Dominion Resources, Inc. Form 10-Q Summary
Reporting period: Quarterly and nine-month periods ended September 30, 2015, compared with the same periods in 2014. The combined filing covers Dominion Resources, Inc. (now associated with Dominion Energy), Virginia Electric and Power Company, and Dominion Gas Holdings, LLC. Dominion operates regulated electric generation, transmission and distribution businesses, natural gas transmission, storage and distribution operations, gas gathering and processing, LNG infrastructure, and merchant generation.
Financial performance and position
| Dominion consolidated metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Operating revenue | $2,971 million | $3,050 million | $9,127 million | $9,493 million |
| Income from operations | $1,123 million | $921 million | $2,898 million | $2,083 million |
| Net income attributable to Dominion | $593 million | $529 million | $1,542 million | $1,067 million |
| Diluted EPS | $1.00 | $0.90 | $2.60 | $1.83 |
| Dividends declared per share | $0.6475 | $0.6000 | $1.9425 | $1.8000 |
- Dominion’s operating margin was approximately 37.8% in Q3 2015 versus 30.2% in Q3 2014, and 31.7% for the first nine months versus 21.9% in the prior-year period.
- Net income increased 12% in the third quarter and 45% year to date. Management attributed the improvement primarily to lower energy-related costs, the absence of significant 2014 legislative charges and producer-services losses, and gains from shale development-rights transactions.
- Net cash provided by operating activities was $3,453 million for the first nine months, up from $2,410 million. Investing cash flow was a use of $4,350 million, including $3,632 million of construction and property additions, $497 million for the DCG acquisition and $278 million for solar projects.
- Financing activities provided $817 million. Dominion issued $2,262 million of long-term debt, repaid or repurchased $675 million, issued $717 million of common stock and paid $1,150 million in common dividends.
- Cash and cash equivalents were $238 million at September 30, 2015, compared with $318 million at December 31, 2014. Dominion reported $1.9 billion of unused credit-facility capacity; total facilities were $4.5 billion, with $2.555 billion of commercial paper and $57 million of letters of credit outstanding.
- Dominion reported total liabilities of $43,323 million, including $23,245 million of long-term debt, and total equity of $13,276 million at September 30, 2015. Long-term debt increased from $21,805 million at December 31, 2014.
Registrant-level results
| Registrant | Q3 2015 net income | Q3 2014 | 9M 2015 net income | 9M 2014 |
|---|---|---|---|---|
| Virginia Power | $385 million | $314 million | $900 million | $707 million |
| Dominion Gas | $111 million | $107 million | $357 million | $364 million |
Virginia Power’s nine-month operating revenue increased to $6,008 million from $5,765 million, while Dominion Gas revenue declined to $1,291 million from $1,388 million. Dominion Gas’s lower revenue was principally related to reduced NGL prices and lower gas sales, partly offset by transportation and storage growth.
Material changes versus the prior comparable period
- Electric fuel and other energy-related purchases declined $107 million in the third quarter and $530 million year to date. Purchased gas declined $124 million in the third quarter and $627 million year to date.
- Net revenue increased $163 million in the third quarter and $793 million year to date, reflecting favorable weather, rate-adjustment-clause revenue, increased generation output, solar additions, the DCG acquisition and the absence of 2014 producer-services and retail-energy-marketing losses.
- 2015 included an $85 million deferred-fuel-cost write-off, a $45 million charge for incremental ash-pond and landfill closure costs, and a $17 million PJM billing adjustment. These items were partly offset by a $39 million net gain on nuclear decommissioning-trust investments.
- 2014 included $330 million of charges associated with proposed North Anna nuclear and offshore-wind development, $319 million of producer-services losses, and other one-time charges. The absence of these items was a major driver of the 2015 earnings increase.
- Dominion acquired DCG for approximately $497 million in cash and acquired interests in the Four Brothers and Three Cedars solar projects. It also acquired a 25.93% interest in Iroquois through Dominion Midstream.
- Dominion signed an agreement to sell a 33% noncontrolling interest in its wholly owned merchant solar projects for approximately $300 million, expected to close by the end of the first quarter of 2016.
Guidance, outlook, risks and unusual items
- The filing does not provide a clear quantitative full-year earnings or revenue guidance figure.
- Management expects continued capital investment in electric, gas and renewable infrastructure. The Atlantic Coast Pipeline is expected to cost $4.5 billion to $5.0 billion and enter service in the fourth quarter of 2018; the Supply Header Project is expected to cost approximately $500 million and also enter service in the fourth quarter of 2018.
- Dominion expects to spend approximately $730 million to construct Four Brothers and $425 million to construct Three Cedars. Dominion’s required capital contributions are $445 million and $276 million, respectively.
- Virginia Power’s biennial rate review could result in an estimated customer credit of approximately $65 million if the regulator accepts all staff adjustments. No liability was recorded because the final ruling was pending.
- Environmental compliance is a significant exposure. The CCR rule resulted in a $325 million asset-retirement obligation and a $45 million operating charge in 2015. Future ash-pond, wastewater, ozone, methane and Clean Power Plan requirements could require material additional expenditures.
- Other contingencies include the Ward Transformer Superfund matter, former manufactured-gas-plant remediation, Appalachian Gateway contractor claims, ash-pond litigation, nuclear licensing matters and regulatory proceedings. For several matters, the filing states that a reasonable loss range cannot currently be estimated.
- Dominion had $6,731 million of stated subsidiary-guarantee limits, with an estimated utilized value of $2,056 million. Its energy-marketing and price-risk-management credit exposure was $195 million before collateral and $148 million net of collateral.
- Key ongoing risks include weather, commodity prices, interest rates, counterparty credit, access to capital markets, nuclear operations, PJM and FERC rate structures, environmental regulation, construction execution, litigation, cybersecurity and changes in regulated rates.
Important facts for investors to verify
- Confirm the current corporate name and reporting structure following the historical Dominion Resources filing and distinguish Dominion consolidated results from Virginia Power and Dominion Gas standalone results.
- Reconcile reported earnings growth to recurring operating performance versus gains from shale-rights transactions, investment-tax credits, lower prior-year charges and other specific items.
- Assess debt growth, near-term securities due within one year, commercial-paper reliance, interest-rate exposure and available revolving-credit capacity.
- Review the final outcome of the Virginia Power biennial rate review and any related customer credits or regulatory adjustments.
- Evaluate the ultimate cost and rate-recovery treatment of CCR ash-pond closures, wastewater controls, Clean Power Plan compliance and other environmental obligations.
- Monitor financing, regulatory approvals, construction schedules and capital commitments for the Atlantic Coast Pipeline, Supply Header Project, solar projects and other expansion programs.
- Review the filing’s legal proceedings, guarantees, purchase commitments and unrecognized asset-retirement obligations because several exposures cannot yet be quantified clearly.