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Dominion Misses Targets But Posts Higher Earnings

Dominion shares slipped Thursday morning after the company failed to meet its own fourth quarter earnings guidance and most analysts' estimates because of lower utility sales due to warmer-than-normal weather, unrecoverable utility fuel expenses, low contributions from unregulated wholesale operations and a delay in the purchase of the Kewaunee nuclear plant. However, operating earnings were still up 45% from 4Q2003 levels.

Dominion said it missed estimates because negative factors were greater than expected. For example, its exploration and production unit experienced longer than expected delays due to damage from Hurricane Ivan, and insurance proceeds came in slower than expected due to processing delays.

Dominion posted operating 4Q earnings before special items of $408 million ($1.22/share) compared to $274 million (84 cents/share) for the same period in 2003. Analysts had forecast earnings of $1.29/share and Dominion guidance was set at $1.29-$1.36/share.

For the full year, net income soared nearly 300% to $1.249 billion ($3.78/share) compared to $318 million ($1.00/share) for the same period last year. However, operating earnings for the year fell short of estimates and guidance, coming in at $1.523 billion, or $4.61/share, up about 5% from 2003. Analysts' estimates averaged $4.68/share and Dominion's own estimates were $4.80-$5.00/share. Operating earnings for 2003 were $1.449 billion, or $4.55/share.

The difference between guidance for the year and actual operating earnings was attributed to the effect of fuel expenses for power generation at Dominion Virginia Power and lower unregulated wholesale energy results (Clearinghouse), partially offset by the benefit of higher commodity prices and gains on oil options at Dominion E&P, the company said.

"2004 went very much the way we expected when it began with the exception of the under-recovery of Virginia fuel," said CEO Thomas Capps. "We firmly believe that the trade-off between a fixed fuel factor scheduled to be adjusted in mid-2007 and base rate certainty through 2010 will result in greater value to our shareholders."

The 5% increase in annual results was attributed to higher contributions from the 2,000 MW Millstone nuclear power plant in Waterford, CT, results from Dominion Retail, lower purchased power capacity expenses and higher revenue from E&P, partially offset by lower contributions from wholesale Clearinghouse activities, higher expenses at E&P and the impact of Virginia fuel expense, Dominion said.

As the company reported last month during a conference call, it has decided to exit proprietary trading and focus its unregulated Clearinghouse operations on management and optimization of company assets.

Dominion expects to produce first quarter 2005 operating earnings in the range of $1.35 to $1.45/share. This compares to $1.37/share in the first quarter 2004. The primary drivers include customer growth, net purchased power capacity expense savings, and contributions from E&P and the newly acquired Dominion New England assets, partially offset by the impact of Virginia fuel expenses and a return to normal weather.

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