Dominion Announces Third Quarter 2007 Earnings

-- Company affirms 2008 operating earnings outlook of $6.10 to $6.25 per share and at least 6 percent annual growth thereafter

-- Conference call scheduled for 10 a.m. EDT today

RICHMOND, Va.
(NYSE:D)
Nov 1, 2007
7:30am

RICHMOND, Va., Nov. 1 /PRNewswire-FirstCall/ -- Dominion (NYSE: D) announced today earnings determined in accordance with Generally Accepted Accounting Principles (GAAP) for the three months ended Sept. 30, 2007, of $2.3 billion ($7.24 per share) compared with GAAP earnings of $654 million ($1.85 per share) for the same period last year.

Operating earnings for the three months ended Sept. 30, 2007, were $551 million ($1.72 per share) compared with operating earnings of $664 million ($1.88 per share) for the three months ended Sept. 30, 2006. Operating earnings are defined as GAAP earnings adjusted for certain items.

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 annual incentive plan and for its targeted dividend payouts. Dominion management believes operating earnings provide a more meaningful representation of the company's fundamental earnings power.

In addition to differences between GAAP and operating earnings recorded through the third quarter of 2007, the company notes that there could be differences between remaining 2007 GAAP and operating earnings for matters such as, but not limited to, divestitures. While Dominion management is currently not able to estimate precisely the impact, if any, of these items on GAAP earnings, it does expect GAAP earnings to exceed operating earnings for the year.

Business segment results and detailed descriptions of items included in 2007 and 2006 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's performance reflects where we are going and where we have been. We completed the sale of our non-Appalachian E&P properties for approximately $13.9 billion. We were able to reduce $3.3 billion of debt and repurchase $5.8 billion of common stock with the proceeds. We also plan to use these dollars for the termination of the State Line long-term power purchase sales agreement, a transaction that is more accretive than repurchasing additional shares.

"We met a new peak demand of 19,688 megawatts in our Dominion Virginia Power service area, surpassing the old record by 300 megawatts. We raised the roofs on both expansion tanks under construction at Dominion Energy's Cove Point facility. And, as part of our ongoing review to improve our return on invested capital, we completed the sale of our partially completed Dresden plant.

"With confidence in Dominion's future earnings stability and the strength of our fundamentals, the board of directors increased the quarterly common stock dividend rate 11 percent to 79 cents per share and set a policy to achieve a 2010 payout ratio of 55 percent. Considering our expected operating earnings per share growth rate of 6 percent or more annually after 2008, shareholders should expect similar-sized dividend rate increases in 2009 and 2010 in order to reach our targeted payout ratio. Additionally, the board approved a two-for-one stock split that will lower the entry point for shareholders to invest in our company.

"Our ability to operate at a high standard, while unlocking trapped value across the portfolio, strengthens our belief that we are well positioned to achieve our operating earnings forecast of $6.10 to $6.25 per share next year and to grow operating earnings per share at an annual rate of at least 6 percent thereafter."

In providing its operating earnings outlook, the company notes that there could be differences between expected 2008 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 outlook.

Third-quarter 2007 operating earnings compared with 2006

Third-quarter 2007 operating earnings of $1.72 per share compare with operating earnings of $1.88 per share in the third quarter of 2006. The decrease is primarily attributable to lower natural gas and oil production due to the sale of Dominion's non-Appalachian E&P properties, the absence of a benefit from business interruption insurance recorded in the third quarter of 2006, lower contributions from the company's producer services and gas transmission businesses and the nonrecurrence of gains from the sales of excess emissions allowances. These negative drivers were partially offset by lower Virginia fuel expenses due to the reapplication of deferred fuel accounting, higher contributions from the merchant generation business, lower interest expenses and lower average common shares outstanding. Complete details of third-quarter 2007 operating earnings compared with third-quarter 2006 operating earnings can be found on Schedules 4 and 5 of this release.

Conference call today

Dominion will host its third-quarter earnings conference call at 10 a.m. EDT on Thursday, Nov. 1. Dominion management will discuss its third-quarter financial results as well as other matters of interest to the financial community.

Domestic callers should dial (866) 710-0179. The passcode for the conference call is "Dominion." International callers should dial (334) 323-9871. Participants should dial in 10 to 15 minutes prior to the scheduled start time. Members of the media also are invited to listen.

A live webcast of the conference call will be available on the company's investor information page at http://www.dom.com/investors/.

A replay of the conference call will be available beginning about 1 p.m. EDT Nov. 1 and lasting until 11 p.m. EST Nov. 8. Domestic callers may access the recording by dialing (877) 919-4059. International callers should dial (334) 323-7226. The PIN for the replay is 23716573. Additionally, a replay of the webcast will be available on the company's investor information page by the end of the day Nov. 1.

Dominion is one of the nation's largest producers and transporters of energy, with a portfolio of approximately 26,500 megawatts of generation, 7,800 miles of natural gas transmission pipeline and 1 Tcfe of proved natural gas and oil reserves. Dominion also owns and operates the nation's largest underground natural gas storage system with about 960 billion cubic feet of storage capacity and serves retail energy customers in 11 states. For more information about Dominion, visit the company's Web site at http://www.dom.com/.

This news release contains certain forward-looking statements, including our forecasted operating earnings for 2008 as well as projected future long- term operating earnings growth rates and projected dividend payout ratios, that are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations may include factors that are beyond the company's ability to control or estimate precisely, such as fluctuations in energy- related commodity prices, the timing of the closing dates of acquisitions or divestitures (including our divestiture of The Peoples Natural Gas Company and Hope Gas, Inc.), estimates of future market conditions, estimates of proved and unproved reserves, the company's ability to meet its natural gas and oil production forecasts, the behavior of other market participants, and the effects of hurricanes on our operations and realized prices. Other factors include, but are not limited to, weather conditions, governmental regulations, economic conditions in the company's service area, risks of operating businesses in regulated industries that are subject to changing regulatory structures, changes to regulated gas and electric rates collected by Dominion, risks associated with the realignment of our operating assets, changes to rating agency requirements and ratings, changing financial accounting standards, trading counter-party credit risks, risks related to energy trading and marketing, and other uncertainties. Other risk factors are detailed from time to time in Dominion's most recent quarterly report on Form 10-Q or annual report on Form 10-K filed with the Securities & Exchange Commission.

  Schedule 1 - Segment Operating Earnings

  Unaudited
  (millions, except earnings per share)
                                            Three months ended September 30,
                                             2007         2006        Change
  Operating Revenue (GAAP Based)            $3,589       $3,973       $(384)

  Earnings:
      Dominion Delivery                        $74          $78         $(4)
      Dominion Energy                           61          102         (41)
      Dominion Generation (1)                  403          253         150
      Dominion Exploration &
       Production (1)                           38          297        (259)
      Corporate (1)                            (25)         (66)         41
      OPERATING EARNINGS                      $551         $664       $(113)
      Items excluded from operating
       earnings (2)                          1,766          (10)      1,776
      GAAP EARNINGS                         $2,317         $654      $1,663

  Common Shares Outstanding (average,
   diluted)                                  319.8        353.9

  Earnings Per Share (EPS):
      Dominion Delivery                      $0.23        $0.22       $0.01
      Dominion Energy                         0.19         0.29       (0.10)
      Dominion Generation (1)                 1.26         0.71        0.55
      Dominion Exploration &
       Production (1)                         0.12         0.84       (0.72)
      Corporate (1)                          (0.08)       (0.18)       0.10
      OPERATING EARNINGS                     $1.72        $1.88      $(0.16)
      Items excluded from operating
       earnings (2)                           5.52        (0.03)       5.55
      GAAP EARNINGS                          $7.24        $1.85       $5.39


                                             Nine months ended September 30,
                                             2007         2006        Change
  Operating Revenue (GAAP Based)           $11,980      $12,375       $(395)

  Earnings:
      Dominion Delivery                       $356         $314         $42
      Dominion Energy                          232          277         (45)
      Dominion Generation (1)                  623          456         167
      Dominion Exploration &
       Production (1)                          314          615        (301)
      Corporate (1)                           (146)        (152)          6
      OPERATING EARNINGS                    $1,379       $1,510       $(131)
      Items excluded from operating
       earnings (2)                            861         (161)      1,022
      GAAP EARNINGS                         $2,240       $1,349        $891

  Common Shares Outstanding (average,
   diluted)                                  340.6        350.9

  Earnings Per Share (EPS):
      Dominion Delivery                      $1.05        $0.89       $0.16
      Dominion Energy                         0.68         0.79       (0.11)
      Dominion Generation (1)                 1.83         1.31        0.52
      Dominion Exploration &
       Production (1)                         0.92         1.75       (0.83)
      Corporate (1)                          (0.43)       (0.44)       0.01
      OPERATING EARNINGS                     $4.05        $4.30      $(0.25)
      Items excluded from operating
       earnings (2)                           2.53        (0.46)       2.99
      GAAP EARNINGS                          $6.58        $3.84       $2.74

      (1) Earnings have been recast to exclude income and losses from
          discontinued operations.
      (2) Refer to schedules 2 and 3 for details related to items excluded
          from operating earnings,
          or find "GAAP Reconciliation" on Dominion's Web site at
          http://www.dom.com/investors/



  Schedule 2 - Reconciliation of 2007 Operating Earnings to GAAP

  2007 Earnings (Nine months ended September 30, 2007)

The net effects of the following items, all shown on an after-tax basis, are included in 2007 reported earnings, but are excluded from operating earnings:

  -- $1.4 billion net benefit resulting from the sale of our U.S. non-
     Appalachian E&P businesses completed in the third quarter of 2007,
     including:
     -- $2.1 billion net gain from the sale; partially offset by
     -- $503 million in other charges including the effect of discontinuing
        hedge accounting for certain gas and oil hedges and subsequent
        changes in the fair value of these hedges ($347 million), settlement
        of volumetric production payment (VPP) agreements ($108 million),
        and employee-related expenses; and
     -- $148 million in net charges related to the early retirement of debt
        associated with the completion of our debt tender offer in July
        2007;
  -- $119 million net benefit related to the release of tax valuation
     allowances;
  -- $270 million of impairment charges related to our merchant generation
     assets including $252 million related to the sale of a partially
     completed generation facility (Dresden);
  -- $140 million charge related to the expected termination of a power
     sales agreement at our State Line generating facility;
  -- $158 million extraordinary item related to the re-application of SFAS
     No. 71, Accounting for the Effects of Certain Types of Regulation, to
     the Virginia jurisdiction of our electric utility generation
     operations;
  -- $55 million in charges related to the impairment of certain Dominion
     Capital investments;
  -- $32 million in charges related to litigation reserves;
  -- $5 million net loss from the discontinued operations of three merchant
     generation facilities (Troy, Pleasants, Armstrong), a Dominion Capital
     subsidiary, and the Canadian E&P operations; and
  -- $13 million in other charges.


  (millions, except per     1Q07     2Q07     3Q07     4Q07     YTD 2007*
   share amounts)
  Operating earnings        $518     $310     $551               $1,379
  Items excluded from
   operating earnings
   (after-tax):
    Items related to the
     sale of U.S. non-
     Appalachian E&P business:
      Net gain on sale        (2)    (56)    2,124               2,066
      Other related charges   (6)   (482)      (15)               (503)
      Net charges related to
       debt tender offer              15      (163)               (148)
    Release of tax valuation
     allowances, net          (6)     70        55                 119
    Impairment of merchant
     generation assets              (252)      (18)               (270)
    Charge related to the
     expected termination of
     the State Line power
     sales agreement                          (140)               (140)
    Extraordinary item related
     to the re-application
     of SFAS 71                     (158)                         (158)
    Dominion Capital impairment
     of assets                                 (55)                (55)
    Litigation reserves      (16)              (16)                (32)
    Net income (loss) from
     discontinued
     operations              (22)     20        (3)                 (5)
    Other charges            (13)      3        (3)                (13)
    Total items excluded
     from operating
     earnings                (65)   (840)    1,766                 861
  Reported net income       $453   ($530)   $2,317              $2,240
  Common shares
   outstanding (average,
   diluted)**              350.8   349.1     319.8               340.6
  Operating earnings
   per share               $1.48   $0.89     $1.72               $4.05
  Items excluded from
   operating earnings
   (after-tax)             (0.19)  (2.41)     5.52                2.53
  Reported earnings
   per share               $1.29  ($1.52)    $7.24               $6.58

  *  YTD 2007 EPS may not equal sum of quarters due to share count
     differences.
  ** As result of the net loss from continuing operations for the three
     months ended June 30, 2007, the issuance of common stock under
     potentially-dilutive securities was considered antidilutive and
     therefore not included in the calculation of the diluted loss per share
     for that period.



  Schedule 3 - Reconciliation of 2006 Operating Earnings to GAAP

  2006 Earnings (Twelve months ended December 31, 2006)

The net effects of the following items, all shown on an after-tax basis, are included in 2006 reported earnings, but are excluded from operating earnings:

  -- $183 million in losses from discontinued operations of three merchant
     generation facilities (Troy, Pleasants, Armstrong) for which an
     agreement to sell was executed in December 2006 reflecting the
     impairment of assets ($164 million) and loss from normal operations
     ($19 million);
  -- $33 million in income from the discontinued operations of our Canadian
     E&P business sold in June 2007;
  -- $91 million in charges related to the impairment of certain Dominion
     Capital investments;
  -- $73 million in net charges related to the pending sale of Dominion
     Peoples and Dominion Hope natural gas local distribution companies;
  -- $37 million in charges due to the mark-to-market impact on certain
     interest rate swaps;
  -- $34 million of impairment charges, including the cancellation of a
     pipeline project ($17 million) and from a change in method of assessing
     other-than-temporary declines in the fair value of securities held in
     nuclear decommissioning trust funds ($15 million);
  -- $11 million of incremental charges related to Hurricanes Katrina and
     Rita;
  -- $6 million in charges related to the write-off of a deferred merchant
     generation gas transportation contract;
  -- $6 million gain on the sale of an investment in a natural gas storage
     development project; and
  -- $5 million in other charges including charges related to the
     divestiture of oil and gas properties.


  (millions, except per     1Q06    2Q06      3Q06      4Q06   YTD 2006
   share amounts)
  Operating earnings        $567    $279      $664      $271    $1,781
  Items excluded from
   operating earnings
  (after-tax):

    Discontinued operations
     - merchant generation
     facilities               (5)     (6)       (4)     (168)     (183)
    Discontinued operations
     - Canadian E&P
     operations                5      20         3         5        33
    Discontinued operations
     - Dominion Capital
     subsidiary                        1                  (1)        0
    Dominion Capital
     related charges                 (85)                 (6)      (91)
    Net charges related to
     the pending sale of
     Dominion Peoples and
     Dominion Hope natural
     gas distribution
     companies               (21)     (7)       (7)      (38)      (73)
    Mark-to-market impact
     related to certain
     interest rate swaps             (37)                          (37)
    Impairment of assets                        (6)      (28)      (34)
    Hurricanes Katrina
     and Rita                 (7)     (3)       (1)                (11)
    Merchant generation
     contract write-off       (6)                                   (6)
    Gain on sale of natural
     gas storage
     development project                         5         1         6
    Other                      1      (1)        0        (5)       (5)
    Total items excluded
     from operating
     earnings                (33)   (118)      (10)     (240)     (401)
  Reported net income       $534    $161      $654       $31    $1,380

  Common shares
   outstanding (average,
   diluted)                348.1   350.5     353.9     353.8     351.6

  Operating earnings
   per share               $1.63   $0.80     $1.88     $0.77     $5.07
  Items excluded from
   operating earnings
   (after-tax)             (0.10)  (0.34)    (0.03)    (0.68)    (1.14)
  Reported earnings
   per share               $1.53   $0.46     $1.85     $0.09     $3.93

  *  YTD 2006 EPS may not equal sum of quarters due to share count
     differences.



    Schedule 4 - Comparison of 3Q07 Earnings Drivers to 3Q06

                                                   3Q07              3Q06
                Description                       Actual            Actual

    GAAP earnings (mm) (1)                        $2,317              $654
    Operating earnings (mm)(1)                      $551              $664
    Average common shares outstanding,
     diluted (mm)                                  319.8             353.9
    GAAP earnings per share (1)                    $7.24             $1.85
    Operating earnings per share (1)               $1.72             $1.88

    Certain Items That Impacted
     Operating Earnings During Period:

    Weather compared to normal -
     After-tax (mm) (2)                              $14               $17
    SFAS 133 - (Hedge Ineffectiveness/Other) -
     After-tax (mm)                                   $1                $0
    SFAS 133 - (Katrina/Rita Dedesignated
     Hedges) - After-tax (mm)                         $0               $33
    Virginia Fuel Underrecovery -
     After-tax (mm)                                   $0             ($165)
    Business Interruption Insurance -
     After-tax (mm)                                   $0              $171
    Major Storms (primarily Tropical
     Storm Ernesto) - After-tax (mm)                  $0               ($9)
    Emission Allowance Sales -
     After-tax (mm)                                   $0               $28


    Natural Gas Production (Bcf) (3)                36.5              78.1
    Liquids Production (mmbbls) (3)                  0.8               6.1
    Equivalent Natural Gas Production
     (Bcfe) (3)                                     41.6             114.5

    Avg. NYMEX Spot Price - Nat Gas
     ($/mmbtu)                                     $6.24             $6.58
    Avg. NYMEX Spot Price - Oil ($/bbl)           $75.15            $71.55

    Average Realized Price without
     Hedging Results - Natural Gas
     ($/mcf) (4)                                   $5.89             $6.34
    Average Realized Price without
     Hedging Results - Liquids ($/bbl) (4)        $48.45            $58.59
    Average Realized Price without
     Hedging Results - Gas Equivalent
     ($/mcfe) (4)                                  $6.17             $7.48

    Average Realized Price with Hedging
     Results - Natural Gas ($/mcf) (4)             $5.71             $4.19
    Average Realized Price with Hedging
     Results - Liquids ($/bbl) (4)                $41.70            $32.78
    Average Realized Price with Hedging
     Results - Gas Equivalent ($/mcfe) (4)         $5.87             $4.61

    E&P Lifting Costs ($/mcfe) (4, 5, 6)           $1.37             $1.11
    E&P DD&A Rate ($/mcfe) (4, 5)                  $1.70             $1.66

    VPP Volumes Delivered (Bcf) (7)                  0.0              13.5
    VPP Net Revenue - Pre-tax ($mm) (7)               $0               $60
    VPP Net Revenue - After-tax ($mm) (7)             $0               $37

    Average PJM West Price (7x24)
     ($/MWh)                                      $58.56            $56.94
    Average Mass Hub/New Eng. Price
     (7x24) ($/MWh)                               $62.06            $58.82

    Quarterly Common Dividend Rate
     ($/share)                                     $0.71             $0.69


    1)  Earnings have been recast to exclude income and losses from
        discontinued operations.
    2)  After-tax impact on utility base revenue.
    3)  Includes Dominion Transmission, excludes VPPs.
    4)  Dominion E&P Only.
    5)  E&P Lifting Cost and DD&A unit rates have been recast to exclude
        Canadian operations.
    6)  Includes transportation expense and BI insurance policy costs, net
        of VPP exchange and PHA fees received.
    7)  3Q07 actual VPP volumes and revenues reflect the discontinuation of
        the original VPP agreements on May 31, 2007.



  Schedule 5 - Reconciliation of 2007 Earnings to 2006

  Preliminary, unaudited                              Three Months Ended
  (millions, except EPS)                                September 30,
                                                        2007 vs. 2006
                                                     Increase / (Decrease)
  Reconciling Items                                 Amount             EPS

  Dominion Delivery
      Regulated electric sales:
        Weather                                      ($1)            $0.00
        Customer growth                                3              0.01
      Regulated gas sales - weather                   (1)             0.00
      Major storm damage and service
       restoration                                     7              0.02
      Bad debt reserve                                (4)            (0.01)
      Other                                           (8)            (0.03)
      Share Accretion                                 ---             0.02
      Change in contribution to
       operating earnings                            ($4)            $0.01

  Dominion Energy
      Producer services                             ($25)           ($0.07)
      Gas Transmission operations                    (13)            (0.04)
      Electric Transmission operations                (1)             0.00
      Other                                           (2)            (0.01)
      Share Accretion                                 ---             0.02
      Change in contribution to
       operating earnings                           ($41)           ($0.10)

  Dominion Generation
      Regulated electric sales:
        Weather                                      ($2)           ($0.01)
        Customer growth                                7              0.02
      Virginia fuel expenses                         165              0.47
      Merchant generation margin                      48              0.14
      Sales of emissions allowances                  (28)            (0.08)
      Ancillary service revenues                      10              0.03
      Energy supply margin                            (8)            (0.02)
      Interest expense                                (6)            (0.02)
      Outage costs                                    (5)            (0.01)
      Salary, wages and benefits expense              (4)            (0.01)
      Other                                          (27)            (0.08)
      Share Accretion                                 ---             0.12
      Change in contribution to
       operating earnings                           $150             $0.55

  Dominion E&P
      Gas and Oil - production                     ($377)           ($1.07)
      Gas and Oil - prices                           159              0.45
      Operations and maintenance:
        SFAS133 - M2M/Hedge Ineffectiveness          (32)            (0.09)
        Other O&M                                     60              0.17
      DD&A                                            78              0.22
      Interest Expense                                10              0.03
      Business Interruption Insurance               (171)            (0.48)
      Other                                           14              0.04
      Share Accretion                                 ---             0.01
      Change in contribution to
       operating earnings                          ($259)           ($0.72)

  Corporate
      Change in contribution to
       operating earnings                            $41             $0.10

  Change in consolidated operating earnings        ($113)           ($0.16)

  Change in items excluded from
   operating earnings (1)                         $1,776             $5.55

  Change in net income (GAAP earnings)            $1,663             $5.39

  (1) Refer to schedules 2 and 3 for details of items excluded from
      operating earnings, or find "GAAP Reconciliation" on Dominion's Web
      site at http://www.dom.com/investors.

SOURCE: Dominion

CONTACT: Media: Mark Lazenby, +1-804-819-2042, Mark.Lazenby@dom.com, or
Ryan Frazier, +1-804-819-2521, C.Ryan.Frazier@dom.com, or Analysts: Greg
Snyder, +1-804-819-2383, James.Gregory.Snyder@dom.com, or Laura Kottkamp,
+1-804-819-2254, Laura.E.Kottkamp@dom.com, all of Dominion

Web site: http://www.dom.com/


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