道明尼資源 (D) 2013 Q4 法說會逐字稿

Good morning and welcome to Dominion's fourth-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 Planning, for the Safe Harbor statement.

Good morning and welcome to Dominion's fourth-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 accounts.

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 the Investor Relations page on our website, register for email alerts, and view our fourth-quarter and full-year 2013 earnings document.

Our website address is www.dom.com.

In addition to the earnings release kit, we've 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 the measures of our company's performance that differ from those recognized by GAAP.

Those measures include our fourth-quarter and full-year 2013 operating earnings and our operating earnings guidance for the first quarter and full year 2014, 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 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 2013 and our guidance for the first quarter and full year 2014.

Tom will review our operating and regulatory activities for the year and review the progress we've made on our growth plan.

I will now turn the call over to Mark McGettrick.

Good morning.

Dominion faced a number of challenges in 2013 and we overcame nearly all of them to produce operating earnings of $3.25 per share, which were well within our guidance range of $3.20 to $3.50 per share.

Excluding the impact of mild weather, operating earnings would have been at the midpoint of our guidance range and supportive of our growth targets.

The principal drivers of the differences between actual results and the midpoint of our guidance range are highlighted on slide three.

Let's walk through the pluses and minuses.

For the year, weather-normalized sales at Virginia Power were up 1.3% over 2012, which compares favorably with other utilities, but below our original growth estimate of 2%.

Earnings from our merchant generation business were below our expectations, primarily due to power basis movement both in the Mid-Atlantic region, which affects margins from our Fairless Works plant, and in New England that impacts our margins at Millstone.

The mild weather also reduced ancillary service revenues below our estimates.

Earnings from our Blue Racer joint venture, aside from the benefits of the contribution of the TL-388 pipeline were below expectations due to the in-service date delay at Natrium, as well as the fire-related outage at that facility.

Other negative factors included the absence of earnings from producer services as well as lower margins from our retail business.

Offsetting these challenges were earnings from a contribution of the TL-388 pipeline to the Blue Racer joint venture, lower income taxes, and over $100 million in reduced O&M expenses.

With normal weather our operating earnings for 2013 would have been $3.35 per share, which was the midpoint of our guidance range.

However, weather was much milder than normal, equivalent to $0.10 per share for the year.

GAAP earnings were $2.93 per share for 2013.

The difference between GAAP and operating earnings is primarily driven by charges associated with the sales of the Brayton Point and Kincaid power plants and charges related to the ongoing exit of our producer services business.

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

Before I discuss specific segment results, let me mention that we have shifted our unregulated retail unit to our Generation segment for reporting purposes.

So as I go over annual results, retail will not be in Dominion Virginia Power but in Generation.

Please note, all disclosures remain the same.

The change just mirrors a management reporting change.

Now moving to results by operating segment.

At Dominion Virginia Power, EBIT for 2013 was $945 million, which was below the midpoint of its guidance range.

Kilowatt hour sales were below expectations, largely due to milder than normal weather.

Excluding weather, sales were up 1.3% for the year.

EBIT from electric transmissions exceeded its guidance range due to our ability to accelerate the in-service dates of some projects.

This business unit added about $700 million in net plant in service in 2013.

2013 EBIT for Dominion Energy was $1.08 billion, which was above the top of its guidance range.

The contribution of the TL-388 pipeline to Blue Racer in the third quarter added about $75 million to EBIT.

Other positive factors contributing to the strong results at Dominion Energy were lower operating and maintenance expenses, lower fuel costs, and the first year's contribution from the farmout of the Marcellus acreage in West Virginia.

Partially offsetting these positives were the startup delay and fire-related outage at Natrium and the absence of earnings from the activities of our producer services businesses that are being closed out and exited.

Dominion Generation produced EBIT of $1.7 billion in 2013, which was below this guidance range.

EBIT from utility generation was below the guidance range because of lower kilowatt hour sales due to mild weather and lower-than-expected weather-normalized sales growth.

Also, revenues from ancillary services were below expectations due to mild weather.

These negatives were partially offset by lower operating and maintenance expenses and higher rider-related revenues.

EBIT for Dominion Generation was below its guidance range because of lower gross margins.

Power basis movements in both PJM and NEPOOL impacted margins from our Fairless Works plant and Millstone, respectively.

EBIT for Dominion Retail was below its guidance range in 2013 due to weaker margins.

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

Interest expenses were in line with our expectations.

Overall, we were pleased with our 2013 operating results, which were nearly 7% higher than 2012.

Moving to cash flow and treasury activities, funds from operations were $3.6 billion for 2013.

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

Commercial paper and letters of credit outstanding at the end of the quarter were $1.9 billion.

And taking into account cash and short-term investments, we ended the year with liquidity of $1.8 billion.

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

For statements of cash flow and liquidity, please see pages 13 and 24 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 rate-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.

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

We plan to issue another $1 billion in debt for Dominion Gas Holdings in 2014.

Our total debt needs are shown on slide five.

We plan to issue about $750 million in debt for Virginia Power and about $400 million in Dominion parent company debt this year.

Yesterday, Moody's raised its ratings on the debt of Virginia Power and Dominion Gas Holdings from A2 from A3.

The ratings action reflects Moody's more favorable view of the relative credit supportedness of the US regulatory environment.

The BAA2 rating on Dominion's parent company debt was confirmed, along with a stable outlook for all three ratings.

In September, we announced that we plan to form MLP this year.

Over time the expected cash flows from Cove Point import and export and the Blue Racer Midstream joint venture will be used to fund distributions.

We still plan to file the S-1 by the end of the first quarter and come to market sometime around the middle of the year.

It is our intention to make the draft filing publicly available through the Securities and Exchange Commission.

The MLP structure, including the partnership's incentive distribution rights, is expected to create significant value to Dominion's shareholders.

Our equity issuance plans for 2014 will include another issue of mandatory convertibles, the proceeds from the MLP's initial public offering, and our dividend reinvestment in other stock purchase plans.

The specific amounts from each source, including whether the DRIP plan will utilize new shares or market purchases for 2014, will depend on market conditions and the size of the IPO, which we cannot disclose at this time.

Now to earnings guidance.

Our operating earnings guidance for 2014 is $3.35 to $3.65 per share.

This range supports our 5% to 6% growth expectations.

We have highlighted the principal drivers for 2014 on slide six.

Positive factors relative to 2013 include our return to normal weather, higher revenues from our capital projects subject to rider treatment, sales growth at Virginia Power, and a lower effective income tax rate.

Partially offsetting these positive drivers are higher operating and maintenance expenses, the absence of earnings from our electric retail business, higher interest expenses, and higher depreciation.

Regarding sales growth at Virginia Power, our guidance incorporates a 1.5% increase in weather-normalized kilowatt hour sales.

As I mentioned earlier, sales growth in 2013 was 1.3% weather normalized.

We saw good growth in the fourth quarter of last year that has continued through the first month of this year, while operating earnings guidance for the first quarter of 2014 is $0.85 to $1 per share compared to $0.83 per share for the first quarter of 2013.

The midpoint of this range produces an 11% increase over last year's first quarter.

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 hedge position from 83% to 92% for 2014, from 71% to 81% for 2015, and from 11% to 23% in 2016.

So let me summarize my financial review.

Operating earnings were $3.25 per share for 2013, which were within our guidance range.

Lower O&M expenses, lower taxes, and incremental asset drop to Blue Racer offset a number of unplanned challenges during the year.

However, mild weather reduced earnings by $0.10 per share.

Excluding the mild weather, operating earnings would've been at the midpoint of our guidance range.

Our financing plans for 2014 include debt offerings for Virginia Power, Dominion Resources, and Dominion Gas Holdings; an offering of mandatory convertible securities; and an initial public offering of our Master Limited Partnership.

Finally, our operating earnings guidance for 2014 is $3.35 to $3.65 per share.

Our operating earnings guidance for the first quarter is $0.85 to $1 per share.

Before I turn the call over to Tom Farrell, let me mention two strategic initiatives we are currently pursuing.

First, we expect to grow our fleet of contracted solar projects over the next 24 months by nearly 250 megawatts and are in active discussions with multiple parties to achieve this.

You should expect a number of the projects to come in online in both 2014 and 2015.

Finally, as we continue to fine tune our business model, we have elected to exit our unregulated electric retail business.

The sale process is underway and we expect to have the transaction complete in the next several months.

Both these strategic moves are factored into our 2014 earnings guidance.

I will now turn the call over to Tom Farrell.

Good morning.

Our business units delivered outstanding operational and safety performance in 2013.

Dominion Energy delivered its best safety year on record, with gas distribution having its best safety year ever and gas transmission having its second-best year.

Dominion Virginia power also delivered the second-best safety year in its history.

The nuclear business unit reported only five OSHA recordables and our power generation unit also had a strong year, with only 12.

The nuclear fleet achieved a capacity factor of 93.7%, the highest in its history, including a new record of 125 continuous days online for all seven units.

We had four breaker-to-breaker runs: one each at North Anna Unit 1, Suri Unit 1, Millstone Unit 3, and Kewaunee, whose employees ended 40 years of nuclear operation on a high note.

Both Suri units 1 and 2 have been running continuously since their last refueling and have gone over 1,000 days without a trip.

Our power generation's utility fleet achieved a 2013 forced outage rate of just 2.4%, its best ever.

Power generation's combined cycle fleet also had a best-on-record forced outage rate of just 1.2%.

Dominion Energy also delivered strong operating performance in 2013, with record-setting operations at our Hastings processing and fractionation plant.

In Ohio, over 130 miles of bare-steel pipe were replaced as part of our Pipeline Infrastructure Replacement program.

Additionally, new transport agreements were executed with producers to move over 1 billion cubic feet per day of Marcellus and Utica production.

Our business units performed well during the recent record cold weather that has hit the eastern United States.

On January 7, the Dominion zone set a new winter peak demand of 19,785 megawatts, an increase of almost 10% above the previous record set in 2007.

On the same day, gas transmission also set a new peak with a 1 hour send-out rate equal to 7.65 billion cubic feet per day.

We continue to move forward on our growth plans.

Construction of the 1,329 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 75% complete and about 1,200 people are presently employed at the site.

We have begun construction of a 1,358 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 and major equipment deliveries will commence this quarter.

The gas transportation supplier, Transco, received the FERC certificate authorizing construction of a natural gas pipeline connection to the plant.

The conversions of the Altavista, Southampton, and Hopewell plants from coal to biomass were all completed on time and on budget.

Each of the plants was a coal-fired facility that operated at a very low capacity factor.

With the low cost of fuel, these 50 megawatt wood-burning facilities should be dispatched on a regular basis.

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

The EPC contractor is on schedule and Columbia Gas of Virginia has completed the gas line to the facility.

The station should commence on schedule and on budget operations on natural gas this summer.

We completed a number of small renewable projects in 2013.

The 14.9 megawatts fuel-cell project in Bridgeport, Connecticut secured by long-term power purchase agreement achieved commercial operation in December.

In the fourth quarter we completed three solar projects, also secured by long-term power purchase agreements in Georgia, Indiana, and Connecticut.

As Mark noted, we expect to grow our fleet of contracted solar projects over the next 24 months by nearly 250 megawatts and are in active discussions with multiple parties to achieve this.

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

During 2013, $716 million of transmission assets were placed into service.

Electric transmission's capital budget for growth projects in 2014 is over $750 million.

This includes NERC, RTEP, as well as maintenance and security-related investments.

Moreover, our project pipeline continues to remain full through the remainder of the decade.

Progress in our growth plan for Dominion Energy also continues.

Two projects at Dominion Transmission were completed and placed into service during 2013.

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

Construction continues on the Allegheny storage project.

We expect to accept injections this spring and be fully operational by November.

The Natrium-to-market project received FERC certification in September.

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

We continue to pursue new gas infrastructure opportunities.

Last fall we announced the Marcellus farmout initiative, which involved nearly 100,000 acres of Marcellus rights below some of our West Virginia storage fields.

We have retained all other mineral rights.

We have reached agreements with multiple counterparties involving that acreage, which will involve a series of new revenue streams over the next decade.

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

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

Last fall we announced several new pipeline expansion projects.

Precedent agreements were signed with Brooklyn Union and Niagara Mohawk for our new market project in New York state.

The expanded service of 112,000 dekatherms per day for 15 years will begin in November 2016.

We have also entered into multiple development agreements to provide transportation services to power plant developers along our Cove Point pipeline in Maryland.

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 had previously described some of these projects as producer outlet projects, taking advantage of the flexibility of Dominion Energy's pipeline network to provide incremental services for shorter lead times and minimal capital investment.

These projects include the following: binding precedent agreements with Dominion Transmission or Dominion East Ohio for firm transportation service already begun or beginning later this year; a 10-year agreement with Gulfport for 100,000 dekatherms per day; a 10-year agreement with NextEra Energy for 100,000 dekatherms per day; a six-year agreement with J. Aron for 150,000 dekatherms per day; a 21-year agreement with Gulfport Energy for 150,000 dekatherms per day; a 17-year agreement with America Energy-Utica LLC for 100,000 dekatherms per day; and a Western Access project on our Dominion East Ohio system for 10 years for 300,000 dekatherms per day.

And for service beginning in 2016, a 15-year agreement with CNX Gas for 250,000 dekatherms per day in the Marcellus Farmout acreage to interconnect with Texas Eastern and Rockies Express.

These projects are all outside of the Blue Racer joint venture and 100% owned by Dominion.

The Utica region continues to be very active.

Through mid-January a total of 1,042 horizontal Utica permits have been issued and 679 wells have been drilled, an increase of 9% in wells permitted and 14% in wells drilled in the past three months.

The number of producing wells increased by 60% from 169 to 270 during the same period.

Now an update on Blue Racer.

Blue Racer's Natrium I processing and fractionation plant was out of service since September 21 due to a fire that damaged a small area of the plant.

I'm happy to report the repairs are complete and the plant is running and fully available.

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

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

Blue Racer has entered into long-term acreage dedication agreements with many of the Utica shale's leading natural gas producers, including Eclipse Resources, Hess Corporation, CONSOL Energy, PDC Energy, Chesapeake Energy, Total, Rex Energy, and EnerVest for gathering, processing, and transportation services.

The acres covered in these agreements total more than 300,000 and will be more than enough at full production to support both the Natrium Phase II and Berne processing plants.

Blue Racer is in various stages of discussion for additional acreage dedication.

Natrium Phase II is expected to be commissioned in March, bringing the nameplate processing capacity at the Natrium site to 400 million cubic feet per day.

The first 200 MCF per day cryogenic processing plant at Berne is expected to be online by the end of the third quarter.

The Berne site is designed to accommodate three of these plants.

Current fractionation capacity at Natrium is 46,000 barrels per day and will accommodate the volumes from both Natrium Phase I and II, as well as the first processing plant at Berne.

Fractionation capacity at Natrium will be expanded up to 126,000 barrels per day by March 2015, providing increased ethane recovery capabilities and accommodating future NGL volume growth from further expansion at the Berne site.

The 30-mile wide grade pipeline will carry process liquids from Berne to Natrium for fractionation.

Takeaway capabilities at Natrium include rail, truck, pipeline, and soon barging.

Natrium is the only fractionation facility to offer barge services to Utica producers.

Blue Racer's ethane pipeline provides direct access to Enterprise's ATEX Pipeline.

Additional pipeline access out of Natrium will provide connectivity to Sunoco's Mariner East and Mariner West pipelines and Enterprise's TEPPCO pipeline.

Blue Racer is actively pursuing interconnects to other long-haul NGL pipes that are awaiting approval.

In addition to its interconnections with Dominion Transmission and Dominion East Ohio, Blue Racer is establishing new pipeline interconnections with Texas Eastern and is approved establishing an interconnection with Rockies Express.

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

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

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

Last week the staff of the Maryland Public Service Commission recommended approval of the CPCN for Cove Point and we expect commission consideration and approval in May.

Subject to these regulatory and other approvals, we expect to commence construction this year with commercial operation expected in late 2017.

Finally, in late November, the Virginia State Corporation Commission issued an order in the 2013 biennial review confirming that earnings at Virginia Power for 2011 and 2012 did not exceed 11.4%.

As a result, Virginia Power's base rates cannot be reduced until December 2017 at the earliest.

The base return on equity for the 2015 biennial review, as well as interim updates for our router projects, was set at 10%.

So to summarize, our businesses delivered strong operating and safety performance in 2013.

Construction of the Warren County power station is proceeding on time and on budget.

Construction has begun on the Brunswick power station and is proceeding on time and on budget.

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

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

Also, similar to our earlier decision to exit most of our producer services activity, we continue to analyze business opportunities and optimization of capital in support of our growth plan and have elected to exit our unregulated retail electric business and invest at a higher level in generation solar projects which provide more stable, long-term returns.

Finally, we plan to file a registration statement with the Securities and Exchange Commission for initial public offering of the Master Limited Partnership by the end of the first quarter.

It is our intent to make the draft filing publicly available through the Commission.

We plan to come to market with the MLP sometime in the middle of the year.

Thank you and we are ready to take your questions.

(Operator Instructions) Angie Storozynski, Macquarie.

Thank you.

So my first question is about the retail business.

You have decided to divest the business; how should we think about it?

Is it already included in discontinued operations for 2014, and as such, its impact was not embedded in 2014 guidance, or will it happen only once the business is sold?

Angie, this is Mark.

You are referring to the electric retail business that we just talked about?

We will take that as an asset held for sale or discontinued ops in the first quarter and we will net that with the proceeds of the sale, so those results will be available hopefully at the end of the first quarter.

They have already been reflected in our guidance range that we put out and been removed from that guidance range.

Okay, so I shouldn't worry about potential weak results you had seen due to the deep freeze in the Northeast?

No, we've taken any anticipated results in 2014 out of our guidance range for the electric unregulated retail business.

Okay.

My second question is you mentioned that the 2014 guidance supports the 5% to 6% earnings growth and I'm -- granted that there's been a lot of volatility in your earnings due to weather over the last couple of years.

But how should we think about it?

Is this a long-term CAGR?

Is this an annual 5% to 6% growth of the actual 2012 level?

Do we adjust for weather?

Because it seems like, even if we adjust for weather, the results will come in a little bit soft than that 5% to 6% on an annual basis.

Angie, this is the way we think about it.

First of all, when we talk about 5% to 6% we talk about it weather-normal.

So, for example, let's use 2013 results, look into 2014.

We produced earnings of $3.25 in 2013 and we had a headwind of $0.10 for weather, so our baseline is $3.35 when discussing what the growth rate should be off that.

We came out with a range of $3.35 to $3.65 per share for this year.

5% I think the math is about $3.51 and 6% would be about $3.55; it is right about in the middle of that range.

We try to do $0.05 increments, so we are not penny accurate on this, but we feel very comfortable that with normal weather a 5% to 6% growth rate off of $3.35 is achievable.

My last question; we've seen some sensitivity of earnings of energy MLPs to gas prices and that was actually negative for earnings revisions expectations.

Now with gas prices going up, at least for 2014, how is your business?

How are the assets slated for the MLP drop downs?

How are they sensitive to changes in gas prices?

Angie, the two assets that we are considering to enter into an MLP with, one would be Cove Point.

That is a capacity-based contract.

It has no commodity sensitivity at all to it, both on import and on the export side.

The other assets are in Blue Racer.

A vast majority of those assets are on fixed-price contracts.

There is some volume variability on portions of it, but again not very sensitive at all to commodity.

So our MLP assets should have very stable, visible earnings as we are able to disclose what assets we drop down first.

Okay, thank you.

Dan Eggers, Credit Suisse.

Good morning, guys.

Mark, can you just maybe walk a little bit through the process for when you guys go to file with the SEC for the S-1.

What is the process for the draft coming out and then what you guys have to do in the timeline between the draft coming out and getting the MLP done?

Are there milestones you guys are looking for?

What's the process to get to completion?

Dan, the process is pretty straightforward and we want to make it as transparent as possible.

A lot of people when they file their S-1s for review file it confidentially so that they can address any questions that might come up from the SEC.

The approach we are taking is we are going to file it publicly, so as soon as we put it on the shelf everyone will be able to see what's in it and make their own conclusions.

But the process essentially is, once you file it, the SEC will go back and forth on questions that they might have and we will have to resolve those, anything that's not clear to them within the filing.

And that process usually takes about three months or so.

So, again, we believe ours will be very straightforward with the assets that we have targeted.

We think there will not be much controversy around it, but I'm sure there will be some clarity of filing because the filing will be, as all of them are, extensive.

So that's pretty much administrative, I guess, the way I would describe it after you file it at the end of the first quarter.

So, Mark, I guess, thinking about the timing when you guys file it, three months later kind of puts you around second-quarter earnings results time or you are almost in a quiet period.

Does that mean that we probably should think late summer for this to get done, just from a logistical perspective?

I would target again midyear, because we can't really control the SEC approval process.

I have kind of given you a norm there, but certainly we think three months after filing is a reasonable period of time and so midsummer probably make sense if everything goes according to plan.

Then I guess, just on slide 12 you give the long list of all the producer agreements you guys have struck in the quarter.

What does that mean for CapEx?

And as you see more people signing up and these basis differentials getting pretty painful are you guys seeing an acceleration in CapEx opportunities as the winter has pushed on?

Dan, let me go ahead and ask Paul Koonce to answer that.

Dan, good morning.

Right now what we have been able to do is really repurpose, re-optimize a lot of the gas flows on the system.

So a lot of the transportation agreements that we have been doing to-date has really required pretty minimal amounts of capital -- bidirectional meters and things of that nature.

Clearly, the basins, in general and our system specifically, are running out of those opportunities.

So I think what we will see is we will transition into higher CapEx projects, but for now we are able to accomplish a lot just given the nature of our system.

So, Paul, does that mean that -- if you think about the next wave of agreements that you guys sign, are we going to see new CapEx announcements coming in the first half of this year if you guys get more deals done just because you have run out of the spare space?

Certainly it's a very active period and, yes, as those targets become defined we have a very rigorous process here where we take it through and get Board approval and then we incorporate those in our five-year plans and update our capital budgets at year-end.

So, yes, I think when we get to that point hopefully you see some change there.

Okay.

And I guess one last question.

Mark, I know that the books aren't fully done for the year, but what was the earned ROE at VEPCo in 2013 and then for the 2014 guidance, just to confirm that you guys have seen VEPCo just earn a lot of ROE this year?

Dan, we will address that question when we make our annual filing with the SCC here at the end of the first quarter.

Those numbers are still being worked on.

Okay.

Thank you, guys.

Greg Gordon, ISI Group.

Thanks.

Good morning, guys.

Two questions for you.

First, can you tell us what the earnings contribution from the electric retail business was in 2012 and 2013?

I don't have it, Greg, right offhand for 2012.

We will see if we can get that here while we have you on the phone.

2013 it was about $0.12 a share.

Okay.

So obviously we will sell that business, we will lose that income, and then we will net the proceeds against -- the use of proceeds against that?

Greg, let me make sure I'm clear on that so there is not any misunderstanding.

Were you referencing the total retail business or just the electric business?

Well, if you could give me both, that would be great.

Well, it's pretty straightforward for 2013.

Again, it's about $0.12 for the total; it's about $0.06 for electric.

You can see on the chart where we have showed guidance from 2013 to 2014 where we took out the $0.06 for the electric piece of that business.

For 2012, Greg, that number looks like it's about $0.21 in terms of earnings from the retail business.

In total?

That's right.

Great.

Second question, there have been some speculation, given other companies' pursuit of FERC approvals, that there were sort of backups in the system at the FERC that were logistical in nature with regard to getting certain agencies to review things on a timely nature, namely FIMSA.

Can you talk about the timeline for getting your FERC approval, and for that matter, getting your Maryland approval, since those are the two remaining hurdles?

How you are sequencing the IPO process with regard to the expectation of that timing?

Sure, good morning.

First, the two -- Maryland has a system where they have a coordinating administrative law judge who coordinates all the various permits that have to be issued for any individual project.

He has already issued -- he or she, whoever the judge is has issued an order already, which is I think the third week in May -- 22 or 23 of May, it's a date like that -- which all the decisions have to be made.

As I mentioned earlier, one of the permits is a CPCN permit, generation facility at the site which the Maryland Public Utility Commission staff has recommended approval of in their filings a couple of weeks ago.

So we expect the Maryland -- all the various pieces of the Maryland process to be finished third week in May.

FERC process is moving along as we anticipated.

I know there's lots of talk in the markets about what's going on in various places in the process.

We are fully engaged in it and we have no reason at all to change our expectation that we will have a FERC permit during the first half of the year.

Once we have those two permits that will clear the way for whatever else is necessary to do our IPO.

Thank you, gentlemen.

Steven Fleishman, Wolfe Research.

Good morning.

So just could you maybe give us a sense on the -- you mentioned a tax rate reduction again in 2014; is that related to this new solar program where you are getting tax benefits?

Or is it other issues that are temporary?

I think, Steve, it's going to be two things.

One is it's going to be the number of solar projects that we actually land in 2014 versus 2015.

And the second will be as we mentioned on a number of other calls, we're in the final stages of closing out IRS audits, legacy audits, and we've been doing that for the last couple of years.

We have two years left to do that.

We are going to finish those in 2014, so those are kind of a one-time event and the rest -- the other difference would be the solar.

Can you give us the rough rate?

I guess it was 33% in 2013.

What would it be in 2014?

I think the range is going to be around 32%.

So pretty close, okay.

Just on the decision on the retail electric business, is this something that was kind of more strategic as you were thinking about the business at the end of year, or is this something that came up related to just the dramatic volatility we've seen in the last few weeks?

As you can see from the earlier question Mark answered about the margins that we got from the electric business in 2012 and the margins we got in the electric business in 2013, and I think as all of you have seen from a lot of our colleagues in the industry that have these retail businesses, the margins in the electric side of the business have been shrinking and you see increased volatility happening.

Once now that the economy is coming back and we have -- looks like maybe have a normal winter, at least early part of the winter it's been pretty normal or cold depending upon where you are.

The combination of those factors leads us to -- it's like our producer services business we exited earlier in 2013.

It just doesn't fit our business model.

We hadn't seen that in the first -- we've been doing this business for almost 14 years, and gas is a very different business.

Our products and services is a very different business.

Because of where we sell the electricity in those unregulated retail markets and where we have assets, we don't have the matching capability of any real significance.

So with the combination of those things we've been looking -- we look at all of our businesses all the time about what fits and what doesn't fit.

And we have outstanding people that have been running our retail book for these years, our electric retail book, but it just doesn't fit our business profile as we go forward.

Okay.

Just maybe last question on just your perspectives on the price spikes we've seen in the market, I guess particularly the gas market the last few weeks, and thoughts on kind of how that fits in with your business plan and maybe more opportunities related to that.

I think one of the impacts you are seeing is the recognition by the ISOs that there's not enough capacity in these markets.

In New England in PJM, you've seen issues around demand side management in PJM.

You've seen the recent changes in the capacity markets in NEPOOL.

That's a very significant positive development for us, particularly in NEPOOL.

Now this is the 2017 auction is what is coming up, so that is a couple -- several years out.

But I think the biggest thing for us, because we're down to such few unregulated assets, is finally getting a recognition we believe that these markets are underserved and that more capacity is needed.

And hopefully that will reflect itself in these markets over the next few years.

Great, thank you very much.

[Michael Weinstein], [CBS].

Good morning, it's actually Julian.

First, quick question here actually following up on the last comment you made.

I'm curious, given what's going on in New England, are you thinking about getting out of these markets here?

At this point do you think you can get adequate value for those assets in New England, given what's going on and given at least the energy and capacity price recognition?

Is there a bid out there?

You're talking about the assets that are in our retail electric book?

Or rather on the merchant side for the generation.

There is no prospect of us selling any of our merchant power plants we have remaining.

Manchester in Rhode Island and obviously Millstone in Connecticut are two extraordinarily valuable assets for us, as is Fairless Works in Pennsylvania.

So you're talking about our generating assets, there's no -- we have no inclination whatsoever to sell those assets.

Could you elaborate just briefly here; I know it's not as relevant today, but what kind of impact did you see here at the first month of January on the retail side, given the volatility?

It's a volatile market out there.

We are not going to quantify it for you, but it was extraordinary to watch.

Got you.

And perhaps just on the other side of the equation, I'm curious; obviously a big storage position.

How are you seeing the value of that storage improve here and are you seeing opportunities to capitalize on that?

Yes, this is Paul with Dominion Energy.

Our storage is fully contracted.

We're the second- or third-largest storage operator in the world in North America.

All of that storage is really under long-term straight, fixed, variable-rate design contracts.

I think what it has done is reminded local distribution companies and pipeline companies that are customers of ours why these assets are important and why it's important to keep them contracted.

So with the mild weather and with all the volumes associated with the Marcellus and Utica, I think there were some that were thinking that perhaps these assets weren't needed, but what we have experienced in January has reminded everyone that firm transportation and firm storage has real value.

Great.

And further clarification on the gas side.

Dominion East Ohio here kind of included it historically as partially eligible for a drop down.

Could you talk a little bit more about how much of that company would be eligible to be dropped down?

Could you expand upon that?

Again, that's in our gas holdings business right now.

We are looking at that to see on eligibility down the road.

But, Julian, to remember all we have committed to thus far is $1 billion, plus or minus, of EBITDA for an MLP out of Cove Point and Blue Racer.

So we will have time to look at those other issues down the road.

Got you.

Then lastly here on the solar, changing tact.

I am curious; is this part of a larger initiative over the next few years, and specifically I presume this is mostly utility scale that you are looking at?

Yes, it's utility scale.

We are -- we started last year, actually and the year before looking at utility scale solar.

That is going to accelerate.

We put -- we have developed some wind many years -- it's been at least five years ago now, maybe longer -- to see how that would work and what the value was for our shareholders and our customers.

And we think solar; it fits our model, the kinds of things we will be looking at.

We will have power purchase agreements with them.

We're not going to be in the merchant solar business, but we are looking at that part and we see significant possibilities.

Just to clarify there, just the cash versus earnings profile of these assets.

They generate enough net income for your purposes, just to be clear?

Yes.

You don't have any issues?

Okay.

All right, great.

Well, thank you again.

Stephen Byrd, Morgan Stanley.

Good morning.

Just wanted to revisit the low growth expectations given where things ended up in 2013.

If you just talk a little bit more about the outlook for low growth in your service territory and what you are seeing and expecting.

Stephen, we had a very good fourth quarter in terms of load growth and sales growth, and we finished the year quite strong across all the segments.

And I think one reason we wanted -- and to clarify what we thought future growth might look like and wait the whole year is we are really looking to see what was going to happen in terms of sequestration and the federal budget approval.

Both of those issues were kind of resolved early in the fourth quarter.

We had very strong new connects last year, over 31,000.

We expect higher.

All reports that we see, not only in northern Virginia now but around the state, show a pretty strong residential market improving.

And we think with the funded budget amount now coming out of government, that commercial is going to be strong for us again next year and governmental is going to recover.

Data center growth will only give me a feel for the fourth quarter.

Our data center growth quarter over quarter grew 17% in the fourth quarter.

We see clear path in 2014 for it to grow another 13%, so that's going to provide half of our growth just by itself.

The other half of the growth will be spread across customer classes.

So we are certainly optimistic that 1% is very achievable.

We hope it's going to be better and get back to more of a norm of 2%, 2.5%, which has been the historical growth figure in Virginia.

That's very helpful, thank you.

Just to follow up on gas and basis, lots of questions I know on that.

At Fairless, could you just talk -- you mentioned briefly in your prepared remarks about the impacts at gas basis.

Could you just talk a little bit about sort of how the year played out, how that impacted the asset?

Sure, I can do that.

Let me make sure I reference the right level for your previous question on sales growth.

We are quite confident at 1.5%.

I think that's what I said, but I just want make sure everybody had that right number.

In terms of gas basis, it has been an extraordinary merry-go-round here around PJM and also in the Northeast.

Gas units, the dispatch to those units have gone for huge numbers in some days and other days they don't even clear the market because gas has spiked so much.

So the basis, particularly in and around Fairless, has been huge.

We are a beneficiary on most days of that.

We like that unit long term.

But I think what it really shows, Stephen, is that the infrastructure or the lack infrastructure a lot of these regions is pretty extreme and it's having a pretty unusual dispatch impact on a lot of the efficient gas units around the system.

Okay, interesting.

So that volatility, like you said, some days just resulted in no running at all.

And on net, I'm sorry I wasn't -- sorry for my slowness on this, was it net that -- was this volatility a net negative for the plant versus expectations?

Sorry.

No, we think we will be a net positive.

The dynamics around it day to day are hard to predict with these spiking gas prices.

Got you, all right.

Thanks so much.

Thank you.

This does conclude this morning's teleconference.

You may disconnect your lines and enjoy your day.