Dominion on Tuesday reported that the utility’s operating earnings for the second quarter of 2004 came in at $267 million, or 81 cents per share, beating the consensus analysts’ estimate carried on Wall Street by a penny, but lower than operating earnings of $271 million, or 86 cents per share, for the same period in 2003.

Meanwhile, in a separate announcement, Dominion said that it will raise its fourth quarter dividend payable Dec. 20, 2004, by two cents per share, increasing its current quarterly rate of 64.5 cents per share to 66.5 cents per share. This will be Dominion’s first dividend increase in ten years. 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 eight cent annual increases in Dominion’s dividend rate are appropriate.

“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,” said Thomas Capps, Dominion’s chairman.

“These results include a $23 million charge, or seven cents per share, for fuel expenses incurred during the first quarter but not recognizable until the second quarter and which are no longer recoverable,” Capps noted. “The second quarter was also affected by a negative two 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.”

Capps also said that the company’s 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 year-to-date results, Dominion is reaffirming its 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,” said Capps.

In providing operating earnings guidance, Dominion management is aware of potential differences between 2004 operating earnings and Generally Accepted Accounting Principles (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.

The utility said that net income prepared in accordance with GAAP for the most recent second quarter was $251 million, or 76 cents per share, compared to net income of $240 million, or 76 cents per share, for the same period last year.

Looking at specific operating segments, 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.

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.