Dominion Resources Inc. (D) reported third-quarter operating earnings of $603.0 million or $1.03 per share, lagging the Zacks Consensus Estimate of $1.07 per share. However, the result exceeds the prior-year earnings of $590.0 million or 99 cents.
While the company’s strategy to strengthen infrastructure bodes well, the surge in earnings from the prior-year quarter was primarily driven by favorable weather in the regulated electric service area, along with higher PJM ancillary service and electric transmission revenues, and rate adjustment clauses.
However, they were partially offset by lower merchant generation margins, higher storm damage and restoration costs, and the absence of earnings resulting from the divestiture of the company’s E&P operationsthat began on May 1, 2010.
Dominion’s GAAP net income was $575.0 million or 98 cents per share, which declined 3.2% year over year from $594.0 million or $1.00 in the year-ago period.
GAAP net income of third quarter 2010 includes after-tax interim tax provision and other one-time charges of $24.0 million and $4.0 million, respectively. On the other hand, GAAP net income in the prior-year quarter includes net gains in nuclear decommissioning trust funds and other gains of $34.0 million and $11.0 million, respectively, while it also includes the discontinued operations of Peoples Gas of $41.0 million.
Dominion’s total revenue jumped 8.8% year over year to $3.95 billion, on the back of higher weather-related demand that were offset by higher storm damage and restoration costs. Dominion did not generate revenue from its Appalachian natural gas and oil exploration and production business in the quarter, as the company had sold it to CONSOL Energy Inc. (CNX) in April, 2010.
Operating income for Dominion Energy decreased 1.1% year over year to $92 million, while Dominion Virginia Power increased 12.6% year over year to $107 million and Dominion Generation climbed 6.1% year over year to $487 million, during the reported quarter. Corporate and other reported a loss of $83 million against $50 million in the year-ago quarter.
Project Updates
Dominion’s regulated infrastructure investment program is making progress and is on time and on budget. Two phases of the Meadow Brook-to-Loudoun line are complete and in operation while work continues on the remaining section of the line. Construction on the Carson-to-Suffolk line is nearly 50% complete.
Dominion also stated that its Virginia City Hybrid Energy Center is approximately 75% complete and scheduled for commercial operation in mid-2012. Also, the Bear Garden Power Station is about 85% complete and is on schedule to reach commercial operations by next summer.
Further, Dominion’s proposed three-on-one; gas-fired combined-cycle facility in Warren County has completed the steam turbine and gas turbines selection process and executed the natural gas transportation agreement to supply fuel to the power station. Dominion plans to file for approval of this station with the Virginia State Corporation Commission next year.
At Dominion Energy, the company also signed a new 15-year firm transportation agreement to move 100,000 dekatherms per day of Marcellus Shale volumes. Also, the two major Energy construction projects, Gathering Enhancement and Cove Point Pier Expansion, remain on schedule and on budget.
Dividend Update
The board of Dominion declared a quarterly dividend of 45.75 cents per share on its common stock on October 22, to be paid on December 20, 2010 to shareholders of record as on November 29, 2010.
Outlook for 2010
Dominion expects its fourth-quarter 2010 operating earnings in the range of 59 cents to 69 cents per share as compared to fourth-quarter 2009 operating earnings of 63 cents per share. The fourth-quarter of 2010 includes higher rate adjustment clause revenue, lower planned nuclear outage expenses and a return to normal weather.
The quarter also includes lower merchant generation margins, higher income taxes and the absence of earnings resulting from the divestiture of the company’s E&P operations.
Dominion has also raised the bottom-end of the operating earnings guidance range for fiscal 2010 to $3.30 to $3.40 per share, from $3.25 to $3.40 per share previously expected. The improved guidance resulted from the strong performance in the quarter. However, Dominion reiterates its operating earnings forecast for fiscal 2011 at $3.00 to $3.30 per share.
For full-year 2010, Dominion projects that the sale of substantially all of its Appalachian E&P operations will result in an after-tax gain of approximately $1.4 billion.
The implementation of a workforce reduction program, the impairment of a merchant generation asset, the sale of Peoples Gas and the elimination of certain tax deductions associated with health care legislation changes will result in a net after-tax loss of approximately $500 million. However, these items are not expected to be included in the earnings results of 2010.
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