

Great.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Stephen Byrd with Morgan Stanley.

Hey, Stephen.

I wondered if you could talk a little bit about Dominion Retail and just general trends you're seeing in terms of levels of competition margins, et cetera.

Any trends that your seeing in that business?

Paul Koonce will take that.

Yes, David.

Good morning.

Yes, the trend is competition.

No question.

And margin pressure.

But if you looked at Dominion Retail from the first quarter kit to the second quarter kit to what was put out this morning, what you will see is that we've been able to hold steady at about 700,000 electric customers about 550,000 gas customers and our products and services business continues to expand.

So what we have seen is competition.

We've been able to hold our customer count steady in the face of that competition, and with the cost of supplies, we've actually been able to improve our margins a little bit.

But it's a daily challenge and one that we're well aware of.

What will happen if we get on a price up trend?

What we see is customers tend to shop less because they know they're going to be getting a higher price so in some respects are we view that is a good thing but during this downturn it's been tough.

Okay.

Great.

Thank you.

And then just a follow-up question on the question on interest expense relating to the assets for sale.

Just to be clear, there would be some debt that would go with the assets potentially?

That's yet to be determined.

We are evaluating that.

It could be part of a package or it might not be.

It depends who the buyer will be, and what the best result will be for our shareholders.

Okay.

Understood.

Thank you.

Thank you.

Our next question will come from Angie Storozynski with Macquarie.

I wanted to go back to the question about retail.

I mean it's true that there's no further deterioration in the customer counts, as far as electric customers are concerned, but it is a pretty significant pull back year-over-year.

And then secondly, I am just trying to figure out your pending sale of merchant power plants.

How is it going to tie in to your growth and margins in the retail business?

Why don't we have Paul answer the first one, Angie.

Yes, Angie, I will answer the first one then I will turn it back to Mark to talk about the power plants.

The year-over-year difference has persisted throughout the year and that is principally related to a decision we made last December to turn back a fairly large block of customers where we did not believe we could beat the price to compare and maintain our margin and we did not think it was worth maintaining the volume and commodity risk without commensurate margin.

So that was a decision that we made last December.

And it's persisted throughout and frankly we've got one more quarter where you will see that.

So I think to me the relevant number is how have we done since that decision has been made and if you look back, as I mentioned earlier, at the first quarter kit and second quarter kit, you will see that we've been holding really steady.

With respect to the merchant power plant sales, I will turn that back over to Mark.

Angie, our merchant sales here, we have never tied our retail business to our power generation business.

They do not contract back from those units to resell into the wholesale market or were contracted with other counter-parties.

So, retail back to back out of the wholesale market so there's no tie at all with that.

Okay.

And my second question is about Cove Point and the fact that you haven't really told us anything about financing.

I mean, when I look at your midstream business you're obviously completing your existing projects but we haven't really heard about any new projects.

It seems like Natrium 2 has been pushed out and you haven't really made any announcements about new projects.

Is it somewhat related to the Cove Point expansion in a way that you are holding onto cash and your debt financing capabilities because you might be needed to finance Cove Point or is this simply the other general lack of projects in the midstream business that you would consider attractive?

Good morning, Angie.

Morning.

We have had some announcements around additional midstream things, a couple of which we announced today.

But they are modest compared to the string of them that you heard from us in 2011.

A lot of that does have to do with the fact that we are at this point concentrating on completing the Cove Point terminal services agreements, which we expect to have by the end of the year and concentrating again on the engineering work that's being done around getting those feed studies completed so that we can finalize the rest of those plans.

So I would says a combination of both but largely more I would weight it more toward our concentration on Cove Point at this point.

If you remember last fall, the fall of 2011 when we laid out our growth plan, we said there was about $1 billion in potential projects that we didn't have in our growth plan and were not part of our 5% to 6% earnings growth, but they were out there,we were working on them.

I said in September this year that we were replacing that billion with the additional 2.5 to 3.5 from Cove Point and Cove Point similarly is not in our 5% to 6% earnings growth plan that we've developed for you in talking about in 2013, 2014, 2015 et cetera because Cove Point won't come online until 2017 but we have also said before, we are looking at a variety of ways to finance Cove Point to make sure that it doesn't curtail our growth plans while it is in the middle of its construction.

I know but my worry is simply that you are waiting for a decision to go ahead with Cove Point and that could potentially impede your near-term growth because you are holding onto cash without deploying it, right?

I can understand your concern, Angie, but I don't think you should have it.

We are going ahead with many other projects.

We have a lot of negotiations going on in the midstream.

We don't have anything to announce today other than the ones we've already announced.

The fact that we are working on Cove Point doesn't mean we're not working on other midstream activities.

We are.

And we will continue to announce things as they become available to us.

Great.

Thank you.

Thank you.

Thank you.

Our next question comes from Brian Chin with Citigroup.

Actually, question withdrawn.

Thank you, very much.

Thank you, Brian.

Thank you shall Brian.

Thank you.

Our last question will come from Michael Lapides with Goldman Sachs.

Hey, guys.

And this may be a Paul Koonce question.

Just real quick and there are actually two of them here so I have a follow-up.

On Dominion Retail, when you break out your customers accounts, Paul, you have touched at length about the electric side and the gas decline year-over-year wasn't that big, but what's up is actually customers who put net products in services category.

Can you just really define what that is?

I mean are these folks who are buying both gas and electronic try or are they buying something else.

Michael, yes.

Great question.

These are customers who are buying what we call products and services that are really functional like in home warranties.

We've got a water line protection plan so for water line breaks pay so much a months if the water line breaks we will repair it.

In home wiring we have some surge protection type products.

So what we typically do is lead with a commodity product and then we try to cross-sell as best we can these other products into the home, but in terms of the products and services business, we have a network of contractors that we rely on to perform that work.

We are not doing that work, but it's part a contractor network.

So, it's just a way to cross-sell an existing customer with an additional product and improve our revenue streams.

Okay and the other kind of follow-on to that, if I look at electricity volumes in the quarter at Dominion Retail versus customers counts.

Customer count is down volumes are up about 10%.

And this is coming off a prior year third quarter where weather was hot in a large part of the country.

What's going on?

Yes, Michael.

Good observation there.

We did have 4.4 million megawatt hour sales in the third quarter of 2012 versus 4 million in the third quarter of 2011 and that really relates to aggregation.

We have done about four aggregation transactions.

And in that case, you don't get the customer counts, but you get the volumes, and so aggregation becomes more and more of it, it's going to be more difficult to make that connection.

Got it.

And last item.

Within your regulated, so Virginia Power, within your regulated customer count are you putting the data centers in industrial?

Just looking at that decline from 530 to 510 industrial customers year-over-year.

Yes.

Again, we put them in the commercial account as they use a lot of megawatt hour sales but they're commercial customers in our accounts here.

Got it.

Okay.

Thanks, guys.

Much appreciated.

Thank you.

Thank you.

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

You may disconnect your lines, and enjoy your day.