道明尼資源 (D) 2013 Q3 法說會逐字稿

Good morning and welcome to 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.

(Operator Instructions)

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

Good morning and welcome to Dominion's third-quarter 2013 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've not done so, I encourage you to visit the investor relations page on our website, register for e-mail alerts and view our third-quarter 2013 earnings documents.

Our website address is www.dom.com.

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, indicating 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 2013 operating earnings and our operating earnings guidance for the fourth quarter and full year 2013, 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 8 and 9 on 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 and our guidance for the fourth quarter.

Tom will review our operating and regulatory activities for the quarter and review the progress we have made on our growth plans, including an update on our West Virginia Marcellus farm-out project.

I will now turn the call over to Mark McGettrick.

Good morning.

Dominion's operating earnings are $1 per share for the third quarter compared to our guidance range of $0.85 to $0.95 per share.

The contribution of the TL-388 pipeline to Blue Racer originally planned for the fourth quartered added $0.07 per share to third-quarter earnings.

Even without this gain, earnings for the quarter would have been near the top of our guidance range.

Lower operating and maintenance expenses, lower income taxes and lower interest expenses offset the impact of mild weather and lower merchant margins.

Mild weather reduced earnings for the quarter by about $0.04 per share and lower than expected margins from our merchant generating plants reduced earnings by another $0.03 per share.

Weather adjusted kilowatt hour sales for the quarter grew about 1% compared to last year.

Year to date, residential sales are up about 1%, data center sales are up 13% and industrial sales are up 2.1%.

However, sales to commercial customers are flat, and sales to governmental customers are down about 1.8% for the year.

We continue to study these results and will update our expectations along with our 2014 guidance after the first of the year.

GAAP earnings were $0.98 per share for the quarter.

The difference between third quarter GAAP and operating earnings is driven primarily by charges related to the repositioning our Producer Services businesses.

A reconciliation of 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 $241 million, which was slightly below its guidance range.

For electric distribution, kilowatt hour sales were below expectations due to milder than normal weather.

Even at Dominion retail was at the lower end of its guidance range due to customer attrition and lower volumes for polar customers.

Third-quarter EBIT for Dominion Energy was $289 million, which was above the top of its guidance range.

As I mentioned earlier, the date for the contribution of the TL-388 pipeline was moved to third quarter from the fourth adding about $75 million to EBIT.

Other factors contributing to the strong results at Dominion Energy were lower operating and maintenance expenses and higher transportation and storage revenues.

Dominion Generation produced EBIT of $579 million in the third quarter, which was below its guidance range.

Milder than normal weather led to lower sales and lower ancillary service revenues for utility generation business.

Lower than expected margins from our merchant generating plants were also a factor.

Lower operating and maintenance expenses help to partially offset some of these negatives.

On a consolidated basis, our effective tax rate was 33.3% for the quarter compared to a 35.5% rate for the midpoint of our guidance range.

Moving to cash flow and treasury activities.

Funds from operations were $2.8 billion for the first three quarters.

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

Commercial paper and letters of credit outstanding at the end of the quarter were $2.1 billion.

And taking into account cash and short-term investments, we ended the quarter with liquidity of $1.6 billion.

During the quarter, we extended the terms of all of our credit facilities through 2018.

For statements of cash flow and liquidity, please see pages 14 and 26 of the earnings release kit.

Now moving to our financing plans.

In September, we announced the formation of Dominion Gas Holdings, a first tier subsidiary holding company for most of our regulated natural gas businesses.

Dominion Gas Holdings provides greater visibility of the capital structure and earnings from these businesses and allows us to raise capital on better terms.

Debt ratings for the new entity were A3 from Moody's, A- from Standard & Poor's and BBB+ from Fitch.

Because of the structural subordination caused by the new issuer, Standard & Poor's reduced its rating on Dominion senior unsecured debt from A- to BBB+.

There were no changes to demands gradings by Fitch or Moody's.

In October, Dominion Gas raised $1.2 billion through a 144A senior notes offering consisting of 3, 10 and 30-year notes, which are expected to be registered with the SEC next year.

We also raised $585 million for Virginia Power in August.

These issues were very well received by the market, and we thank those of you who participated.

We did not anticipate accessing the capital markets for additional financing this year.

In September, we announced that we plan to form an MLP next year using the expected cash flows from the Cove Point import and export in the Blue Racer midstream joint venture.

We are likely to file the S1 during the first quarter and come to the market around the middle of the year.

The MLP structure, including the partnerships incentive distribution rights, is expected to create significant value to Dominion shareholders over time.

Now to earnings guidance.

We are updating our fourth-quarter earnings guidance to reflect the transfer of the TL-388 pipeline to the Blue Racer joint venture during the third quarter.

We now estimate operating earnings for the fourth quarter of 2013 within a range of $0.85 to $0.95 per share.

Let me walk you through the drivers of the $0.21 increase from last year's fourth quarter to the midpoint of this year's range.

To remove the unique items from last year's $0.69, we subtract the $0.08 per share from last year's initial asset drop into Blue Racer.

Then we add back $0.05 per share of weather hurt from last year and about $0.10 per share due to last year's refueling outage at Millstone.

A significant portion of the operation and maintenance expense reductions we discussed earlier in the year is expected to show up in the fourth quartered adding another $0.05 per share.

The next step on the chart shows our normal operating earnings drivers, which include sales growth, higher rider revenues and earnings from Blue Racer and our gas infrastructure projects.

And finally, we note the loss of $10 million in anticipated earnings from our Producer Services business largely offset by the expiration of the Millstone generator tax.

Our operating earnings guidance for 2013 remains $3.20 to $3.50 per share.

Operating earnings for the first three quarter of 2013 were $2.44 per share.

Adding the midpoint of the range for the fourth quarter to the year-to-date earnings will take you to the middle of our guidance range for the entire year.

As to hedging, you can find our hedge positions on page 28 of the earnings release kit.

Since our last earnings call, we have increased our Millstone head position from 80% to 83% for 2014 and from 58% to 71% for 2015.

We have also begun hedging for 2016 and now have 11% of projected output hedged.

So let me summarize my financial review.

Operating earnings were $1 per share for the third quarter compared to a guidance range of $0.85 to $0.95.

Lower operating and maintenance expenses, lower interest expenses and lower taxes all say $0.04 per share weather hurt and lower merchant generation margins.

Also the contribution of the TL-388 pipeline to Blue Racer during the quartered added another $0.07 per share.

Our operating earnings guidance for the fourth quarter of 2013 is $0.85 to $0.95 per share.

Normal weather, the absence of a Millstone refueling outage and reduced expenses should drive the higher year-over-year results.

And finally, our operating earnings guidance for 2013 remains $3.20 to $3.50 per share.

I will now turn the call over to Tom Farrell.

Good morning.

Each of our business units achieved year-over-year improvements in operations and safety performance in the third quarter.

Year-to-date net capacity factor of the six Dominion nuclear units was 93.8%.

Our Power Generation's utility fleet achieved a third-quarter peak forced outage rate of just 2%, it's best in three years.

Power Generation's utility combined cycle fleet had a peak forced outage rate of just 0.9%, it's best on record.

We continue to move forward on our growth plans across all business units.

Construction of the 1329 megawatt Warren County combined cycle plant is progressing on schedule and on budget for a late 2014 commercial operation date.

Overall the project is about 60% complete and about 1400 people are presently employed at the site.

We have begun construction of a 1358 megawatt 3-on-1 combined cycle facility in Brunswick County and expect the plant to be in service by mid-2016.

The gas and steam turbines have been procured.

The agreements with the gas transportation supplier have been signed, and pipeline permitting is underway.

The conversion of the Altavista, Southampton and Hopewell plants from coal to biomass are progressing on schedule and on budget.

The Altavista plant was placed into service in July.

Hopewell is in the late stages of commissioning and Southampton achieved first fire on biomass during October.

All three projects will be operational later this year.

On September 10, the Virginia State Corporation Commission approved the Company's CPCN application to modify the existing Bremo Power Stations unit 3 and 4 to use natural gas instead of coal as the primary fuel.

The station outage has started.

The EPC contractor is on site, and Columbia Gas of Virginia is installing the necessary pipeline to supply gas to the facility.

This station will commence operations on natural gas next summer.

The United States Bureau of Ocean Energy Management conducted a lease auction in September for acreage off the Virginia Coast for potential wind power development.

Dominion was awarded the leases of 113,000 acres based on a bid of $1.6 million.

We are working with the Department of Energy on a possible test facility as well.

Should the state decide that pursuing offshore wind would be in the public interest, Dominion is prepared to construct the project subject to Board approval.

We are not interested in pursuing offshore wind on a merchant basis.

We are developing a 14.9 megawatt fuel cell project in Bridgeport, Connecticut secured by a long-term power purchase agreement.

As of September 30, the project was 79% complete with four of the five modules mechanically complete and operating.

The project is scheduled for completion by year end.

We also have three solar projects secured by long-term power purchase agreements under development in Georgia, Indiana and Connecticut that are scheduled for completion later this year.

Finally, after receiving FERC approval, we completed the sale of our Brayton Point and Kincaid's Power Stations and our interest in the Elwood Power Station to Energy Capital Partners on August 29.

We have a number of electric transmission projects at various stages of regulatory approval and construction.

During the third quarter, $108 million of transmission assets were placed into service bringing the year-to-date total to $546 million.

Our plan includes new investments of over $500 million per year in growth projects through at least the end of the decade.

Including the systematic rebuild of 500 kV loop that is the backbone of our transmission network.

We are also participating in the bidding process for a number of competitive transmission opportunities in PJM.

In June, we submitted three proposals for the artificial island project in New Jersey ranging from $114 million to $180 million.

We also submitted three proposals to PJM to reduce congestion at the AP south interface.

Progress in our growth plan for Dominion Energy also continues.

Two projects at Dominion transmission were recently completed and placed into service.

Both the Sabinsville-to-Morrisville and the Tioga area expansion projects were completed on time and on budget.

Construction continues on the Alleghany Storage project.

We expect to be ready to accept injections next spring and be fully operational by November 2014.

The nature to market project received FERC certification in September.

Construction will begin in the spring for an expected November 2014 in service date.

We continue to pursue other new gas infrastructure opportunities.

In September, we announced the Marcellus farm-out initiative, which involved nearly 100,000 acres of Marcellus right below some of our West Virginia storage fields.

We have retained all other mineral rights.

Today we are announcing that we have reached agreements with multiple counter parties involving that acreage which will involve a series of new revenue streams over the next decade.

One party, which will hold the majority of this acreage, expects to commence drilling next year.

We expect these agreements initially to generate EBIT of approximately $20 million annually from ongoing lease payments.

Additional revenues will accrue from the drilling activity itself and also from royalty payments based upon the volume of gas produced.

Associated with the farm-out project, Dominion transmission also recently held an open season for transportation service from West Virginia to its interconnects with other state -- with other interstate pipelines in Mullet in Clarington, Ohio.

The party who holds the majority position in the farm-out acreage will be an anchor shipper and we are in negotiations for additional capacity.

We will have more to say about this project in the coming weeks.

In the third quarter, we announced several new pipeline expansion projects.

In August, (inaudible) agreements were signed with Brooklyn Union and (inaudible) for our new market project in New York State.

Expanded service of 112,000 decatherms per day for 15 years will begin in November 2016.

We also announced the western access project on our Dominion East Ohio system.

It involves the transportation of 300,000 decatherms per day from third-party processing plants to interstate pipelines.

In addition to these pipeline expansion projects, we have had continued success in providing incremental transportation agreements as a result of the growing production within our region.

We describe these projects as producer outlet projects taking advantage of the flexibility of Dominion transmission's pipeline network to provide incremental services with shorter lead times and minimal capital investment.

In the last several months, DTI has signed and initiated service for 200,000 decatherms per day of these producer outlet projects with multiple counter parties.

We believe we will continue to see additional success in these projects in the coming months.

The Utica region continues to be very active.

Through October, the total of 953 horizontal Utica permits have been issued.

597 wells have been drilled, which is an increase of 21% in wells permitted and 54% in wells drilled in just the past three months.

The number of producing wells increased by 50% from 113 to 169 in the past three months as well.

The Management team at Blue Racer is actively marketing gathering and processing services to the producers in the Utica region.

There are currently two new processing plants under construction, Natrium 2 and another at Berne.

They are scheduled for completion in the spring and summer of next year respectively.

Each of these facilities will have processing capacity of 200 million cubic feet per day.

Blue Racer's Natrium 1 processing infractionation plant has been out of service since September 1 -- September 21 due to a fire that damaged the small area of the plant.

Producers have been able to redirect significant volumes to other processing plants in the area, including Dominion's Hastings plant.

Repairs have begun and the plant is expected to be back at full capacity by late January.

As Mark mentioned earlier, the TL-388 pipeline was contributed to Blue Racer at the end of September.

This will serve as a central trunk line that provides further connectivity between Blue Racer's gathering lines and key producing acreage.

Blue Racer's management is finalizing multiple agreements win the Southern Utica region with the potential for 150,000 to 200,000 acres to be dedicated to the joint venture which should be more than enough at full production to support both the Natrium phase 2 and Berne processing plants.

Of recent interest, in mid-October CONSOL announced its gathering services agreement with Blue Racer.

PDC Energy has also announced that Blue Racer will provide midstream services for PDC in the Southern Utica.

We continue to make progress on our Cove Point liquefaction project.

As you know, the Department of Energy approved our request for a permit to export LNG to non-FDA countries in early September.

We still need several permits, including a FERC environmental permit and permits from the State of Maryland.

Subject to these regulatory and other approvals, we expect to commence construction in the first half of 2014 with commercial operation expected in late 2017.

Before we open the call for questions, I want to give an update on the 2013 biennial review.

Hearings were held in September and briefs have been filed.

A decision from the commission is due by the end of this month.

So to summarize, our businesses delivered strong operating and safety performance in the third quarter.

Construction of the Warren County Power Station is proceeding on time and on budget.

Construction has begun on the Brunswick Power Station.

Our Blue Racer joint venture, Dominion East Ohio and Dominion Transmission are all capitalizing on the growth opportunities in the Utica and Marcellus shale regions.

And we look forward to receiving our remaining regulatory approvals to begin construction of our Cove Point liquefaction project.

Thank you and we are ready to take your questions.

(Operator Instructions)

Greg Gordon, ISI Group.com.

I've got two questions, the first is it looks like industrial demand in the third quarter started to improve across most of the regions you disclose in your earnings release.

Can you talk about what you're seeing with regard to industrial demand, but specifically more overall demand and whether you think you'll get back closer to what your prior sales growth forecasts were pre the shut down as we get into next year?

Greg, this is Mark, I'll take the first one there.

In terms of industrial demand for the quarter, we were up about 7%.

But I would describe that as more of an anomaly.

It was one customer that gave us increased sales there year over year.

However year to date on industrial, we still are up about 2%, so we see industrial load building for us.

We had a good quarter beyond that one customer.

And we like industrial sales based on original forecasts.

But let me give you a rundown of where we are on sales for the third quarter and then year to date and what we're expecting currently.

For the third quarter, our residential sales were down about 1%.

These are all weather normalized numbers.

Data centers were up almost 14%.

Commercial sales, however, were flat as we said in our opening remarks.

Industrial sales up about 7% and governmental sales about flat.

So on a year-to-date basis, we're slightly less than 1% up across our mix.

That's been fairly consistent for the last three quarters now.

We're going to monitor this for the fourth quarter and see what it looks like based on Federal budget approvals and other commercial activity.

And we'll talk in January about what we think the longer term growth rate is.

But I would encourage everybody as they think about sales for us even at 1%, if we finish the year at 1%, we would have one of the strongest growth stories I think of any of our peers, or most of our peers anyway.

As you look at our growth going forward, sales are just one of the pieces of our growth.

We have very strong uplift based on riders both in our gas business and our electric business and Generation.

We have very strong growth in our Energy business, in a midstream, in our core transmission business.

And then we have sales growth in mainly Virginia Power.

So, again, year to date we're a little less than 1%.

It's been consistent for three quarters.

We'll see what it is for the fourth and then we'll talk on a longer term guidance for sales in January.

My second question is around Dominion Energy and the gas infrastructure projects.

You list a bunch of things you're working on page 11.

Does your current CapEx budget or any of these specific projects specifically target new long haul pipeline capacity to take gas outside of the -- out of these glutted regions we're seeing in Pennsylvania, or have you -- if that opportunity were to avail itself, would that with incremental to your current capital forecast?

Greg, this is Paul Koonce.

Included in the list of projects is not what we would call necessarily a long haul pipeline extensions.

The new market project though up in New York State is -- takes gas out of Pennsylvania and West Virginia and takes it up into New York State.

What we have really been focused on here recently are what we call these producer [outlet] projects which really get the producer -- gets the producer's gas to other interstate pipeline, it takes a minimal amount of capital, it takes a shorter lead time.

And we believe that over time those contracts are anywhere from call it three to seven years.

And we believe that over time that as those producers get connected to us, that that will lead us to doing longer term, longer line pipeline in the coming months.

Thank you.

Dan Eggers, Credit Suisse.

On the Marcellus deal, can you help us think about, I guess, A, how the scaling of that royalty payment in the earnings contribution will go over time?

Is it a volume metrically linked and is there some sort of gearing to production we should be thinking about?

There's four revenue streams that come out of this.

The first is the lease payments, which we've given you the number for.

The second will be a payment for the drilling activity itself.

The third will be a royalty payment, which is volume metric.

And then the fourth will be the transportation agreements that come out of it.

So at this point, the only thing we're prepared to give a number on is the lease payments that will continue throughout the balance of the lease period.

The rest of it will depend on some timing and with the royalties itself is on volume.

Okay, got it.

Four different revenue streams that will continue out into the future.

And I guess you guys had talked about you're looking at the Marcellus properties and exploring the idea of a joint venture to capitalize like you did with Blue Racer.

Any updates on thoughts with that strategy now that you have the underlying acreage contracts in place?

We are always considering options like that in not just obviously in the Marcellus and not just in West Virginia.

So the answer is you're not going to talk about it?

Not any further than I just did.

Okay.

And then I guess Paul could you give --

That was -- you got a shorter answer.

There you go.

Paul, can you talk about the -- what you're seeing in the regional market right now as far as margins and volume competition and if there's any sense of that business stabilizing at this point?

Sure, it is as you've commented a very, very competitive business.

We have always run retail as a profit business, so we are constantly looking to the mix of customers both by state as well as by type to maximize that value.

The volumes if you looked in the kit on page 21, you'll see that the electric volumes were down for the quarter, but that really has to do with a small number of provider of last resort agreements that we had this time last year, that we don't have this year because they weren't profitable to continue to serve.

So I think as we move through time, when you look at customer accounts and you look at volumes, depending on whether you have a provider of last resort contract in there or not will cause the numbers to either be inflated or to be less.

I think as we see these coal plant retirements, I think you have some large merchant fleets that are participating in the aggregation business, and I think as you have coal plant retirements, we think this business will stabilize and grow for us.

Got it.

I guess maybe one more on the MLP outlook.

When do you guys expect to maybe give some more color on sizing of which assets going up front and then maybe some of the GP splits and how that'll get structured within Dominion from a (inaudible) perspective.

Dan, this is Mark.

Unfortunately I think we're going to have to pass on that question until we file the S1.

We have clear path forward that we think will add significant share holder value, but until we file that, we're not going to be able to talk about many of the details around the structure.

Okay, got it.

Thank you, guys.

Paul Fremont, Jefferies.

I noticed that with the processing plants including Natrium 1 but also the follow on facilities that there's delays in terms of getting these plants online.

Can you discuss what is it that's slowing down the schedule and do you still think you can do two processing plants a year or can you do more?

I'm not -- we'll let Paul Koonce answer your question, Paul.

I'm not sure where you're seeing a delay in the projects, because I don't think there's a delay.

So we can answer that maybe for you offline, but Paul can talk about --

Yes, I think that as it relates to Berne and Natrium 2, that equipment is ordered.

Natrium 2 it's already on site.

I think Tom mentioned that we expect those facilities to be online spring and summer, so that work is going very well.

As it relates to others, of course the Berne and Natrium 2 are just processing facilities, they're not fractionation facilities.

They will use the fractionation capacity that we have at Natrium 1. So as it relates to the work that we're doing through Blue Racer, the equipment's ordered.

It's fairly straightforward construction process and we expect to bring that online after the first of the year.

I mean should we still expect to roughly two a year in terms of new processing?

Yes, I think when you look at the acreage where we're sitting, especially in the wet Utica in Southeastern Ohio, I think the plan is to continue to add a couple a year.

And as I said, when we're looking at processing, we're looking at pretty much a skid amount type of equipment, so that shouldn't be a problem for us.

And can you discuss the reason for the lower tax rate than what you guys were expecting for the year?

Yes, Paul, this is Mark.

Yes, I can.

And we've talked about this over the last couple of years really.

We had some legacy IRS audits that went back 8 or 10 years that we have been very methodically closing out and settling with the IRS, and we can never predict really what that outcome might be.

In the third quarter, we had success in settling the 2010 and 2011 audits.

And because of that we had a benefit on some issues that were in dispute, and so those audits now are closed.

So we're almost current on these legacy audits.

We'll be current through 2011 by the end of the year.

But this has occurred over the last three years by our tax proof taking a very proactive approach of catching up and be going -- current going forward.

So that's the reason for the rate change.

And last question from me, on your second-quarter call you had indicated that you were going to drop down TL-388 in the fourth quarter.

What caused you to move that earlier than what you had suggested back in August?

It was ready.

We were -- as we dropped it down, we had some maintenance to do on that pipe, and it was ready in the third quarter.

The joint venture wanted it as soon as they could get it because it's key to the marking that area and moving gas, locking in these producers.

And because the facility was prepared to be dropped, there was no reason to wait, and we took it in the third quarter.

Thanks a lot.

Steven Fleishman, Wolfe Research.

A question regarding I guess the Natrium 2 and Berne as well as the farm-out and potential investment there.

Should we -- how should we characterize those relative to your overall CapEx plan that you've given?

Are these things that are implementing the plan or are these something that would be incremental or additions to it?

Steve, good morning.

I would put them in the category of implementing the plan.

Other than this potential of a longer term, larger pipe that we are working on, that's not in our plan, but the rest of these are supportive of the 5% to 6% growth.

Okay.

And I guess this new farm-out plan, I know in the past you've talked about potentially recreating Blue Racers in other regions.

Is this in a way your own version of a Blue Racer in another region or is there still more of that stuff that's possible?

I would say that you answered your question is yes and yes.

What we've done in -- with these customers and we'll -- there'll be announcements downstream about who they are and implementation all that.

But the way we have developed the thing now, there's also processing rights.

That's something else that will be dealt with in the future that could be possibly done by us our -- we could do that ourselves or we could do that in a joint venture.

That's still -- that part we have the rights to the processing and whether we do it ourselves or with partner is something we will continue to work on.

And then we have lot of assets in West Virginia and Pennsylvania that are not covered by the Blue Racer joint venture that we are considering.

Okay.

Great, thanks a lot.

Jonathan Arnold, Deutsche Bank.

Quick question on Blue Racer and could you, I apologize if I don't recall this correctly, but remind me of what the time frame that you've laid out for reaching equilibrium is or range?

And then maybe an update on how you're -- how that's progressing.

Jonathan, this is Mark.

We've always said we thought we'd reach equalization in 2014.

I think we're well on schedule to do that.

Great, thank you.

And then on a number -- I'm having trouble on the cash flow statement, reconciling the asset sale gain number of $118 million that pops up this quarter with the size of the $0.07 on the drop down gain, so what else is in that number?

What other gains were there?

Was this related to the merchant gen perhaps and therefore below the line?

I was curious there.

I think Jonathan, I don't have the schedule right in front of me, but I think the reference probably there is to the gain on the sale of the merchant assets, Brighton Point, Elwood and Kincaid which was transact and concluded in the third quarter.

Okay, I was guessing that's what it would be.

But to follow up on that, you had said I guess in the -- when you -- we took the charge in fourth quarter you said it was based on the bids you had for those assets and then -- so why would there have been that meaningful a gain on the -- when the sale actually came to close?

Hello, Jonathan, this is Ash.

The impairments or charges are recognized sooner rather than later, so we recognize those charges up front.

Unfortunately you cannot recognize a gain until it actually occurs, so that's what triggered the gain recognition when the sale actually took place.

Okay, great.

Thank you.

Julien Dumoulin-Smith, UBS.

First, and again I apologize if you can't quite answer this, but when you think about the creation of the Dominion Gas subsidiary, right the way you structure the business now, how does that relate to the MLP structure, if you will?

And I suppose specifically if you could, does it relate to dropping individual assets out of this into an MLP or are you talking about potentially structuring an MLP that would buy stakes of this Dominion Gas business?

I understand it's touchy but whatever you could provide would be helpful.

Julien, for the present, people should be thinking about what we've said, which is at present what we're looking at is placing Blue Racer and Cove Point import and Cove Point export into the MLP.

In how exactly we're going to do it, when exactly we're going to do it, we will have to wait on that.

The balance of the assets that are in the Dominion Gas Holdings were put there so that we would have transparency and visibility on the earnings that come out of the gas infrastructure business because we didn't think they were being valued as fully as they could be in the markets.

That's up to you all to decide that.

We didn't think they were, so we thought it would be helpful to the financial community to see exactly what they produce.

Those assets are eligible, largely eligible to be contributed to an MLP in the future, and that's a decision that remains out in the future.

But the reason why we created that was to allow people to see exactly what the earnings are that come out of our gas infrastructure business.

Great.

And as a follow up, if you don't mind, the utility assets Hope Gas in East Ohio, is this an opportunity to drop into an MLP and perhaps if you could clarify around is it the utility itself or is it some of the gathering assets associated with it?

Those are -- there's very technical issues around what can be put into an MLP and not.

Hope Gas I don't believe is eligible and I don't think we've ever listed it as a potential.

There are assets in East Ohio -- East Ohio Gas is much more than a traditional local gas distribution company.

It has very large gas storage holdings.

It has very large pipelines.

It has gathering systems.

So it's a different animal.

So there are portions of it that would be eligible but that's all off in the future.

But Hope, I don't think anybody in our team here thinks that Hope is an eligible asset.

Great, thanks for the clarity.

And then last on the Government shutdown, can you at least provide a little bit of a preview as to how to think about this that here?

Well, there's two -- I think there are two issues.

One is the sequester and its budgetary implications.

And then the other is the shutdown, which was a short-term phenomenon that it's actually -- most of the people still went to work, they just weren't getting paid.

But they're all getting paid twice now.

They're going to get -- so they're getting paid retroactively.

So the sequester is a bigger -- is a longer term issue and we'll have to see how this conference committee works its way through that thicket and which they -- we believe they will do by the end of the year, and that will give us a little more clarity on what we -- how we view what the sales growth will be.

Great.

Thank you very much for the time.

Paul Patterson, Glenrock Associates.

Back on the Marcellus farm-out, I'm sorry if I missed this, what's the timing do you think of the -- of getting the lease payments?

When would that start?

This quarter.

Yes, Paul, this is Paul Koonce.

We've actually entered in the agreement, so the option payments will start now.

Lease payments.

Lease payments will start now and they will accrue over the -- over a preset drilling schedule that we have with the counter party.

Okay.

And I would think that the incremental capital costs would be probably pretty low from your perspective.

Am I right about that, or is there additional costs that you have to put into this kind of deal?

No, the counter party will provide all the capital for the drilling, so we get an override, a small override based on the production, but it's all their CapEx.

Now we have had an open season to provide some transportation capacity out of the basin.

That will be our capital.

We're working through that now.

And I think as Tom said in his remarks, there'll be more to come on that in the coming weeks.

Okay, great.

And then on the competitive electric transmission opportunities and the congestion, compared to the congestion opportunities there apparently are in PGM you guys apparently are reflecting a few, and I was wondering, do you think there might be additional opportunities for you in that area, A?

And B, in general when you're looking at your market outlook in PJM, what do you think the potential is for some of these market congestion fixes could mean to wholesale markets in PJM?

Well, this is Paul again, if you look at just PJM generally over the last two or three years, congestion is down substantially based on all of the electric transmission construction that has occurred.

So when you look at congestion projects, in order for them to qualify, they have to more than offset the congestion expense.

And I believe that factors by 1.5 times.

So the projects have to be very innovative to overcome that hurdle.

We bid on three different scenario in AP south using serious capacitor banks which we've used on our own system which lowers impedance, which allows greater capacity flows.

And that is capital wise a very efficient way to deal with that.

Now we have also modeled the balance of PJM to see what effect our projects in AP south will have more generally on the larger PJM footprint.

When we did that, we didn't see that there were other projects that necessarily would meet the hurdle that PJM has for congestion, so we are constantly monitoring how this will play out.

Of course coal plant retirements will be a big part of that.

But to date, what we have out there we think is very creative.

We have not submitted others, but we're watching it.

When will we find out about the results of this, from your proposals?

When will we figure out whether they're selected or not?

Yes, this is what PJM is calling a pilot year to try to implement per quarter 1,000.

So I would expect that the PJM is going to move very deliberately and very cautiously to make sure that whatever recommendations they come up with are good.

And so for that reason, I wouldn't expect that we will know probably until after the first of the year.

Okay, great.

And then just back on Kincaid and Brayton, that's finally over right in terms of the impairments that you guys are still incurring from that, correct?

That's finally over.

Great, thanks a lot, guys.

Michael Lapides, Goldman Sachs.

Really two questions.

One, when you think about the long-term earnings growth, the guidance you've given on that, have you ever broken or can you break that out between what do you expect Virginia Power's long-term earnings growth potential to be, and then how do you combine that with what do you think the long-term earnings growth power of the Energy business?

Trying to get an order of magnitude, maybe not even hard numbers around it, but just directional.

Mike, we haven't broken it out that way but we could, it's clear enough.

And on that recommendation, we'll go ahead and look at doing that in the future.

Okay.

One cash flow statement, how do you -- what are you thinking about the difference between GAAP and cash taxes?

How much of a benefit will deferred tax benefits be fourth quarter 2013 and then as you look out to 2014 and beyond?

We don't have the answer to that question.

I will follow up with you after the call.

Sounds good.

Thanks, guys.

Thank you.

This does conclude this morning's teleconference.

You may disconnect your lines and enjoy your day.