Dominion Resources (NYSE: D) reported its second consecutive quarterly loss on Friday, posting a fourth-quarter loss of $0.40 per share but eking out $1.12 per share in profit for all of 2003 (down 76% from 2002).
The diversified energy utility was widely criticized for its handling of repairs and power restoration to customers in the days following Hurricane Isabel's visit to North Carolina and Virginia in Sept. 2003. In all fairness, however, other affected utilities in the area, including Pepco (NYSE: POM) and Constellation Energy (NYSE: CEG) subsidiary BG&E, also failed to turn in stellar performances.
Still, between the damage incurred from the storm, the expense of hiring out-of-state repair crews to assist in power restoration, and the energy sales lost during power outages (lasting, in some cases, more than a week), Friday's results must have felt like added injury to the insults the company suffered in Isabel's aftermath.
Dominion's challenge in the months ahead will be to reverse these losses and make good on its promises to increase operating earnings by 7% to 8% in 2004 and 5% in 2005. Management has declined to provide 2004 earnings guidance, citing difficulties with predicting how discontinuing its telecom business' operations should be reflected under generally accepted accounting principles (GAAP).
Dominion may be hard-pressed to meet these targets, however, if its customers begin to leave the company for alternative energy suppliers under Virginia's new "Energy Choice" program. Energy Choice allows Dominion customers to switch to lower-cost suppliers, while still having Dominion serve as their energy distributor.
The program will ultimately free Dominion from state-imposed rate caps after 2007, theoretically allowing the company to raise prices and perhaps increase its margins -- if competition permits. But in the meantime, Dominion may lose customers and profits. Dominion derives 57% of its revenues from its energy supply unit; distribution services contribute less than half that amount.
Despite the risks, it may be worth waiting to see if Dominion can weather the coming deregulation storm better than it did Isabel. The potential for decent capital appreciation still exists, and in the meantime, Dominion shareholders can enjoy the company's healthy 4.1% dividend.
Looking for other dividend-rich, income-producing companies? Check out Motley Fool Income Investor.
Rich Smith
experiences some schadenfreude when misfortune strikes a company that left him without power for days, condemning him to a fruitless search of area supermarkets for dry ice. On the other hand, he suspects his electric bills may begin rising as the company attempts to make good its losses. Either way, he owns no shares in any of the companies discussed in this article. The Fool has a
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