Dominion Announces Second-Quarter Earnings

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

July 27, 2004

RICHMOND, Va. - Dominion (NYSE: D) announced today net income prepared in accordance with Generally Accepted Accounting Principles (GAAP) for the three months ended June 30, 2004, of $251 million (76 cents per share) compared to net income of $240 million (76 cents per share) for the same period last year.

Operating earnings, which are defined as GAAP earnings adjusted for certain items, were $267 million (81 cents per share) for the three months ended June 30, 2004, compared to operating earnings of $271 million (86 cents per share) for the same period in 2003.

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, reporting to the Board of Directors and for the company’s profit sharing plan. Dominion management believes operating earnings provide a more meaningful representation of the company’s fundamental earnings power. A detailed description of the items included in 2004 and 2003 GAAP earnings but excluded from operating earnings can be found at the end of this press release or by visiting our Web site at www.dom.com/investors.

Thos. E. Capps, chairman and chief executive officer, said:

“Our second quarter results are at the top end of our guidance and demonstrate the strength of the integrated model following the amendment to the deregulation law in Virginia.

“These results include a $23 million charge, or 7-cents per share, for fuel expenses incurred during the first quarter but not recognizable until the second quarter and which are no longer recoverable. The second quarter was also affected by a negative 2-cent per share mark-to-market impact related to our corporate hedge on future 2004 natural gas production, an effect that will reverse over the balance of the year.

“But importantly, our second quarter performance demonstrates in reality the true nature of the integrated model as discussed at our analyst meeting of May 6. A combination of warmer than normal weather, generation station outages and higher than planned commodity prices negatively affected our fuel expense. However, higher base rate sales driven by warmer weather and increased revenue on unhedged volumes at E&P offset those negative effects. The dynamic relationship between commodity price drivers across our businesses is performing as expected, if not better.

“Based on solid year-to-date results, we are reaffirming our full-year 2004 earnings guidance of $4.75 to $4.90 per share. We have an equally positive outlook on balance sheet strength, liquidity and cash flow.

“Dominion is announcing today that it will increase the common stock dividend by 2-cents per share in the fourth quarter of 2004 to 66.5 cents per share. For dividends payable in 2005, the quarterly rate will rise again from 66.5 cents per share to 67 cents per share for an annual rate in 2005 of $2.68 per share.

“Under current financial projections, the company believes that additional 8-cent annual increases in Dominion’s dividend rate are appropriate.” Common stock dividends are declared on a quarterly basis by the board of directors.

In providing operating earnings guidance, Dominion management is aware of potential differences between 2004 operating earnings and GAAP-earnings. In addition to differences recorded through the second quarter, Dominion expects to recognize an after-tax charge of $90 million to $110 million related to the pending acquisition of non-utility generation assets, expected to close in the fourth quarter. Until the acquisitions are complete, Dominion management is not able to provide a corresponding GAAP equivalent for 2004 operating earnings per share guidance.
 

Earnings breakdown by operating segment

Dominion Delivery earned $96 million (29 cents per share) in the second quarter of 2004 compared to $70 million (22 cents per share) in the second quarter of 2003. The increase is primarily attributable to warmer weather in the electric franchise area, customer growth and other margins.

Dominion Energy earned $30 million (9 cents per share) in the second quarter of 2004 compared to $58 million (18 cents per share) in the second quarter of 2003. The decrease is primarily attributable to Dominion Energy Clearinghouse, the net effect of corporate hedges on natural gas production and lower electric transmission margins, partially offset by higher contributions from the Cove Point liquefied natural gas facility.

Dominion Generation earned $45 million (14 cents per share) in the second quarter of 2004 compared to $113 million (36 cents per share) in the second quarter of 2003. The decrease is primarily attributable to electric generation fuel expenses no longer recoverable under amended deregulation legislation, and a lower contribution from Millstone Power Station, partially offset by warmer weather, lower purchased power capacity expenses and customer growth, all in the electric franchise area.

Dominion E&P earned $163 million (50 cents per share) in the second quarter of 2004 compared to $95 million (30 cents per share) in the second quarter of 2003. The increase is primarily attributable to revenue recognized from the delivery of reserves sold under volumetric production payment agreements (net of related lower production volumes), higher average realized oil prices, and reduced operation and maintenance and tax expenses, partially offset by a higher depreciation, depletion and amortization rate.

The impact of the corporate segment on second quarter 2004 GAAP earnings was negative $83 million (26 cents per share) compared to negative $96 million (30 cents per share) in the second quarter of 2003. The corporate operating earnings impact was negative $67 million (21 cents per share) compared to negative $65 million (20 cents per share) in the second quarter of 2003. A detailed description of the items included in 2004 and 2003 GAAP earnings but excluded from operating earnings can be found at the end of this press release or by visiting our Web site at www.dom.com/investors.
 

September 14 analyst meeting

Dominion will host an analyst meeting on September 14 in New York, where management will discuss the company’s natural gas and oil exploration and production business and the role this business plays in Dominion’s integrated model. Individuals interested in attending should visit www.dom.com/investors/rsvp.jsp or contact investor relations at (804) 819-2155. For those not able to attend, the analyst meeting will be webcast.
 

Conference call for investors / media

Dominion will host a conference call today at 10 a.m. EDT to discuss second-quarter 2004 results and other issues of interest to investors.

Domestic investors who wish to participate in the conference call should dial 888-243-3836. International investors should call 973-935-2096. 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 web cast of the conference call will be available on the company’s investor information page at www.dom.com/investors.

A replay of the conference call will be available from approximately 11 a.m. EDT July 27 until 11 p.m. EDT August 3. Domestic investors may access the recording by dialing 877-519-4471. International callers should dial 973-341-3080 to access the recording. The PIN for the conference call replay is 4957044. Additionally, a replay of the webcast will be available on the company’s investor information page by the end of the day July 27.

Dominion is one of the nation's largest producers of energy, with an energy portfolio of about 25,500 megawatts of generation, 6.4 trillion cubic feet equivalent of proved natural gas reserves and 7,900 miles of natural gas transmission pipeline. Dominion also operates the nation's largest underground natural gas storage system with more than 960 billion cubic feet of storage capacity and serves about 5 million retail energy customers in nine states. For more information about Dominion, visit the company's Web site at www.dom.com.

This release contains forward-looking statements including our expectations for future dividends, 2004 and 2005 earnings and for future annual growth rates that are subject to various risks and uncertainties and, in the case of dividends, board approval. Discussion of 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 estimates of future market conditions, estimates of proved and unproved reserves and the behavior of other market participants. Other factors include, but are not limited to, weather conditions, governmental regulations, economic conditions in the company's service area, fluctuations in energy-related commodity prices, including changes in the cost of fuel for our regulated electric business, risks related to operating businesses in regulated industries that are becoming deregulated, the transfer of control over electric transmission facilities to a regional transmission organization, 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.

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CONTACTS:    
Media: Mark Lazenby, 804-819-2042  
     
Analysts: Joe O'Hare, 804-819-2156