What caused the significant drop in net income for the third quarter of 2005 compared to the prior year?

The primary driver for the significant decrease in net income was a substantial after-tax loss of $357 million related to the discontinuance of hedge accounting for certain gas and oil hedges. This discontinuance was necessitated by production interruptions in the Gulf of Mexico caused by Hurricanes Katrina and Rita, along with subsequent changes in the fair value of those hedges. This loss was primarily recognized in the 'Corporate and Other' segment and disproportionately affected the Exploration & Production (E&P) segment.

How did the company's operating segments perform, and what were the key drivers?

The primary operating segments showed mixed performance. Dominion Delivery's net income contribution decreased slightly due to revenue allocation changes and lower non-regulated marketing operations, partially offset by favorable weather. Dominion Energy's contribution significantly increased due to the prior year's losses from exited energy trading activities and improved performance at the Cove Point LNG facility. Dominion Generation's contribution slightly decreased due to higher fuel and purchased power expenses, despite gains from emissions allowances and contributions from newly acquired plants. Dominion E&P's performance declined substantially due to lower production (exacerbated by hurricanes and asset sales), higher operations and maintenance expenses, and increased hedge ineffectiveness.

What is the company's liquidity position and financing outlook?

Dominion maintained a strong liquidity position with $1.2 billion in cash and cash equivalents and $1.0 billion in unused credit capacity at September 30, 2005, supported by $4.25 billion in committed credit facilities. The company issued $2.3 billion in long-term debt and $655 million in common stock during the first nine months of 2005. Planned capital expenditures are substantial, and the company expects to fund them through cash from operations, debt, and equity issuances.

Are there any significant new accounting standards or regulatory changes impacting Dominion?

Dominion is evaluating the impact of newly issued accounting standards, including FIN 47 (Asset Retirement Obligations) and SFAS No. 123R (Share-Based Payment), which will be adopted in late 2005 and early 2006, respectively. The company is also assessing the implications of the Energy Policy Act of 2005, which includes the repeal of the Public Utility Holding Company Act of 1935 in February 2006, and will affect regulatory oversight and market structures. Additionally, new environmental regulations (Clean Air Interstate Rule and Clean Air Mercury Rule) are expected to require emission reductions.

D 10-Q Quarterly Report Q3 FY2005 — Revenue, Net Income, EPS

Summary

Dominion Energy, Inc. (D) reported a significant year-over-year decrease in net income for the third quarter of 2005, primarily driven by substantial losses related to the discontinuance of hedge accounting due to Hurricanes Katrina and Rita, impacting its Exploration & Production (E&P) segment. While operating revenues saw a substantial increase driven by non-regulated sales and energy trading activities, higher operating expenses, particularly in fuel and purchased power, along with the aforementioned hurricane-related charges, significantly eroded profitability. The company also highlighted increased capital expenditures and ongoing strategic initiatives, including the acquisition of the Kewaunee nuclear power station and adjustments to its energy trading operations. For the nine months ended September 30, 2005, net income also declined compared to the prior year, though the primary operating segments showed a slight increase in combined net income contribution. This was more than offset by significant charges reported in the 'Corporate and Other' segment, notably the hurricane-related losses. Despite these challenges, Dominion continues to manage its liquidity through substantial credit facilities and has outlined its planned capital expenditures and strategic focus for the near future, including evaluating the impact of the Energy Policy Act of 2005.

Key Highlights

1Net income for the three months ended September 30, 2005, was $15 million ($0.04 per diluted share), a substantial decrease from $337 million ($1.02 per diluted share) in the same period of 2004.
2Operating revenue increased by 39% to $4.6 billion for the third quarter of 2005, driven by non-regulated electric sales and energy trading and marketing activities.
3Significant losses of $357 million after-tax were recorded in the 'Corporate and Other' segment due to the discontinuance of hedge accounting following Hurricanes Katrina and Rita, severely impacting the E&P segment.
4The company acquired the 568-megawatt Kewaunee nuclear power station in July 2005 for approximately $192 million.
5Dominion expanded its credit facilities, with committed lines totaling $4.25 billion at September 30, 2005, to support commercial paper and letter of credit issuances.
6Planned capital expenditures for 2005 were approximately $4.1 billion, with projections for 2006 around $3.2 billion.

DOMINION ENERGY, INC Quarterly Report for Q3 Ended Sep 30, 2005

Summary

Key Highlights

Frequently Asked Questions