Dominion Resources reported net income of $337 million ($1.02 per share) for the third quarter, compared to a net loss of $256 million (79 cents per share) during the same quarter last year, but the company’s operating earnings missed Wall Street estimates and Dominion lowered its earnings guidance in part because of a fuel-cost freeze in its electric utility service territory.

Operating earnings, which exclude one-time special items, came in at $400 million ($1.21 per share) compared to $430 million ($1.33 per share) during the third quarter last year. They missed Wall Street estimates of $1.32/share.

“We faced major third-quarter challenges including a mild summer in our electric franchise service area and natural gas and oil production delays resulting from Hurricane Ivan. Additionally, our clearinghouse operations performed below expectations due in part to timing on certain hedge positions,” said CEO Thomas Capps.

The impact of Hurricane Ivan on production operations, including the damaged Devils Tower platform, reduced earnings by an estimated 5 cents/share. Milder than normal weather cut another 3 cents/share, the company reported. And hedge accounting treatment related to certain clearinghouse positions, including natural gas storage and transportation positions, resulted in the loss of another 5 cents/share.

“Weather has always presented Dominion’s greatest earnings sensitivity,” Capps noted. “In the third quarter, we not only withstood the effect of a Category 4 hurricane passing directly through the heart of our Gulf of Mexico operations, we also felt the impact of mild temperatures on electricity sales. In consideration of these third-quarter impacts, we now expect to deliver full-year 2004 earnings in the range of $4.68 to $4.75 per share. And, in consideration of lower expectations from the clearinghouse, we are revising our 2005 earnings guidance to $5.00 to $5.20 per share. We expect 5-7% annual earnings growth thereafter.”

Another major factor affecting 2004 earnings guidance is Dominion’s Virginia utility subsidiary’s frozen fuel factor, which became law in April. “As a result, we’re managing our integrated model this year with more hedges on natural gas than needed to realize our optimal earnings power under the new law,” Capps said. “This leaves us little or no room to maneuver. We expect it to cost us about 35 cents per share this year, but next year’s a new ballgame.”

Dominion Generation earned $193 million (58 cents/share) compared to $221 million (68 cents) in the third quarter of 2003. The decrease was primarily attributed to generation fuel expenses that are no longer recoverable under amended deregulation legislation in Virginia and to milder weather, partially offset by lower purchased power capacity expenses, customer growth and the absence of certain items recognized in 2003.

Dominion Delivery earned $95 million (29 cents) compared to $92 million (28 cents) in the third quarter of 2003. Dominion Energy earnings fell 57% to $33 million (10 cents) because of hedges on gas production and lower electric transmission margins, partially offset by higher contributions from the Cove Point liquefied natural gas facility.

Dominion E&P earned $139 million (42 cents) compared to $98 million (30 cents) in the third quarter of 2003. The increase was a result of a combination of factors, including revenue recognized from the delivery of reserves sold under volumetric production payment agreements (net of related lower production volumes), higher average realized prices, and the positive impact of marking-to-market certain call options under SFAS 133, partially offset by higher lifting costs and a higher depreciation, depletion and amortization rate.

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