Mark McGettrick - Chief Financial Officer and Executive Vice President Thomas Hamlin - Thomas Farrell - Executive Chairman, Chief Executive Officer, President, Chairman of Virginia Electric & Power Company, Chief Executive Officer of Dominion Energy and Chief Executive Officer of Virginia Electric

Anthony Crowdell - Jefferies & Company, Inc. Paul Patterson - Glenrock Associates Rudolph Tolentino - Morgan Stanley Unknown Analyst - Neil Mehta - Goldman Sachs Group Inc.

Good morning, and welcome to Dominion's First Quarter Earnings Conference Call. On the call today, we have Tom Farrell, CEO, and other members of senior management. [Operator Instructions] I would now like to turn the conference over to Tom Hamlin, Vice President of Investor Relations for Safe Harbor statement.

Thank you. Good morning, and welcome to Dominion's first quarter 2011 earnings conference call. During this call, we will refer to certain schedules, including in this morning's earnings release and pages from our earnings release kit. Schedules in the earnings release kit are intended to answer the more detailed questions pertaining to operating statistics and accounting. Investor Relations will be available after the call for any clarification of these schedules. If you have not done so, I encourage you to visit our website, register for email alerts and view our first quarter 2011 earnings document. Our website address is www.dom.com/investors. In addition to the earnings release kit, we have included a slide presentation on our website that will guide this morning's discussions. And now for the usual cautionary language. The earnings release and other matters that will be discussed on the call today may contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly report on Form 10-Q for a discussion of factors that may cause results to differ from management's projections, forecasts, estimates and expectations. Also, on this call, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Those measures include our first quarter operating earnings and our operating earnings guidance for the second quarter and full year 2011, as well as operating earnings before interest and tax, commonly referred to as EBIT. Reconciliation of such measures to the most directly comparable GAAP financial measures we are able to calculate and report, are contained in our earnings release kit. Joining us on the call this morning are our CEO, Tom Farrell; our CFO, Mark McGettrick; and other members of our management team. Mark will begin with a discussion of the earnings results for the first quarter, as well as our guidance for the second quarter. He will also discuss our financing activity and provide an update on our hedge positions. Tom will discuss our operating and regulatory activities, and we will then take your questions. I will now turn the call over to Mark McGettrick.

Good morning, everyone. Thank you for joining us. Dominion had a very strong first quarter. Operating earnings were $0.93 per share, which was in the upper half of our guidance range of $0.85 to $0.95 per share. All of our businesses performed very well. GAAP earnings were $0.82 per share for the first quarter. The principal differences between GAAP and operating earnings for the quarter was a write-off of the remaining book value of our State Line Power Station and the impact of our decision to remove the financial results of our Kewaunee Nuclear power station from operating earnings based on our plans to sell the unit. This is the same treatment we used when selling Peoples Gas last year. Tom Farrel will discuss the strategic rationale for selling Kewaunee in a few minutes. Regarding State Line, remember that last year, we wrote down the value of this asset after the 1-hour SO2 rules were finalized by the EPA, shortening its expected life to the end of 2017, because we would not be installing control equipment at the site. In light of the recently proposed Air Toxics Rule by the EPA, we have elected not to bid the capacity of State Line into the upcoming PJM Capacity Auction for the 2014 to 2015 planning period. This decision triggered an impairment test for State Line and as a result, we have written off the remaining book value of the plant. Under current market conditions, we will be retiring the plant no later than the middle of 2014. A summary and a reconciliation of GAAP to operating earnings can be found on Schedules 2 and 3 of the earnings release kit. Now moving to results by operating segment. At Dominion Virginia Power, EBIT for the first quarter was $290 million, exceeding the top of our guidance range. While the regulated business results were in line with guidance, Dominion Retail produced better-than-expected results due to higher gross margins and an increase in customers. EBIT for Dominion Energy was $291 million, near the midpoint of our guidance range. Results from gas transmission, gas distribution and producer services were all in line with our expectations. Dominion Generation produced EBIT of $535 million for the first quarter, exceeding the high end of our guidance range. As expected, earnings from our Merchant Generation business were down from last year, but came in at the top of our guidance range due to stronger-than-expected market prices. EBIT for the regulated generation fleet came in above our guidance range, primarily due to higher-than-expected PJM ancillary revenues. Overall, we are very pleased with all of our operating segment results. Moving to cash flow and treasury activities. On our last call, we outlined our financing plans for this year, including debt issuances of $2.2 billion to $2.7 billion. We completed a significant portion of that need last month, with a 2-part offering at Dominion totaling $900 million. We issued $500 million of 10-year bonds at an effective interest rate of 4.48%, equivalent to 105-basis-point spread to treasuries, and $400 million of 3-year notes that were swapped to a floating rate equivalent of 4 basis points above LIBOR. We have recently updated our financing plans for 2011, and plan to issue an additional $1.2 billion to $1.5 billion of debt during the remainder of this year. To take advantage of the current interest-rate environment, we have hedged $500 million of that debt need. As a reminder, we do not plan to issue any new net common stock in 2011 and do not plan any public offerings in 2012. Depending on our cash needs and credit metrics, we may elect to issue new shares under our dividend reinvestment program and other internal plans in 2012. Liquidity at the end of the quarter was $2.67 billion. For statements of cash flow and liquidity, please see Pages 16 and 43 of the earnings release kit. On our last call, we estimated that bonus depreciation would provide between $1.6 billion and $2.5 billion of cash benefit from 2010 to 2013 and that we would be able to narrow that range upon clarification of certain rules by the IRS. We have been given some additional guidance and we now believe that proceeds from bonus depreciation will be close to $2 billion. To offset the impact of bonus depreciation on our earnings, we announced a plan to repurchase between $400 million and $700 million in common stock during the year. We have updated our estimates and can now narrow that range to $600 million to $700 million. Through the end of the first quarter, we have repurchased approximately 6 million shares at a cost of $274 million. Now to earnings guidance. Our operating earnings guidance for 2011 is unchanged at $3 to $3.30 per share. We are continuing to expect annual earnings per share growth of 5% to 6% beginning in 2012. For the second quarter of 2011, Dominion expects operating earnings in the range of $0.50 to $0.60 per share compared to operating earnings of $0.72 per share in the second quarter of 2010. Several factors account for the expected difference. We experienced very favorable weather in the second quarter of 2010 that added $0.06 per share to earnings. Also in last year's second quarter, we monetized several pre-issuance hedges that have been executed in anticipation of planned debt financing that became unnecessary due to a strong cash position. The resulting reduction in interest expense added $0.03 per share to last year's second quarter results. The E&P business contributed $0.01 per share in the second quarter of last year and Kewaunee also added $0.01 per share. Other negative factors affecting second quarter 2011 earnings compared to the last year include a higher effective income tax rate and lower margins from our merchant generation portfolio. Factors offsetting these negatives include a lower share count and higher rider-related revenues. GAAP earnings for the second quarter of 2010 can be found on Page 40 of the earnings release kit. As to hedging, you can find the update of our hedge positions on Page 33 of our earnings release kit. Included in the update is the first disclosure of our hedges for 2013. With our power sales contract with Kincaid ending in February 2013, we have begun hedging the output for that plant. We have added hedges for Millstone in 2013, but have left the 2012 position unchanged from last quarter. Our New England Coal units remain unhedged for 2012 and 2013, reflecting the low dark spreads currently available in that market. Our consolidated sensitivity in 2011 to a $5 change in New England power prices is now less than $0.02 per share. Our sensitivity for 2012 is still only $0.05 per share. You should note that we are seeing an uplift in New England power prices as our average hedge price for 2013 is now over 2% above 2012. Also as Slide 11 indicates, market power prices for 2014 and 2015 are currently up 9% and 15%, respectively, over 2012. This validates our view that the trough in earnings from our Merchant Generation business will be in 2011 and 2012. So let me summarize my financial review. Earnings for the first quarter of this year were very strong and near the top of our guidance range. Operating results of each of our 3 business units either met or exceeded our guidance. We have completed nearly half of our debt financing needs for the year and have locked in attractive interest rates for a large portion of our remaining needs. Bonus depreciation will provide about $2 billion of cash benefit through 2013, and we plan to repurchase between $600 million and $700 million of common stock during 2011, $274 million of which has been completed. Our operating earnings guidance for 2011 remains at $3 to $3.30 per share. Second quarter operating guidance is $0.50 to $0.60 per share. And finally, New England power prices in 2013, '14 and '15 show an encouraging trend that should help support our earnings growth targets going forward. I will now turn the call over to Tom Farrell.

Good morning. I have a number of topics to cover today. As you know, Dominion is making significant demand-driven investments in all of our regulated lines of business. These investments support our goal of growing our operating earnings per share by 5% to 6% beginning next year and driving a minimum of 65% to 75% of those earnings from our regulated businesses. As we have said in the past, we do not plan to invest new growth capital into our Merchant Generation business and would look over time to optimize the value of that portfolio. The principal sources of income from our merchant generation fleet are our New England baseload plants. It is in that context that I want to discuss our decision to pursue the sale of our Kewaunee Nuclear power station. Dominion purchased Kewaunee in July 2005. Over the nearly 6 years of our ownership, we have returned the operations and safety performance at Kewaunee to among the best in the industry. Kewaunee was the first nuclear plant in the Midwest to be sold by its original owners and the beginning of a series of transactions by other single nuclear plant operators in that region. When we purchased Kewaunee, it was part of a strategic plan to acquire 1 or more of these other units and build a business around that portfolio. While we were correct in believing that other plants would become available, we were unsuccessful in winning the respective auctions for those plants. Without the other units, the strategic rationale for continuing to own Kewaunee was diminished, and we believe it is time to pursue a sale of the plant. Unlike the rest of our Midwest Generation fleet, Kewaunee is part of the MISO Interconnection, not PJM. We believe that baseload generation, especially nuclear in Wisconsin has long-term value and are confident, we will find a buyer for the unit. Kewaunee has been operated under a cost-of-service contract that is set to expire in December 2013, which was the expiration date of the original operating license. A 20-year license extension was granted by the NERC in February, and we have been in discussions about a new power sales contract, but nothing has been finalized. Mark also mentioned our decision not to bid the capacity of our State Line Power Station into the upcoming PJM Capacity Auction and we will be retiring the plant no later than the middle of 2014. This reflects our decision not to invest in new environmental control equipment at the plant. Moving to the tax situation in Connecticut. As many of you are aware, the tax proposal passed by the Energy and Technology Committee of the Connecticut General Assembly would have imposed a significant financial burden on our Millstone Power Station. Last week, the joint finance committee of the legislature, with the support of Governor Malloy, adopted a more reasonable tax proposal as part of their efforts to close their budget deficit. Under this proposal, the state would impose a $2.50 per megawatt hour tax on all traditional power generators located in Connecticut beginning July 1 of this year. The tax will automatically sunset on June 30, 2013. The proposed tax would cost Dominion about $24 million on an after-tax annualized basis. Under this proposal, there would be no change in our earnings guidance range for 2011 or our projected earnings growth rate. On the regulated side of our business, we made significant progress on our growth plan during the first quarter. The Bear Garden Power Station is virtually complete and undergoing final testing. It should become commercial next month. Virginia City Hybrid Energy Center was 84% complete at the end of the first quarter and is on plan to be in commercial operation next summer. We are also in the process of securing an EPC contract for our next major generating project of 1,300-megawatt combined cycle plant in Warren County, Virginia. We expect to file for a CPCN and rate rider with the State Corporation Commission on May 2, and if approved, begin construction next spring. We have discussed the impact of EPA's proposed rules on our merchant generating fleet. We have previously estimated the cost to comply with these new regulations at about $2 billion over the next 5 years for our regulated fleet, and we see no basis to change that estimate at this time. We are evaluating the various compliance options, including installing control equipment, replacing some of our existing generation with new gas-fired facilities, adding additional transmission capacity or some combination of all 3. We plan to discuss our full compliance strategy in September when we file our integrated resource plan with our regulators. As part of our plan, we have announced a proposal to convert 3 coal units in Virginia to 50-megawatt plants that burn waste wood. These seldom-used power stations will operate at a higher capacity factor, with this lower-cost fuel. Each conversion is expected to cost between $40 million and $50 million and are expected to be completed by the end of 2013. We will file for SCC approval of these projects in late June. There's a lot of activity around our generator facilities and we believe we are well-positioned to meet the challenges. As to our Electric Transmission business, I'm pleased to announce that the 500 kV Meadow Brook-to-Loudoun transmission line was energized earlier this month, within budget and ahead of schedule. The Carson-to-Suffolk line is nearly complete and is expected to be energized in June. Work has began on the West Virginia portion of our next major transmission project, the rebuild of the Mt. Storm-to-Doubs line. A hearing before the State Corporation Commission on the Virginia portion of the line is scheduled for June 20. Our Electric Transmission Project pipeline contains over 40 projects, totaling about $500 million per year, for at least each of the next 5 years. The upgrade of our transmission system is a key component of our infrastructure growth plan. The growth program at our Natural Gas business continues to move forward as well. The Cove Point Pier Expansion project was placed into service in January, within budget and ahead of schedule. Our $634 million Appalachian Gateway Project received its environmental assessment from FERC on March 31, and we anticipate FERC approval for the project this quarter. Construction should begin this summer, and the project should be in service by September 2012. We have recently made progress on 3 new Marcellus-related projects, which will help us meet Dominion Energy's 5-year growth goals. First, we concluded an open season on a new Marcellus-related project, which we call the Tioga Area Expansion Project. We have signed 2 precedent agreements to provide 270,000 decatherms per day of firm transportation service to move new Marcellus shale volumes. Projected in-service date is November 2013. Second, precedent agreements for a new Marcellus-related storage project were finalized in February. The Allegheny Storage Project provides for 7.5 Bcf of storage and 125,000 decatherms per day of year-round firm transportation service to 3 LDCs, beginning in 2014. Finally, Dominion East Ohio and Chesapeake Energy entered into a Letter of Intent in March related to Chesapeake's activities in the Utica Shale formation. Under the proposal, Dominion will build several gathering systems between Chesapeake Shale wells and our existing pipeline system. Dominion and Chesapeake will be working on definitive agreements to further define gathering and transportation business terms. Also in East Ohio, the company filed a request with the Public Utilities Commission to accelerate the previously approved 25-year, $2.7 billion bare steel pipe replacement program. The company has proposed to nearly double its spending to more than $200 million per year. I will now turn to operating results for the quarter, beginning with safety. We continue to work toward our goal of 0 injuries to our employees. During the first quarter, our Fossil & Hydro and Nuclear business units operated without a single OSHA recordable incident. We do not believe that, that has ever happened in our company's 100-year history. In fact, through the first quarter, our Nuclear business unit has operated over 15.2 million man-hours without a lost time accident. Gas transmission finished the first quarter with its best overall safety performance since 2006. At our Electric Distribution and Transmission business, OSHA recordable and lost time and restricted duty incidents remained near historic lows. Moving to operations, our generating plants performed well in the first quarter. Availability at our Fossil & Hydro fleet has been better than targets, particularly the utility large coal fleet, which achieved its best-on-record forced outage rate. In addition, the Nuclear fleet achieved a net capacity factor of 99.3%, excluding refueling outages. 2 weeks ago, a tornado touched down near the transmission switch yard at our Surry Nuclear Power Station, taking out much of the infrastructure connecting Surry to the grid. Both units were operating at the time and were shut down safely. Emergency diesel generators provided power to the plant until off-site power could be restored. Storm caused significant damage to the local area, and we have restored service to all affected customers. Surry Unit 1 was returned to service this past weekend and Surry Unit 2 has begun its scheduled refueling. Economic growth continues to drive improving results for Virginia Power. Projected demand growth in Dominion's serviced territory is the highest in the 13-state PJM region. Unemployment in Virginia is down to 6.3%, well below the national average, and is below 5% in Northern Virginia. Two very large public works projects in Northern Virginia, the Metro Silver Line and the Dulles Airport expansion continue on schedule and will drive significant economic and load growth activity. Last month, the Federal Aviation Administration raised the height limitation for buildings in Virginia Beach, which we believe, over the long term, will lead to a significant revitalization of the region and new load growth. Several new data centers have been put into service or are nearing completion. Our data center load, which was 295 megawatts at the beginning of the year is expected to grow to 370 megawatts by the end of the year and 532 megawatts by the end of next year. Finally, let me discuss our biennial review and our upcoming fuel filling. As many of you know, the first biennial review under Virginia's reregulation statute takes place this year. We submitted our filing on March 31 and the SCC must issue an order by the end of November. Our filing demonstrates that our earnings governed by base rates for 2009 and 2010 were within the 100-basis-point approved range of 11.4% to 12.4%. Testimony from intervenors is due in July, and from the staff, in August, with hearing schedule to begin on September 20. Virginia law allows the SCC to revise the return on equity to be used in future regulatory proceedings. Although, the governing criteria such as the use of a peer-group average of earned return and the inclusion of premiums for operating performance and meeting renewable energy targets still apply. Our base rates cannot be changed as a result of this review. Next week, we will be filing our annual fuel factor update for Virginia Power. Due to the very hot weather last summer and other factors, our existing fuel rate has under-recovered our fuel cost over the current fuel period. In order to mitigate the impact on our customers, we will be proposing to spread the recovery of the deferred fuel balance over a 2-year period, reducing the increase to customer rates. We have a commitment to our customers to provide reliable service, meet growing demand and keep our rates very competitive. We believe that spreading the fuel cost over a longer period is in the best interest of our customers. Even with this proposed increase, Virginia Power's rates will remain among the lowest in the Southeast and more than 10% below the national average. The details of our filing will be available when it is submitted to the Commission next week. So to conclude, Dominion is off to a very good start in 2011. First quarter earnings were in the upper half of our guidance range. We continue to improve our safety performance, which is already in the top tier in our industry, all 3 of our business units performed well and delivered results that met or exceeded our expectations. We continue to move forward with our infrastructure-growth plans, completing several major projects and beginning several more. Thank you. And we are now ready for your questions.

[Operator Instructions] Our first question comes from Paul Patterson with Glenrock Associates. Paul Patterson - Glenrock Associates: I just wanted to touch base with you regarding the earnings impact from Kewaunee. I wasn't completely clear on that.

Paul, this is Mark. The earnings impact in the first quarter was about $20 million after tax, because we had a rescheduled -- a refueling outage, excuse me, at Kewaunee in the quarter. And for the rest of the year, although, it's difficult to estimate specifically, we would expect any earnings impact to be immaterial for Kewaunee. Paul Patterson - Glenrock Associates: Okay. So going forward, we shouldn't expect that much coming from this result [ph]?

That's correct. Paul Patterson - Glenrock Associates: Okay. That's all I have.

Our next question comes from Neil Mehta with Goldman Sachs. Neil Mehta - Goldman Sachs Group Inc.: First, on weather-normal trends for demand on the quarter, what are you seeing by customer class residential, industrial and commercial?

On weather-normalized basis, we saw residential sales up 2.2%, commercial sales up 4%, which is significant. And if you recall, we said this year, our sales growth this year is going to be about 2.7% annually, driven in half of that by data centers. So we're starting to see some of those data centers come in, and so that produced 4% on commercial. Our industrial sales, which are a small piece of our business, are down 8%, and governmental is up, almost 4%. So overall, weather-normalized, we're up over 2% quarter-over-quarter, which is consistent with our projections. Neil Mehta - Goldman Sachs Group Inc.: And second question, it sounds like you guys think there's some upside to New England dark spreads, is that a function of your view on natural gas, coal? Or just the heat rates in the region?

Well, the heat rates have been extraordinarily strong in the first quarter and continue to be fairly strong. So we saw some upside in the first quarter. And thus far, you would -- we would expect some. In the second quarter, we'll see how long that lasts. But thus far, it's been heat-rate driven. Neil Mehta - Goldman Sachs Group Inc.: Got it. All right.

Our next question comes from Anthony Crowdell with Jefferies. Anthony Crowdell - Jefferies & Company, Inc.: The junior varsity squad's on another call so I'm just filling in here. With New England, you guys are talking about maybe dark spreads, and I want to know if you could give some color on rail cost for coal. I mean, the rail lines are stating that there is some price increases going through, and I wonder if you can give some color on maybe some market -- on where the market is, and also, maybe how long do you guys are hedged for your rail costs?

Well, in New England market it's not an issue for us at all, because we barge in or ship in all of our coal into the Northeast. In our other regulated contracts, we have long-term contracts on rail, some of which have fuel surcharges on them. But we don't give have any specifics out on a contract-by-contract basis. Anthony Crowdell - Jefferies & Company, Inc.: Are you seeing barge costs for shipping going down? We're hearing that there's been -- there's such a glut of available vessels to ship that it's really put downward pressure on delivery costs. Is that accurate or that's actually completely wrong?

Well, we haven't seen that yet, because most of our contracts are a little longer dated. We also have an ownership position in the ship ourselves. So we haven't seen that come to our -- or looked at that at this point.

[Operator Instructions] Our next question comes from Rudy Tolentino with Morgan Stanley. Rudolph Tolentino - Morgan Stanley: What I'm wondering is does the recent FERC MOPR decision impact how you approach future RPM auctions, given that now all the resources will be subject to the minimum MOPR price rule?

It doesn't change our view at all. Rudolph Tolentino - Morgan Stanley: With Warren County project, would that be subject to the MOPR rule?

No, we're not. This is not a constrained zone, so, we essentially bid in at 0. So that is not going to be impacted. Unknown Analyst -: Okay. Even if it's a new resource?

That would not be impacted. Rudolph Tolentino - Morgan Stanley: Okay. And then just out of curiosity, I guess, the capacity revenues, does that essentially flow through to the customer benefits?

I couldn't hear the question. I'm sorry, could you repeat it? Rudolph Tolentino - Morgan Stanley: For the Dominion -- for the Virginia customers, the capacity revenue essentially flows through to the customers?

Yes, it is.

Ladies and gentlemen, we have reached the conclusion of our call. Mr. McGettrick, do you have any closing comments?

Yes. Thank you. Just a quick reminder that we'll be filing our 10-Q tomorrow, and for the second quarter earnings release, we're currently scheduled for July 28. Thank you for your attention today.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines and enjoy your day.