Dominion uses operating earnings as the primary performance measurement of its earnings outlook and results for public communications with analysts and investors. Dominion also uses operating earnings internally for budgeting, for reporting to the board of directors, for the company’s incentive compensation plans and for its targeted dividend payouts and other purposes. Dominion management believes operating earnings provide a more meaningful representation of the company’s fundamental earnings power.
Business segment results and detailed descriptions of items included in 2009 and 2008 GAAP earnings but excluded from operating earnings can be found on Schedules 1, 2 and 3 of this release.
Thomas F. Farrell II, chairman, president and chief executive officer, said:
“This quarter we took another important step toward successfully meeting the growing demand for new energy and infrastructure across the many markets we serve. To move Virginia toward its goal of energy independence and to reduce its reliance on imported power, we filed for our first base rate increase in seventeen years, along with several rate adjustment clauses, that support new generation and transmission projects over the next several years.
“We also completed major construction projects at our Cove Point LNG facility in Maryland, and at Fowler Ridge in Indiana, the largest wind farm in the Midwest.
“Our merchant businesses delivered exceptional results this quarter. Combined with better-than-expected results from producer services, favorable utility weather and lower-than-expected interest expense, our operating earnings exceeded the top end of our guidance range.
“The strong quarterly financial performance gives us confidence that our operating earnings for 2009 should reach $3.20 to $3.30 per share.”
First-quarter 2009 operating earnings compared to guidance
First-quarter 2009 operating earnings of 97 cents per share compare to guidance of 85 cents to 90 cents per share. Drivers that compared favorably to guidance include higher contributions from the producer services business; favorable weather in the electric service territory; and lower interest expense. Factors that compared negatively to guidance include storm damage and service restoration charges in the regulated electric business and a higher effective income tax rate.
First-quarter 2009 operating earnings compared to 2008
The decrease in first-quarter 2009 operating earnings per share as compared to 2008 is primarily attributable to higher income tax expense due to the absence of certain state tax benefits recognized in 2008 and lower gas and oil production in the company’s E&P operations, as a result of the expiration of overriding royalty interests associated with former volumetric production payment agreements. Partially offsetting these negatives were higher contributions from the merchant generation and producer services businesses and favorable weather in the regulated electric service territory.
Second-quarter 2009 operating earnings guidance
Dominion expects second-quarter 2009 operating earnings in the range of 61 cents to 66 cents per share. This compares to operating earnings of 50 cents per share in the second-quarter of 2008. Drivers expected to compare favorably to 2008 include higher contributions from the merchant generation, producer services and gas transmission businesses. Expected offsets include lower contributions from the regulated electric generation business, including a return to normal weather, a heavier-than-normal planned outage schedule and reduced financial transmission rights (FTR) and wholesale margins; and higher interest expense.
In providing its second-quarter and full-year 2009 operating earnings guidance, the company notes that there will be differences between expected 2009 GAAP and operating earnings for matters such as, but not limited to, divestitures or changes in accounting principles. At this time, Dominion management is not able to estimate the impact, if any, of these items on GAAP earnings. Accordingly, Dominion is not able to provide a corresponding GAAP equivalent for its operating earnings guidance and outlook.
