Dominion Resources, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2013. The combined filing covers Dominion Resources, Inc. and its wholly owned regulated utility subsidiary, Virginia Electric and Power Company, doing business as Virginia Power. Dominion is an energy producer and transporter with regulated electric, gas transmission, storage and distribution, merchant generation and related operations.
Financial Results and Key Metrics
Dominion Resources, Inc.
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Operating revenue | $3,432 million | $3,332 million | $9,935 million | $9,734 million |
| Income from operations | $1,034 million | $551 million | $2,512 million | $2,097 million |
| Net income attributable to Dominion | $569 million | $209 million | $1,266 million | $961 million |
| Diluted EPS | $0.98 | $0.36 | $2.19 | $1.68 |
| Dividends declared per common share | $0.5625 | $0.5275 | $1.6875 | $1.5825 |
- Operating margin was approximately 30.1% in Q3 2013 versus 16.5% in Q3 2012; the nine-month margin was approximately 25.3% versus 21.5%.
- Net margin attributable to Dominion was approximately 16.6% in Q3 2013 versus 6.3% in Q3 2012; the nine-month margin was approximately 12.7% versus 9.9%.
- Q3 net income increased $360 million, primarily due to the absence of 2012 Kewaunee-related charges and gains on asset sales to Blue Racer. Year-to-date net income increased 32%.
Virginia Electric and Power Company
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Operating revenue | $2,059 million | $2,086 million | $5,550 million | $5,596 million |
| Income from operations | $679 million | $746 million | $1,672 million | $1,575 million |
| Net income | $387 million | $415 million | $939 million | $830 million |
Virginia Power's Q3 net income declined 7%, primarily because of less favorable weather and lower cooling demand. Nine-month net income increased 13%, supported by rate-adjustment-clause revenue, more favorable heating weather and the absence of 2012 storm restoration costs.
Cash Flow, Liquidity and Debt
- Dominion generated $2,950 million of operating cash flow in the first nine months of 2013, down from $3,462 million in 2012. Capital expenditures and other property additions were $2,978 million.
- Dominion used $2,348 million in investing activities and $563 million in financing activities, ending with $287 million of cash versus $248 million at December 31, 2012.
- Virginia Power generated $2,036 million of operating cash flow and used $1,948 million in investing activities and $65 million in financing activities, ending with $51 million of cash.
- Dominion reported $18,548 million of long-term debt, $2,145 million of short-term debt and $36,989 million of total liabilities at September 30, 2013. Virginia Power reported $7,981 million of long-term debt and $485 million of short-term debt.
- Dominion had $3.5 billion of revolving credit facilities, $2.145 billion of commercial paper and $18 million of letters of credit outstanding, leaving $1.337 billion available. Virginia Power had $764 million of capacity available under its joint facilities.
- Dominion issued $1.1 billion of equity units in June 2013 and issued additional long-term debt during the period. Virginia Power issued $1.75 billion of senior notes in January, March and August 2013.
- Planned capital expenditures were approximately $5.1 billion for 2013, $5.1 billion for 2014 and $4.3 billion for 2015, with the increase largely reflecting the Cove Point liquefaction project.
Material Changes and Unusual Items
- Dominion completed the sale of Brayton Point, Kincaid and its equity-method investment in Elwood in August 2013 for approximately $465 million of net proceeds. Brayton Point and Kincaid were reported as discontinued operations; the transactions produced a $25 million after-tax gain on Elwood and an $18 million after-tax loss on Brayton Point and Kincaid.
- Dominion sold Illinois Gas Contracts for approximately $32 million, recognizing an approximately $18 million after-tax gain.
- Dominion sold or contributed assets to Blue Racer, including Natrium-related infrastructure and pipeline assets. The transactions generated approximately $100 million of after-tax gains year to date, and a $473 million noncash asset contribution increased Dominion's equity-method investment.
- Dominion recorded a $29 million after-tax impairment charge on acquired natural gas infrastructure assets and a $74 million after-tax loss related to restructuring producer-services activities.
- Dominion purchased the Fairless generating facility from Juniper for $923 million, accounted for as an equity transaction because Juniper had previously been consolidated.
- Dominion's 2013 results benefited from the absence of significant 2012 Kewaunee decommissioning and impairment charges. The filing states that 2012 comparative amounts were recast for discontinued operations.
Outlook, Guidance and Risks
- The filing does not provide a clear consolidated earnings-per-share or revenue guidance range for 2013.
- Dominion expects the Cove Point liquefaction project, subject to regulatory approvals, to begin construction in 2014 and enter service in 2017. The project received conditional Department of Energy authorization to export up to 770 million cubic feet per day of LNG for 20 years.
- Dominion announced plans to form a midstream master limited partnership in 2014 and established Dominion Gas Holdings as the primary financing entity for regulated natural gas businesses. Subsequent to quarter-end, Dominion Gas Holdings issued $1.2 billion of senior notes.
- Virginia Power requested a reduction in its fuel-factor rate effective December 1, 2013, expected to reduce fuel recoveries through June 30, 2014 by more than $140 million because of anticipated over-recovery.
- Key risks include weather and demand variability, commodity-price and interest-rate volatility, merchant-generation margins, nuclear operations and decommissioning, environmental and climate regulation, regulatory approval and cost recovery, construction execution, capital-market access, counterparty credit, litigation, cybersecurity and natural disasters.
- Potentially material matters include future greenhouse-gas requirements, unresolved environmental remediation and regulatory proceedings, nuclear safety requirements, and legal or regulatory matters for which the filing cannot estimate a potential loss.
- The Natrium gas processing facility was shut down after a September 2013 fire; management did not expect a material financial impact.
- In October 2013, Standard & Poor's affirmed Dominion's corporate credit rating at A- but lowered senior unsecured debt to BBB+ because of increased structural subordination associated with new Dominion Gas Holdings debt.
Investor Verification Checklist
- Verify the effect of discontinued operations, asset sales, Blue Racer gains and the absence of Kewaunee charges on recurring earnings.
- Assess whether lower operating cash flow, approximately $5 billion annual capital spending and increased debt remain consistent with targeted leverage and dividend capacity.
- Review Cove Point approvals, cost estimates, financing requirements and projected commercial timing.
- Monitor Virginia Power's fuel-factor reduction, pending rate matters, Brunswick County proceedings and proposed DSM riders.
- Evaluate exposure to merchant-generation margins, weather, commodity prices, nuclear operations and environmental compliance.
- Review outstanding guarantees, nuclear insurance assessments, derivative collateral requirements and unresolved legal or environmental contingencies.
- Confirm the implications of Dominion Gas Holdings financing and the associated credit-rating changes for parent-company creditors and equity holders.